Republic of the Philippines The RTC found that even before Jose purchased the 2,056 square
Supreme Court meters lot from Feliciano on February 7, 1991, he had already caused the survey
Manila
FIRST DIVISION
SPS. FEDERICO VALENZUELA
and LUZ BUENA-VALENZUELA
Petitioners,
- versus -
SPS. JOSE MANO, JR. and
ROSANNA REYES-MANO
Respondents.
x------------------------------------------------------------
-------x
DECISION
DEL CASTILLO, J.:
The rule that a Torrens Certificate of Title is conclusive evidence of ownership of
the land described therein[1] does not apply when such land, or a portion thereof,
was illegally or erroneously included in said title.
This Petition for Review on Certiorari[2] assails the Decision[3] dated January 16,
2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83577, which reversed and
set aside the Decision[4]dated March 10, 2004 issued by the Regional Trial Court
(RTC) of Bulacan, Branch 14, in Civil Case No. 1065-M-99. Also assailed is the
Resolution[5] dated May 3, 2006 denying the motion for reconsideration.
Factual Antecedents
Petitioner Federico Valenzuela (Federico) is the son of Andres Valenzuela
(Andres) who was the owner and possessor of a parcel of land with an area of
938 square meters, more or less, located at Dampol 1st, Pulilan, Bulacan. The
property was declared in the name of Andres under Declaration of Real Property
No. 7187[6] which described the property as follows:
st
Location: Dampol 1 , Pulilan, Bulacan
Boundaries:
North: Camino Provincial
East: Felisa Calderon
South: Aurea Caleon
West: Benita Bailon
Kind of Land: Residential Lot
Area: 938 square meters
Andres died on October 10, 1959, and the possession of said property was
transferred to Federico. On August 5, 1980, a document denominated
as Pagmamana sa Labas ng Hukuman at Pagpaparaya o Pagkakaloob[7] was
executed by the heirs of Andres who waived all their rights to the property in favor
of Federico.
Meanwhile, on February 7, 1991, a Deed of Conditional Sale[8] was
executed between Feliciano Geronimo (Feliciano) and herein respondent Jose
Mano, Jr. (Jose), wherein the former agreed to sell to the latter a 2,056-square
meter parcel of land located at Dampol 1st, Pulilan, Bulacan. The corresponding
Deed of Sale[9] was subsequently executed in March 1991.
On March 4, 1992,[10] Jose applied for a Free Patent and on April 10,
1992, Original Certificate of Title (OCT) No. P-351[11] was issued in his name. This
time, the property was indicated as covering an area of 2,739 square meters.
Sometime in 1997, Federico declared in his name under Tax
Declaration No. 97-19005-01105[12] the property covered by Declaration of Real
Property No. 7187 in the name of Andres.
Subsequently, Jose sold a portion of the land covered by OCT No. P-
351 to Roberto S. Balingcongan (Balingcongan). On January 8, 1998, Transfer
Certificate of Title (TCT) No. T-112865[13] was issued in the name of
Balingcongan covering 2,292 square meters. On the same date, TCT No. T-
112864[14] was also issued in the name of Jose covering 447 square meters.
./
Federico transferred his residence to Malabon and so he left the care
of the property to his nephew, Vicente Joson (Vicente). Sometime in 1999,
Federico instructed Vicente to construct a perimeter fence on his property but he
was prevented by Jose, claiming that the 447 square meters was his property as
reflected in his TCT No. T-112864. On the other hand, Federico is claiming it as
part of the property he inherited from his father, Andres.
When the matter could not be settled amicably, the petitioners lodged
a Complaint[15] for Annulment of Title and/or Reconveyance, Damages with the
RTC of Malolos, Bulacan. The case was set for pre-trial conference[16] on March
27, 2000. Thereafter, trial ensued.
Ruling of the Regional Trial Court
1
of a 2,739-square meter lot on January 30, 1991. The document of sale expressly
stated that the area sold was 2,056 square meters and that the same is located
in Dampol 1st, Pulilan, Bulacan. However, in March, 1991, Jose filed his
application for free patent using the survey on the 2,739 square meters. He also
G.R. No. 172611
indicated therein that the property is located in Dampol II, Pulilan, Bulacan and
that the land described and applied for is not claimed or occupied by any
person. He further claimed that the property was public land which was first
Present:
occupied and cultivated by Feliciano.
CORONA, C.Thus, J., Chairperson,
the trial court found that the preponderance of evidence
*
BRION,
showed that the disputed area of 447 square meters rightfully belongs to
DEL
Federico.
CASTILLO, This was a part of Lot No. 1306 originally owned and possessed by
*
ABAD,
Andres and
as identified and described in the Declaration of Real Property No. 7187.
PEREZ, JJ.
On March 10, 2004, the trial court rendered a Decision, the decretal
Promulgated:
portion of which reads:
July 9, 2010
WHEREFORE, judgment is hereby rendered
in favor of the plaintiffs and against the defendants, as
follows:
1. Ordering the defendants to return to the plaintiffs the
disputed portion consisting of 447 square meters and now
covered by TCT No. T-112864 of the Registry of Deeds of
Bulacan, in the name of Jose Mano, Jr. married to
Rosanna Reyes;
2. Ordering defendants to immediately demolish and/or
remove the concrete fence erected on the premises;
3. Ordering the defendants to pay plaintiffs the amounts
of P50,000.00 for moral damages; P30,000.00 for
exemplary damages and P50,000.00 for attorneys fees;
4. Ordering the Register of Deeds of Bulacan to cancel
said TCT No. T-112864 of the Registry of Deeds of
Bulacan;
5. Defendants to pay costs of this suit.
SO ORDERED.[17]
Ruling of the Court of Appeals
Respondents went to the CA on appeal. In a
Decision[18] dated January 16, 2006, the CA reversed and set aside the ruling of
the RTC and dismissed the complaint. According to the CA, respondents
satisfactorily proved their ownership over the disputed property. The Free Patent
No. 031418-92-463 and the TCT No. T-112864, as well as the tax declaration
offered in evidence by respondents are more convincing than the evidence
presented by the petitioners. Also, petitioners failed to prove by clear and
convincing evidence the fact of fraud allegedly committed by Jose in obtaining
title to the disputed property.
The Motion for Reconsideration filed by petitioners was denied by the CA through
its Resolution[19] dated May 3, 2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely abused its discretion when it
declared that petitioners were unable to prove ownership
of the disputed portion notwithstanding evidence
introduced and admitted.
II.
Whether the CA gravely abused its discretion, amounting
to lack of jurisdiction, when it reversed the decision of the
lower court finding fraud committed by the respondent in
obtaining title to the property in question.
Simply put, the issues raised are: (1) Did the CA err in holding that the
respondents are the owners of the disputed 447 square meter property? and (2)
Did the CA err in finding that no fraud was committed by the respondents in
obtaining title to the disputed property?
Petitioners Arguments
Petitioners argue that the CA erred in not holding that they are the rightful owners
as Federico inherited the property from his father Andres, who died on October
10, 1959. Jose purchased a parcel of land from Feliciano measuring only 2,056
square meters but his application for free patent indicated a lot with a total area of
2,739 square meters. Moreover, he indicated the same to be located at Dampol
II, Pulilan, Bulacan; however, it is actually located at Dampol 1st. He also declared
that the said property is not claimed or occupied by any person but the truth is that
the 447 square meters is owned and possessed by Federico.
Respondents Arguments
Respondents, on the other hand, contend that they have a better title to the
property. The certificate of title issued in their name is an absolute and
indefeasible evidence of ownership of the property. It is binding and conclusive
upon the whole world. There was also no proof or evidence presented to support
the alleged fraud on the part of Jose, nor was there any allegation of specific acts
committed by him which constitute fraud.
Q. Who else if you know?
Our Ruling A. It is all that I could remember of, sir.

After serious consideration, we find petitioners arguments to be meritorious. Q. At the time that the property was acquired
from you by Jose Mano or by the
There is defendants, do you have any
preponder fence erected on your property?
ance of A. None, sir. The adjacent lot has, sir.
evidence
that COURT:
Federico is On all sides?
the owner
of the A. On Teresa and Andres
disputed Valenzuelas side, sir.
property.
We rule that Federico is the owner of the disputed 447 square meter lot. The Q. They were fenced?
Deed of Conditional Sale described the property purchased by Jose as follows: A. Yes, there is, sir. [23]

A part of parcel of land (T.D. No. 14312)

situated at Dampol 1st, Pulilan, Bulacan. Bounded on the
North- Lot 6225; East- Lot 1306 & 1311; South- Lot 1307
and 1308 and West- Lot 1304 & 1299. Containing an area
of Two Thousand Fifty Six (2,056) square meters, more or
less. (Bulacan).
Feliciano sold a portion of Lot 1305 to Jose. After the sale was made,
a Sketch/Special Plan[20] was prepared by Geodetic Engineer Fortunato E.
Chavez. It is clear from such document that Lot 1305-A representing the upper
portion with an area of 1,112 square meters was retained by Feliciano and what
was sold was the lower portion thereof which became Lot No. 1305-B with a total
area of 2,292 square meters. This exceeds the area of 2,056 square meters
indicated in the above sale transaction.
The testimony of Feliciano from whom Jose purchased the property coincides
with the observation made during the ocular inspection conducted by the RTC
that there is an old fence, measuring about 40 meters which encloses the true
and actual area purchased by Jose. Feliciano retained the upper portion
of Lot No. 1305 which eventually became Lot No. 1305-A because it is along the
national highway. The disputed 447 square meters property is located at the
eastern side of Lot No. 1305-A. He gave Jose a right of way at the western
side[24] of the lot he retained for himself. This supports the theory that Feliciano
was fully aware that the property at the eastern part of his property belonged to
Andres from whom Federico inherited the said lot. This is the reason why a right
of way going to the national highway was given to Jose between Lot No. 1305-A
and Lot No. 1304. If the disputed property is part of the sale as claimed by Jose
then Feliciano would not have given the said right of way but would rather keep it
to himself.

In another Sketch/Special Plan[21] prepared by Geodetic Engineer
Norberto C. Chavez, it is shown that Lot No. 10176-B with an area of 2,292
square meters with a right of way going to Camino Provincial Highway was the
one sold to Jose and which was also sold by him to the Balingcongan
spouses. This is also known as Lot No. 1305-B. TCT No. T-112865 was issued
in the name of the spouses Balingcongan. Lot No. 10175 which represents the
upper portion of Lot No. 1305 was retained by Feliciano. This is also known as
Lot No. 1305-A. However, what is surprising is that the said plan showed
that Lot No. 10176-A with an area of 447 square meters had been made to
appear as part of the lot sold by Feliciano to Jose. TCT No. T-112864 was issued
in the name of Jose. If indeed this disputed area is part of Lot No. 1305 then it
should have been part of Lot No. 1305-A which was retained by Feliciano as it is
at the East side of the said property.
Moreover, during the ocular inspection,[22] it was observed that all the
neighboring lots are either square or rectangle. There is an old fence, measuring
about 40 meters long (abutting the newly constructed fence), which bounds the
true and actual area purchased by Jose. Thus, if the old fence is followed, the
land purchased would either be square or rectangular like the adjoining
lots. However, if the disputed 447 square meters would be included in the land
purchased by Jose, the same would slant remarkably to the right, to the extent of
covering the entire area fronting the provincial road, which as per tax declaration
of Federico, is the boundary of his land on the north.
Furthermore, Feliciano, the owner of Lot No. 1305 from whom Jose
acquired the property through sale, testified that his lot is only about 2,000 square
meters and that Andres owns the adjoining lot which is enclosed by a fence. Part
of his testimony is copied verbatim to wit:
ATTY. NATIVIDAD:
Q. But before they caused the measuring of
the lot in question, do you have any
idea how much is the area of the
lot?
A. About 2,000 plus, sir.
Q. This property measuring about 2,000 plus,
as you mentioned a while ago
before it was surveyed by them,
who is the present owner of this
property?
A. Jose Mano, sir.
Q. How did Jose Mano become the owner of
the property?
A. I sold it to him in 1991, sir.
xxxx
Q. Mr. Geronimo, I withdraw the
manifestation.
May we further request that the
description of the land indicated in
the first page thereof particularly
the boundary and the area be
bracketed and be marked as
Exhibit D-3, your Honor.
Do you know your boundary
owners of this lot located at
Dampol 1st, Pulilan, Bulacan?
A. Teresa and Andres Valenzuela, sir.
Settled is the rule that a person, whose certificate of title included by mistake or
oversight the land owned by another, does not become the owner of such land
by virtue of the certificate alone. The Torrens System is intended to guarantee the
integrity and conclusiveness of the certificate of registration but is not intended to
perpetrate fraud against the real owner of the land. The certificate of title cannot
be used to protect a usurper from the true owner.[25]
Jose
committed
fraud in
obtaining
the title to
the
disputed
property.
Anent the second issue, we rule that Jose committed fraud in obtaining title to the
disputed property. The chain of events leading to the issuance of title in his name
shows beyond cavil the bad faith or a fraudulent pattern on his part. The evidence
on record disclosed that even before Jose purchased the 2,056 square meters
from Feliciano, he had already caused on January 30, 1991 the survey of a 2,739
square meters lot. Although the document of sale expressly stated that the area
sold was 2,056 square meters and is located at Dampol 1st, Pulilan, Bulacan,
however, when he filed his application for free patent in March 1991, he used the
survey on the 2,739 square meters and indicated the same to be located at
Dampol II, Pulilan, Bulacan. Also, in his application, he stated that the land
described and applied for is not claimed or occupied by any person when in reality
the same is owned and possessed by Federico.
Petitioners
are entitled
to an
award of
moral and
exemplary
damages.
Article 2217[26] of the Civil Code defines what are included in moral damages while
Article 2219 enumerates the cases where they may be recovered. Moral
damages are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.[27] The
person claiming moral damages must prove the existence of bad faith by clear
and convincing evidence for the law always presumes good faith. It is not enough
that one merely suffered sleepless nights, mental anguish, serious anxiety as the
result of the actuations of the other party. Invariably such action must be shown
to have been willfully done in bad faith or with ill motive.[28] In the same fashion, to
warrant the award of exemplary damages, the wrongful act must be
accompanied by bad faith, and an award of damages would be allowed only if
the guilty party acted in wanton, fraudulent, reckless or malevolent manner.[29] As
regards attorneys fees, the law is clear that in the absence of stipulation, attorneys
fees may be recovered as actual or compensatory damages under any of the
circumstances provided for in Article 2208[30] of the Civil Code.
Having ruled that Jose committed fraud in obtaining title to the
disputed property then he should be liable for both moral and exemplary
damages. Likewise, since petitioners were compelled to litigate to protect their
rights and having proved that Jose acted in bad faith, attorneys fees should
likewise be awarded.

2
 WHEREFORE, the instant petition for review
on certiorari is GRANTED. The assailed Decision of the Court of Appeals in CA-
G.R. CV No. 83577 dated January 16, 2006 and its May 3, 2006 Resolution
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Bulacan, Branch 14 in Civil Case No. 1065-M-99 dated March 10,
2004 is REINSTATEDand AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. L-31666, L-31667 and L-31668 April 30, 1979
LEPANTO CONSOLIDATED MINING COMPANY, petitioner,
vs.
MANUEL DUMYUNG, THE REGISTER OF DEEDS OF BAGUIO
CITY, and the COURT OF FIRST INSTANCE OF BAGUIO CITY
(BRANCH I), respondents.
LEPANTO CONSOLIDATED MINING COMPANY, petitioner,
vs.
FORTUNATO DUMYUNG, THE REGISTER OF DEEDS OF BAGUIO
CITY , and the COURT OF FIRST INSTANCE OF BAGUIO CITY
(BRANCH I), respondents.
LEPANTO CONSOLIDATED MINING COMPANY, petitioner,
vs.
DUMYUNG BONAYAN, THE REGISTER OF DEEDS OF BAGUIO
CITY, and the COURT OF FIRST INSTANCE OF BAGUIO CITY
(BRANCH I), respondents.
Sycip, Salazar, Luna, Manalo & Feliciano, Jesus B. Santos and Hill &
Associates for petitioner.
Floro B. Bugnosen for private respondents.
FERNANDEZ, J.:
This is a petition to review the order of the Court of First Instance of
Baguio City, Branch I, dismissing the three complaints for annulment of
titles in Civil Cases Nos. 1068, 1069 and 1070 entitled "Republic of the
Philippines, Plaintiff, versus, Manuel Dumyung, et al., Defendants,
Lepanto Consolidated Mining Company, Intervenor" for being without
merit. 1
The Republic of the Philippines, represented by the Director of Lands,
commenced in the Court of First Instance of Baguio City Civil Cases
Nos. 1068, 1069 and 1070 for annulment of Free Patents Nos. V-
152242, V-155050 and V-152243, and of the corresponding Original
Certificates of Title Nos. P-208, P-210 and P-209, on the ground of
misrepresentation and false data and informations furnished by the
defendants, Manuel Dumyung, Fortunate Dumyung and Dumyung
Bonayan, respectively. the land embraced in the patents and titles are
Identified as Lots 1, 2 and 3 of survey plan Psu-181763 containing a
total area of 58.4169 hectares, more or less, and situated in the
Municipal District of Mankayan, Sub-province of Benguet, Mountain
Province. The Register of Deeds of Baguio City was made a formal
party defendant.
The complaints in Civil Cases Nos. 1068, 1069 and 1070 are all dated
September 22, 196 l. 2
The defendants filed their respective answers. 3 Consolidated Mining Company, filed the instant petition.
The Lepanto Consolidated Mining Company, petitioner herein, filed
motions for intervention dated February 5, 1962 in the three (3) civil
cases 4 which were granted. 5
The complaints in intervention alleged that a portion of the titled lands
in question-.ion is within the intervenor's ordinary timber license No.
140-'62 dated July 7, 1961 expiring and up for renewal on June 30,
1962 and another portion of said lands is embraced in its mineral
claims. 6
The defendants in the three (3) civil cases filed an amended joint
answer with counterclaim to the complaint in intervention. 7 The said
3
amended joint answer was admitted in an order dated September 10,
1972. 8
Before the hearing on the merits of the three (3) civil cases, the
plaintiff, Republic of the Philippines represented by the Director of
Lands, filed in the Court of First Instance of Baguio City three (3)
criminal cases for falsification of public document. 9, docketed as
Criminal Cases Nos. 2358, 2359 and 2360, against the defendants
Manuel Dumyung, Fortunato Dumyung and Dumyung Bonayan, private
respondents herein, for allegedly making untrue statements in their
applications for free patents over the lands in question. The
proceedings on the three (3) civil cases were suspended pending the
outcome of the criminal cases.
After the presentation of evidence by the prosecution in the three (3)
criminal cases, the defense filed a motion to dismiss the same on the
ground that the accused had complied with all the legal requirements in
the acquisition of their patents which were duly issued by the Director
of Lands and that they are not guilty of the alleged falsification of public
documents.
In an order dated December 6, 1967, the trial court sustained the
theory of the defense and dismissed the three (3) criminal cases, with
costs de officio, for insufficiency of evidence to sustain the conviction of
the three (3) accused. 9
Thereupon, the defendants filed a motion to dismiss dated October 12,
1968 in Civil Cases Nos. 1068, 1069 and 1070 on the following
grounds: (1) extinction of the penal action carries with it the extinction
of the civil action when the extinction proceeds from a declaration that
the fact from which the civil might arise did not exist; (2) the decision of
the trial court acquitting the defendants of the crime charged renders
these civil cases moot and academic, (3) the trial court has no
jurisdiction to order cancellation of the patents issued by the Director of
Lands; (4) the certificates of title in question can no longer be assailed;
and (5) the intervenor Lepanto has no legal interest in the subject
matter in litigation. 10
The Court of First Instance of Baguio, Branch I, dismissed the three (3)
civil cases because:
After a careful examination and deliberation of the
MOTION TO DISMISS, these civil cases filed by
the defendants as well as the two OPPOSITIONS
TO MOTION TO DISMISS filed by both plaintiff
and intervenor Lepanto Consolidated Mining
Company and the of all the three civil cases, it
clearly shows that upon the issuance of said Free
Patents on November 26, 1960, the same were
duly registered with the office of the Register of
Deeds of Baguio and Benguet, pursuant to the
provisions of Sec. 122 of Act 496, as amended,
and consequently, these properties became the
private properties of the defendants, under the
operation of Sec. 38 of said Act; hence, these titles
enjoy the same privileges and safeguards as
Torrens titles (Director of Lands vs. Heirs of
Ciriaco Carle, G. R. No. L-12485, July 31, 1964). It
is therefore clear that OCT Nos. P-208, P-209 and
P-210 belonging to the defendants are now
indefeasible and this Court has no power to disturb
such indefeasibility of said titles, let alone cancel
the same.
The records of this case further disclose that the
defendants are ignorant natives of Benguet
Province and are members of the so-called
Cultural Minorities of Mountain Province, who are
the same persons accused in the dismissed
criminal cases, based on the same grounds. It
should be noted that these cases fall squarely
under Sec. 3 of Rule III of the New Rules of
Court. 11
They plaintiff, Republic of the Philippines represented by the Director of
Lands, and the intervenor, Lepanto Consolidated Mining Company,,
filed separate motions for reconsideration of the order dismissing Civil
Cases Nos. 1068, 1069 and 1070. 12 Both motion for reconsideration
were denied by the trial court. 13 Thereupon the intervenor, Lepanto
The petitioner assigns the following errors:
I
THE LOWER COURT ERRED IN HOLDING
THAT THE ORIGINAL CERTIFICATE OF TITLE
OF PRIVATE RESPONDENTS WERE
'INDEFEASIBLE' SIMPLY BECAUSE THEY
WERE ISSUED PURSUANT TO THE
REGISTRATION OF THE FREE PATENTS OF
THE PRIVATE RESPONDENTS.
 II
THE LOWER COURT ERRED IN HOLDING
THAT THE PRIVATE RESPONDENTS ARE
ENTITLED TO THE BENEFITS OF REPUBLIC
ACT NO. 3872.
III
THE LOWER COURT ERRED IN HOLDING
THAT THE ACQUITTAL OF THE PRIVATE
RESPONDENTS IN THE CRIMINAL CASES FOR
FALSIFICATION OF PUBLIC DOCUMENTS
BARRED THE CIVIL ACTIONS FOR
ANNULMENT OF THE FREE PATENTS AND
CANCELLATION OF THE ORIGINAL
CERTIFICATES OF TITLE OF THE PRIVATE
RESPONDENTS. 14
Timber and mineral lands are not alienable or disposable. The
pertinent provisions of the Public Land Act, Commonwealth Act No.
141, provide:
Sec. 2. The provisions of this Act shall apply to the
lands of the public domain; but timber and mineral
lands shag be governed by special laws and
nothing in this Act provided shall be understood or
construed to change or modify the administration
and disposition of the lands commonly called 'friar
lands' and those which being privately owned,
have reverted to or become the property of the
Commonwealth of the Philippines, which
administration and disposition shall be governed
by the laws at present in force or which may
hereafter be enacted.
Sec. 6. The President, upon the recommendation
of the Secretary of Agriculture and Commerce,
shall from time to time classify the lands of the
public domain into —
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in a like manner transfer
such lands from one class to another, for the
purposes of their administration and disposition.
The principal factual issue raised by the plaintiff, Republic of the
Philippines represented by the Director of Lands, and the intervenor,
petitioner herein, is that the lands covered by the patents and
certificates of title are timber lands and mineral lands and, therefore,
not alienable. Without receiving evidence, the trial court dismissed the
three (3) cases on the ground that upon the issuance of the free
patents on November 26, 1960, said patents were duly registered in
the Office of the Registry of Deeds of Baguio pursuant to Section 122
of Act 496, as amended, and said properties became the private
properties of the defendants under the operation of Section 38 of the
Land Registration Act. The trial court concluded that these titles enjoy
the same privileges and safeguards as the torrens title, and Original
Certificates of Title Nos. P-208, P-209 and P-210 of the defendants are
now indefeasible.
In its order denying the motion for reconsideration the trial court said,
On the ground of lack of jurisdiction on the part of
the Director of Lands to dispose of the properties
since they are within the forest zone, the court
finds Republic Act No. 3872, to clear this point.
Section 1, amending Section 44 of the Land Act in
its second paragraph states:
A member of the national
cultural, minorities who has
continuously occupied and
cultivated, either by himself or
through his predecessors-in-
interest, a tract or tracts of
land, whether disposable or
not since July 4, 1955, shall
be entitled to the right granted
in the preceding paragraph of
this section: PROVIDED, that
at the time he files his free
patent application, he is not
the owner of any real property
secured or disposable under
4
this provision of the Public
Land Law.
The 'preceding paragraph' refers to the right of a
person to have a free patent issued to him,
provided he is qualified, which in this case the
Director of Lands has the jurisdiction to dispose,
whether the land be disposable or not. This
provision of law, certainly, applies to herein
defendants. The reason for this law is explicit and
could very well be seen from its EXPLANATORY
NOTE, which reads:
'Because of the
aggresiveness of our more
enterprising Christian brothers
in Mindanao, Mountain
Province, and other places
inhabited by members of the
National Cultural Minorities,
there has be-en an exodus of
the poor and less fortunate
non-christians from their
ancestral homes during the t
ten years to the fastnesses of
the wilderness where they
have settled in peace on
portions of agricultural lands,
unfortunately, in most cases,
within the forest zones. But
this is not the end of the
tragedy of the national cultural
minorities. Because of the
grant of pasture leases or
permits to the more agressive
Christians, these National
Cultural Minorities who have
settled in the forest zones for
the last ten years have been
harassed and jailed or
threatened with harassment
and imprisonment.
The thesis behind the
additional paragraph to
Section 44 of the Public Land
Act is to give the national
culture, minorities a fair
chance to acquire lands of the
public domain' ...
It is for this reason — that is, to give these national
cultural minorities who were driven from their
ancestral abodes, a fair chance to acquire lands of
the public domain — that Republic Act 3872 was
passed. This is the new government policy on
liberation of the free patent provisions of the Public
Land Act emphasizing more consideration to and
sympathy on the members of the national cultural
minorities, which our courts of justice must
uphold. 15
The trial court assumed without any factual basis that the private
respondents are entitled to the benefits of Republic Act 3872. The
pertinent provision of Republic Act No, 3872 reads:
SECTION 1. A new paragraph is hereby added 1--
o Section 44 of Commonwealth Act Numbered
One Hundred-d forty-one, to read as follows:
SEC. 44. Any natural-born citizen of the
Philippines who is not the owner of more than
twenty-four hectares and who since July fourth,
ninth hundred and twenty-six or prior thereto, has
continuously occupied and cultivated, either by,
himself' or through his predecessors-in-interest. a
tract or tracts of agricultural public lands subject to
disposition- or who shall have paid the real estate
tax thereon while the same has, not been
occupied by any person shall be entitled, under
the provision of this chapter, to have a free patent
issued to him for such tract or tracts of such land
not to exceed twenty-four hectares.
A member of the national cultural minorities who
has continuously occupied and cultivated, either
by himself or through his predecessors-in- interest,
a tract or tracts of land, whether disposable or not
since July 4, 1955, shall be entitled to the right
granted in the preceding paragraph of this section:
Provided, That at the time he files his free patent
application he is not the owner of any real property
secured or disposable under this provision of the
Public Land Law.
There is no evidence that the private respondents are members of the
National Cultural Minorities; that they have continously occupied and
cultivated either by themselves or through their predecessors-in-
interest the lands in question since July 4, 1955; and that they are not
the owner of any land secured or disposable under the Public Land Act
at the time they filed the free patent applications. These qualifications
must be established by evidence. Precisely, the intervenor, petitioner
herein, claims that it was in possession of the lands in question when
the private respondents applied for free patents thereon.
It was premature for the trial court to rule on whether or not the titles
based on the patents awarded to the private respondents have
become indefeasible. It is well settled that a certificate of title is void
when it covers property of public domain classified as forest or timber
and mineral lands. Any title issued on non-disposable lots even in the
hands of alleged innocent purchaser for value, shall be
cancelled. 16 In Director of lands vs. Abanzado 17 this Court said:
4. To complete the picture, reference may be
made to the learned and scholarly opinion
of Justice Sanchez in Director of Forestry v.
Muñoz, a 1968 decision. After a review of Spanish
legislation, he summarized the present state of the
law thus: 'If a Spanish title covering forest land is
found to be invalid, that land is public forest land,
is part of the public domain, and cannot be
appropriated. Before private interests have
intervened, the government may decide for i what
Portions of the public domain shall be set aside
and reserved as forest land. Possession of forest
lands, however long, cannot ripen into private
ownership.' Nor is this all He reiterated the basic
state objective on the matter in clear and
penetrating language: 'The view this Court takes of
the cages 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, above 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
disappears. 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, ...'
The acquittal of the private respondents in the criminal cases for
falsification is not a bar to the civil cases to cancel their titles. The only
issue in the criminal cases for falsification was whether there was
evidence beyond reasonable doubt that the private respondents had
committed the acts of falsification alleged in the informations. The
factual issues of whether or not the lands in question are timber or
mineral lands and whether or not the private respondents are entitled
to the benefits of Republic Act No. 3872 were not in issue in the
criminal case.
There is need to remand these cases to the trial court for the reception
of evidence on (1) whether or not the lands in question are timber and
mineral lands; and (2) whether the private respondents belong to the
cultural minorities and are qualified under Republic Act 3872 to be
issued free patents on said lands.
Petitioners, QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
- versus - TINGA, and
VELASCO, JR., JJ.
HEIRS OF CONSTANCIO Promulgated:
LABANON, represented by
ALBERTO MAKILANG,
Respondents. August 14, 2004
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the
recall and nullification of the May 8, 2003 Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 65617 entitled Heirs of Constancio
Labanon represented by Alberto Makilang v. Heirs of Maximo Labanon
represented by Alicia Labanon Caedo and the Provincial Assessor of
Cotabato, which reversed the August 18, 1999 Decision[2] of the
Kidapawan City, Cotabato Regional Trial Court (RTC), Branch 17, in
Civil Case No. 865. Likewise assailed is the October 13,
2003 Resolution[3] which disregarded petitioners Motion for
Reconsideration.
The Facts
The CA culled the facts this way:
During the lifetime of Constancio Labanon,
prior to the outbreak of WWII, he settled
upon a piece of alienable and disposable
public agricultural land situated at Brgy.
Lanao, Kidapawan, Cotabato x x x.
Constancio cultivated the said lot and
introduced permanent improvements that
still exist up to the present. Being of very
limited educational attainment, he found it
difficult to file his public land application
over said lot. Constancio then asked his
brother, Maximo Labanon who was better
educated to file the corresponding public
land application under the express
agreement that they will divide the said lot
as soon as it would be feasible for them to
do so. The offer was accepted by Maximo.
During the time of the application it was
Constancio who continued to cultivate the
said lot in order to comply with the
cultivation requirement set forth under
Commonwealth Act 141, as amended,
on Homestead applications. After which,
on June 6, 1941, due to industry of
Constancio, Homestead Application No.
244742 (E-128802) of his brother Maximo
was approved with Homestead Patent No.
67512. Eventually, Original Certificate of
Title No. P-14320 was issued by the
Register of Deeds of Cotabato over said lot
in favor of Maximo Labanon.
On February 11, 1955, Maximo Labanon
executed a document denominated as
Assignment of Rights and Ownership and
docketed as Doc. No. 20; Page No. 49;
Book No. V; Series of 1955 of the Notarial
Register of Atty. Florentino Kintanar. The
document was executed to safeguard the
ownership and interest of his brother
Constancio Labanon. Pertinent portion of
which is reproduced as follows:

That I, MAXIMO LABANON, of

WHEREFORE, the order dismissing Civil Cases Nos. 1968, 1969 and legal age, married to Anastacia
1970 of the Court of First Instance of Baguio City is hereby set aside Sagarino, and a resident of
and said cases are remanded to the trial court for further proceedings, Kidapawan, Cotabato, for and
without pronouncement as to costs. in consideration of the
expenses incurred by my elder
SO ORDERED. brother CONSTANCIO
LABANON also of legal age,
Filipino, widower and a
Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio- resident of Kidapawan,
Herrera, JJ., concur. Cotabato, for the clearing,
cultivation and improvements
Republic of the Philippines on the eastern portion xxx Lot
SUPREME COURT No. 1, Blk. 22, Pls-59 xxx
Manila which expenses have been
incurred by my said brother
SECOND DIVISION xxx before the outbreak of the
last world war xxx I do hereby
assign transfer and convey my
HEIRS OF MAXIMO LABANON, G.R. No. 160711 rights to, interests in and
represented by ALICIA LABANON ownership on the said eastern
CAEDO and the PROVINCIAL Present: portion of said Lot No. 1, Block
ASSESSOR OF COTABATO, 22, Pls-59 ONE HUNDRED

5
 (100 M) ALONG THE
NATIONAL HIGHWAY,
(DAVAO-COTABATO ROAD)
by TWO HUNDRED FIFTY
METERS (250 M) going inside
the land to cover an area of
TWO AND ONE HALF
HECTARES (25,000 SQ. M.),
more or less, adjoining the
school site of barrio Lanao,
Kidapawan, Cotabato, to the
said CONSTANCIO
LABANON, his heirs and
assigns, can freely occupy for
his own use and benefit xxx.
IN WITNESS WHEREFOF, I
have hereunto set my hand
this 11th day of February 1995
at Kidapawan, Cotabato.
(SGD) MAXIMO LABANON
With my marital consent.
(SGD) ANASTACIA
SAGARINO
(Wife) (p.16, rollo)
On April 25, 1962, Maximo Labanon
executed a sworn statement reiterating his
desire that his elder brother Constancio, his
heirs and assigns shall own the eastern
portion of the Lot, pertinent portion of which
reads:
That I am the same and
identical person who is a
homestead applicant (HA-
224742, E-128802) of a tract of
land which is covered by
Homestead Patent No. 67512
dated June 6, 1941, known as
Lot No. 1, Block 22, Pls-59,
situated in [B]arrio Lanao,
Municipality of Kidapawan,
Province of Cotabato,
Philippines, and containing an
area of 5.0000 hectares, more
or less;
That I am the same and
identical person who executed
a deed of ASSIGNMENT OF
RIGHTS AND OWNERSHIP in
favor of my brother Constancio
Labanon, now deceased, now
for his heirs, for the eastern
half portion of the land above
described, and which deed
was duly notarized by notary
public Florentino P. Kintanar
on February 11, 1955 at
Kidapawan, Cotabato and
entered in his Notarial Register
as Doc. No. 20, Page No. 49,
Book No. V, Series of 1955;
and
That in order that I and the
Heirs of Constancio Labanon
will exercise our respective
rights and ownership over the
aforementioned lot, and to give
force and effect to said deed of
assignment, I hereby, by these
presents, request the
Honorable Director of Lands
and the Land Title Commission
to issue a separate title in my
favor covering the western half
portion of the aforementioned
lot and to the Heirs of
Constancio Labanon a title for
the eastern half portion
thereof.
IN WITNESS THEREOF, I
have hereunto set my hand
this 25th day of April, 1962, at
Pikit, Cotabato, Philippines. (p
. 9, records)
After the death of Constancio Labanon, his
heirs executed an [e]xtra-judicial
settlement of estate with simultaneous sale
over the aforesaid eastern portion of the lot
in favor of Alberto Makilang, the husband of
Visitacion Labanon, one of the children of
Constancio. Subsequently, the parcel of
6
land was declared for taxation purposes in
the name of Alberto under TD No. 11593.
However, in March 1991, the defendants
heirs of Maximo Labanon namely, Alicia L.
Caniedo, Leopoldo Labanon, Roberto
Nieto and Pancho Labanon, caused to be
cancelled from the records of the defendant
Provincial Assessor of Cotabato the
aforesaid TD No. 11593 and the latter,
without first verifying the legality of the
basis for said cancellation, did cancel the
same. x x x Further, after discovering that
the defendant-heirs of Maximo Labanon
were taking steps to deprive the heirs of
Constancio Labanon of their ownership
over the eastern portion of said lot, the
latter, thru Alberto Makilang, demanded the
owners copy of the certificate of title
covering the aforesaid Lot to be
surrendered to the Register of Deeds of
Cotabato so that the ownership of the heirs
of Constancio may be fully effected but the
defendants refused and still continue to
refuse to honor the trust agreement entered
into by the deceased brothers. x x x[4]
Thus, on November 12, 1991, petitioners filed a complaint[5] for Specific
Performance, Recovery of Ownership, Attorneys Fees and Damages
with Writ of Preliminary Injunction and Prayer for Temporary Restraining
Order against respondents docketed as Civil Case No. 865 before the
Kidapawan City RTC. After hearing, the trial court rendered its August
18, 1999 Decision, the decretal portion of which reads:
Wherefore, prescinding from the foregoing
facts and considerations the Court finds
and so holds that the [defendant-heirs] of
Maximo Labanon represented by Alicia
Labanon Caniedo have proved by
preponderance of evidence that they are
entitled to the reliefs set forth in their
answer and consequently judgment is
hereby rendered as follows:
1. Ordering the dismissal of the complaint
against the Heirs of Maximo Labanon
represented by Alicia Labanon Caniedo for
lack of merit;
2. Ordering the dismissal of the case
against the Provincial Assessor. The claim
of the plaintiff is untenable, because the
duties of the Provincial Assessor are
ministerial. Moreover, the presumption of
regularity in the performance of his duty is
in his favor;
3. Ordering the plaintiff to pay the
defendants the amount of P20,000.00 as
exemplary damages, P10,000.00 for
Attorneys Fees, P500.00 per appearance
in Court; and
4. To pay the costs of this suit.
IT IS SO ORDERED.[6]
Aggrieved, respondents elevated the adverse judgment to the CA which
issued the assailed May 8, 2003 Decision in CA-G.R. CV No. 65617,
the fallo of which states:
WHEREFORE, the appeal is
hereby GRANTED for being meritorious.
The assailed decision of the Regional Trial
Court is hereby REVERSED and SET
ASIDE and a new one is hereby entered as
follows:
1) Recognizing the lawful possession
of the plaintiffs-appellants over the eastern
portion of the property in dispute;
2) Declaring the plaintiffs-appellants
as owners of the eastern portion of
the property by reason of lawful
possession;
3) Ordering the Provincial Assessor to
reinstate TD No. 11593 and
declaring TD No. 243-A null and void;
4) Ordering the defendants-appellees
to pay the plaintiffs-appellants the
amount of P20,000 as moral
damages, P10,000 for attorneys
fees, P500.00 per appearance in
Court and
5) To pay the costs of the suit.
 SO ORDERED.
The Issues
Surprised by the turn of events, petitioners brought this petition before
us raising the following issues, to wit:
1. Whether or not Original Certificate of
Title No. 41320 issued on April 10, 1975 in
the name of MAXIMO LABANON be
now considered indefeasible and
conclusive; and
2. Whether or not the Trust Agreement
allegedly made by Constancio Labanon
and Maximo Labanon prescribed.[7]
The Courts Ruling
The petition must fail.
First Issue
Respondents are not precluded from challenging the validity of
Original Certificate of Title No. P-41320
Petitioners argue that respondents can no longer question
Maximo Labanons ownership of the land after its registration under the
principle of indefeasibility of a Transfer Certificate of Title (TCT).
Such argument is inaccurate.
The principle of indefeasibility of a TCT is embodied in Section 32 of
Presidential Decree No. (PD) 1529, amending the Land Registration Act,
which provides:
Section 32. Review of decree of
registration; Innocent purchaser for
value. The decree of registration shall not
be reopened or revised by reason of
absence, minority, or other disability of any
person adversely affected thereby, nor by
any proceeding in any court for reversing
judgments, subject, however, to the right of
any person, including the government and
the branches thereof, deprived of land or of
any estate or interest therein by such
adjudication or confirmation of title
obtained by actual fraud, to file in the
proper Court of First Instance a petition for
reopening and review of the decree of
registration not later than one year from
and after the date of the entry of such
decree of registration, but in no case shall
such petition be entertained by the court
where an innocent purchaser for value has
acquired the land or an interest therein,
whose rights may be prejudiced. Whenever
the phrase innocent purchaser for value or
an equivalent phrase occurs in this Decree,
it shall be deemed to include an innocent
lessee, mortgagee, or other encumbrancer
for value.
Upon the expiration of said period of
one year, the decree of registration and the
certificate of title issued shall become
incontrovertible. Any person aggrieved by
such decree of registration in any case may
pursue his remedy by action for damages
against the applicant or any other persons
responsible for the fraud.
Contrary to petitioners interpretation, the aforequoted legal provision
does not totally deprive a party of any remedy to recover the property
fraudulently registered in the name of another. Section 32 of PD 1529
merely precludes the reopening of the registration proceedings for titles
covered by the Torrens System, but does not foreclose other remedies
for the reconveyance of the property to its rightful owner. As elaborated
in Heirs of Clemente Ermac v. Heirs of Vicente Ermac:
While it is true that Section 32 of PD 1529
provides that the decree of registration
becomes incontrovertible after a year, it
does not altogether deprive an aggrieved
party of a remedy in law. The acceptability
of the Torrens System would be impaired,
if it is utilized to perpetuate fraud against
the real owners.[8]
A more succinct explanation is found in Vda. De Recinto v. Inciong, thus:
The mere possession of a certificate of title
under the Torrens system does not
necessarily make the possessor a true
owner of all the property described therein
7
for he does not by virtue of said certificate
alone become the owner of the land
illegally included. It is evident from the
records that the petitioner owns the portion
in question and therefore the area should
be conveyed to her. The remedy of the
land owner whose property has been
wrongfully or erroneously registered in
another's name is, after one year from
the date of the decree, not to set aside the
decree, but, respecting the decree as
incontrovertible and no longer open to
review, to bring an ordinary action in the
ordinary court of justice for
reconveyance or, if the property has
passed into the hands of an innocent
purchaser for value, for
damages.[9] (Emphasis supplied.)
Undeniably, respondents are not precluded from recovering
the eastern portion of Original Certificate of Title (OCT) No. P-14320,
with an area subject of the Assignment of Rights and Ownership
previously owned by their father, Constancio Labanon. The action for
Recovery of Ownership before the RTC is indeed the appropriate
remedy.
Second Issue
The trust agreement between Maximo Labanon and Constancio
Labanon may still be enforced
Former Vice-President and Senator Arturo Tolentino, a noted
civilist, explained the nature and import of a trust:
Trust is the legal relationship between one
person having an equitable ownership in
property and another person owning the
legal title to such property, the equitable
ownership of the former entitling him to the
performance of certain duties and the
exercise of certain powers by the latter.[10]
This legal relationship can be distinguished from other
relationships of a fiduciary character, such as deposit, guardianship, and
agency, in that the trustee has legal title to the property.[11] In the case
at bench, this is exactly the relationship established between the parties.
Trusts are classified under the Civil Code as either express or
implied. Such classification determines the prescriptive period for
enforcing such trust.
Article 1444 of the New Civil Code on express trust provides that [n]o
particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.
Civil law expert Tolentino further elucidated on the express
trust, thus:
No particular form of words or conduct is
necessary for the manifestation of intention
to create a trust. It is possible to create a
trust without using the word trust or trustee.
Conversely, the mere fact that these words
are used does not necessarily indicate an
intention to create a trust. The question in
each case is whether the trustor manifested
an intention to create the kind of
relationship which to lawyers is known as
trust. It is immaterial whether or not he
knows that the relationship which he
intends to create is called a trust, and
whether or not he knows the precise
characteristics of the relationship which is
called a trust.[12]
Correlatively, we ruled in Estate of Edward Miller Grimm v.
Estate of Charles Parsons and Patrick C. Parsons, that:
An express trust is created by the direct
and positive acts of the parties, by some
writing or deed or by words evidencing an
intention to create a trust; the use of the
word trust is not required or essential to its
constitution, it being sufficient that a trust is
clearly intended.[13]
In the instant case, such intention to institute an express trust
between Maximo Labanon as trustee and Constancio Labanon as
trustor was contained in not just one but two written documents, the
Assignment of Rights and Ownership as well as Maximo Labanons April
25, 1962 Sworn Statement. In both documents, Maximo Labanon
recognized Constancio Labanons ownership and possession over the
eastern portion of the property covered by OCT No. P-14320, even as
he recognized himself as the applicant for the Homestead Patent over
the land. Thus, Maximo Labanon maintained the title over the property
while acknowledging the true ownership of Constancio Labanon over the
eastern portion of the land. The existence of an express trust cannot be
doubted nor disputed.
On the issue of prescription, we had the opportunity to rule
in Bueno v. Reyes that unrepudiated written express trusts are
imprescriptible:
While there are some decisions which hold
that an action upon a trust is
imprescriptible, without distinguishing
between express and implied trusts, the
better rule, as laid down by this Court in
other decisions, is that prescription does
supervene where the trust is merely an
implied one. The reason has been
expressed by Justice J.B.L. Reyes in J.M.
Tuason and Co., Inc. vs. Magdangal, 4
SCRA 84, 88, as follows:
Under Section 40 of the
old Code of Civil Procedure, all
actions for recovery of real
property prescribed in 10
years, excepting only actions
based on continuing or
subsisting trusts that were
considered by section 38 as
imprescriptible. As held in the
case of Diaz v. Gorricho, L-
11229, March 29, 1958,
however, the continuing or
subsisting trusts contemplated
in section 38 of the Code of
Civil Procedure referred only to
express unrepudiated trusts,
and did not include
constructive trusts (that are
imposed by law) where no
fiduciary relation exists and the
trustee does not recognize the
trust at all.[14]
This principle was amplified in Escay v. Court of Appeals this
way: Express trusts prescribe 10 years from the repudiation of the trust
(Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 0.G. p. 8429, Sec.
40, Code of Civil Procedure).[15]
In the more recent case of Secuya v. De Selma, we again
ruled that the prescriptive period for the enforcement of an express trust
of ten (10) years starts upon the repudiation of the trust by the trustee.[16]
In the case at bar, Maximo Labanon never repudiated the
express trust instituted between him and Constancio Labanon. And after
Maximo Labanons death, the trust could no longer be renounced; thus,
respondents right to enforce the trust agreement can no longer be
restricted nor prejudiced by prescription.
It must be noted that the Assignment of Rights and Ownership
and Maximo Labanons Sworn Statement were executed after the
Homestead Patent was applied for and eventually granted with the
issuance of Homestead Patent No. 67512 on June 6, 1942. Evidently, it
was the intent of Maximo Labanon to hold the title over the land in his
name while recognizing Constancio Labanons equitable ownership and
actual possession of the eastern portion of the land covered by OCT No.
P-14320.
In addition, petitioners can no longer question the validity of
the positive declaration of Maximo Labanon in the Assignment of Rights
and Ownership in favor of the late Constancio Labanon, as the
agreement was not impugned during the formers lifetime and the
recognition of his brothers rights over the eastern portion of the lot was
further affirmed and confirmed in the subsequent April 25, 1962 Sworn
Statement.
Section 31, Rule 130 of the Rules of Court is the repository of the settled
precept that [w]here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to
the property, is evidence against the former. Thus, petitioners have
accepted the declaration made by their predecessor-in-interest, Maximo
Labanon, that the eastern portion of the land covered by OCT No. P-
14320 is owned and possessed by and rightfully belongs to Constancio
Labanon and the latters heirs. Petitioners cannot now feign ignorance of
such acknowledgment by their father, Maximo.
Lastly, the heirs of Maximo Labanon are bound to the
stipulations embodied in the Assignment of Rights and Ownership
pursuant to Article 1371 of the Civil Code that contracts take effect
between the parties, assigns, and heirs.
Petitioners as heirs of Maximo cannot disarrow the
commitment made by their father with respect to the subject property
since they were merely subrogated to the rights and obligations of their
8
predecessor-in-interest. They simply stepped into the shoes of their
predecessor and must therefore recognize the rights of the heirs of
Constancio over the eastern portion of the lot. As the old adage goes,
the spring cannot rise higher than its source.
WHEREFORE, the petition is DENIED. The May 8, 2003 CA
Decision and October 13, 2003 Resolution in CA-G.R. CV No. 65617
are AFFIRMED with the modifications that the Kidapawan City,
Cotabato RTC, Branch 17 is directed to have OCT No. P-14320
segregated and subdivided by the Land Management Bureau into two
(2) lots based on the terms of the February 11, 1955 Assignment of
Rights and Ownership executed by Maximo Labanon and Constancio
Labanon; and after approval of the subdivision plan, to order the
Register of Deeds of Kidapawan City, Cotabato to cancel OCT No. P-
14320 and issue one title each to petitioners and respondents based on
the said subdivision plan.
Costs against petitioners.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
G.R. No. 133168 March 28, 2006
REPUBLIC OF THE PHILIPPINES, Petitioner,1
vs.
BENJAMIN GUERRERO, Respondent.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review under
Rule 45 of the Rules of Court is the decision2dated February 12, 1998
of the Court of Appeals (CA) in CA-G.R. CV No. 50298 affirming an
earlier decision of the Regional Trial Court (RTC) of Quezon City in
Civil Case No. 89-3899, entitled "Petition for Amendment of Plan and
Technical Description of Original Certificate of Title No. 0-28 in the
name of Benjamin Guerrero, Registry of Deeds of Quezon City."
The assailed decision of the CA recites the facts as follows:
Sometime in December 1964, respondent Benjamin Guerrero filed with
the Bureau of Lands (now Lands Management Bureau) a
Miscellaneous Sales Application No. V-83191 covering a parcel of land
situated at Pugad Lawin, Quezon City, consisting of 256 square
meters. Upon favorable report and recommendation of the District
Land Officer, Guerrero’s application was approved per Order of Award
(Exhibit "B"), with the boundaries of the land awarded specified as
follows: N-Lot No. 10-C, Psd-37801; S-Culiat Creek; E-Road; and W-
Public Land. A sketch of the land awarded is contained at the back of
the Order of Award.
Subsequently, Miscellaneous Sales Patent No. 8991 dated August 16,
1982 was issued in favor of respondent. Pursuant thereto the
corresponding Original Certificate of Title No. 0-28 was issued on
August 27, 1982.
On July 29, 1983, one Angelina Bustamante filed a protest with the
Bureau of Lands claiming that respondent obtained the sales patent
through fraud, false statement of facts and/or omission of material facts
considering that 174 square meters awarded to respondent covered
the land where her house is situated and where she has been residing
since 1961.
A formal investigation was conducted by the Bureau of Lands, after
which the Director of Lands issued an order dismissing the protest of
Angelina Z. Bustamante. The dismissal of the protest was affirmed by
the then Minister of Natural Resources and by the Office of the
President in a Decision dated July 22, 1985.
Bustamante filed a motion for reconsideration of the Decision dated
July 22, 1985. Acting on the motion for reconsideration, the President,
…, ordered that the case be remanded to the DENR [Department of
Environment and Natural Resources] for the latter’s office to conduct
an ocular investigation and resurvey of the disputed area. The said
directive is contained in the Order dated October 30, 1987(Exhibit "J").
Pursuant to the order of the Office of the President, an ocular
investigation and relocation survey was conducted by the DENR. A
report (Exhibit "K") was thereafter submitted with a finding that 83
square meters of the titled property of Guerrero consisting of 174
square meters is under ACTUAL PHYSICAL POSSESSION of Marcelo
Bustamante (husband of Angelina Bustamante) with only 91 square
meters under the physical possession of Guerrero. It was also found
out that OCT No. 0-28 is supposed to be traversed by a road 3 meters
wide, as even the Order of Award in favor of Guerrero, shows by the
boundaries of the land indicated therein, viz: bounded on the N-Lot No.
10-C, Psd-37801, S-Culiat Creek, E-Road and W-Public Land.
On January 10, 1989, the Office of the President, upon receipt of the
[DENR] Ocular Investigation and Relocation Survey Report (Exhibit
"K") …, issued an order directing the DENR to implement the … Report
for the ‘proper correction’ of the technical description of the land
covered by OCT No. 0-28 issued to respondent.
Pursuant to the directive of the Office of the President, the Director of
Lands [on behalf of the Republic of the Philippines] instituted the
instant action [Petition for Amendment of Plan and Technical
Description of OCT No. 0-28 in the name of Benjamin Guerrero] on
November 7, 1989.
On April 6, 1990, the [respondent] Benjamin Guerrero filed a motion to
dismiss the petition …, alleging among other things, that the RTC of
Quezon City was without jurisdiction over the Director of Lands’ petition
and that the said petition was defective in form and substance,
inasmuch as it failed to name [Guerrero] who holds a certificate of title
(OCT No. 0-28) over the properties subject of the petition, as
respondent in the action, and that the title sought to be amended was
irrevocable and can no longer be questioned.
In its order dated July 8, 1992, the lower court denied the said motion
to dismiss for lack of merit. Trial of the petition followed with the
Director of Lands, on one hand, and [Guerrero], on the other,
presenting their respective evidence and witnesses. 3 [Words in bracket
added.]
On July 13, 1995, the RTC, on the postulate that petitioner Republic
failed to prove its allegation that respondent obtained the sales patent
and the certificate of title through fraud and misrepresentation,
rendered judgment finding for the latter. The trial court likewise ruled
that the original certificate of title (OCT No. 0-28) in the name of
respondent acquired the characteristics of indefeasibility after the
expiration of one (1) year from the entry of the decree of registration.
Consequently, petitioner interposed an appeal to the CA, which, in a
decision dated February 12, 1998, affirmed that of the trial court,
rationalizing as follows:
It is a settled rule that a certificate of title issued pursuant to any grant
or patent involving public lands is as conclusive and indefeasible as
any other certificate of title issued upon private lands in ordinary or
cadastral registration proceedings. The effect of registration of a
homestead or any other similar patent and the issuance of a certificate
of title to the patentee is to vest in him an incontestable title to the land,
in the same manner as if ownership had been determined by final
decree of the court, and the title so issued is absolutely conclusive and
indisputable.
In the same way, therefore, that a decree of registration may be
reviewed or reopened within one year after the entry thereof, upon a
charge of actual fraud, a patent awarded in accordance with the Public
Land Law may be reviewed within one year from the date of the order
for the issuance of the patent also on the ground of actual fraud.
xxx xx
x xxx
xxx there is no showing … that at the time the [respondent] applied for
his miscellaneous sales patent, there were third persons who had been
in occupation of the land applied for. While subsequent survey
documents, prepared as a consequence of the protest filed by the
Bustamentes, report the possession of the Bustamantes of a portion of
the land, and the erection of their house thereon, these reports do not
indicate if such structures were existing at the time the application of
the [respondent] was filed in 1964.
There is no support, therefore, to the submission that the [respondent]
was guilty of actual fraud in the acquisition of his miscellaneous sales
patent, and subsequently, OCT No. 0-28.4 (Words in bracket added)
Petitioner then moved for a reconsideration of the above decision but
the same was denied by the appellate court in its resolution of March
23, 1998.5
Hence, this recourse, petitioner Republic contending that the appellate
court erred in holding -
I. That a certificate of title issued pursuant to any grant or
patent involving public lands is conclusive and indefeasible
despite the fact that respondent’s title was procured through
fraud and misrepresentation.
II. That there is no basis for the submission that respondent
was guilty of actual fraud in the acquisition of his
miscellaneous sales patent despite the final ruling of the
9
Office of the President from which ruling respondent did not
appeal.
III. That the Director of Lands cannot raise the issue of
possession of a third person of the land, or a portion thereof,
after the award and issuance of the patent to the applicant
despite the obvious fact that the protest was filed within one
year from the issuance of patent.6
Petitioner argues in esse that respondent procured his sales patent
and certificate of title through fraud and misrepresentation. To support
its basic posture, petitioner points to the verification survey conducted
by Engr. Ernesto Erive of the DENR, which, to petitioner, argues for the
proposition that respondent’s entitlement to a public land award should
have been limited to a 91-square meter area instead of the 174 square
meters eventually granted.
On the other hand, respondent contends that his OCT No. 0-28 which
he secured pursuant to a sales patent is conclusive and indefeasible
under the Torrens system of registration. As such, his title can no
longer be altered, impugned or cancelled.
At the outset, it must be pointed out that the essential issue raised in
this Petition ― the presence of fraud ― is factual. As a general rule,
this Court does not review factual matters, as only questions of law
may be raised in a petition for review on certiorari filed with this Court.
And as the Court has consistently held, factual findings of trial courts,
when adopted and confirmed by the CA, are final and conclusive on
this Court,7 save when the judgment of the appellate court is based on
a misapprehension of facts or factual inferences manifestly incorrect or
when that court overlooked certain relevant facts which, if properly
considered, would justify a different conclusion.8 Obviously, petitioner
is invoking these exceptions toward having the Court review the factual
determinations of the CA.
The basic issue in this case turns on whether or not petitioner has
proven by clear and convincing evidence that respondent procured
Miscellaneous Sales Patent (MSP) No. 8991 and OCT No. 0-28
through fraud and misrepresentation.
It bears to stress that the property in question, while once part of the
lands of the public domain and disposed of via a miscellaneous sales
arrangement, is now covered by a Torrens certificate. Grants of public
land were brought under the operation of the Torrens system by Act
No. 496, or the Land Registration Act of 1903. Under the Torrens
system of registration, the government is required to issue an official
certificate of title to attest to the fact that the person named is the
owner of the property described therein, subject to such liens and
encumbrances as thereon noted or what the law warrants or
reserves.9 As it were, the Torrens system aims to obviate possible
conflicts of title by giving the public the right to rely upon the face of the
Torrens certificate and to dispense, as a rule, with the necessity of
inquiring further; on the part of the registered owner, the system gives
him complete peace of mind that he would be secured in his ownership
as long as he has not voluntarily disposed of any right over the covered
land.10
Section 122 of Act No. 496 provides:
SEC. 122. Whenever public lands … belonging to the Government of
the [Republic of the Philippines] are alienated, granted, or conveyed to
persons or to public or private corporations, the same shall be brought
forthwith under the operation of this Act and shall become registered
lands. It shall be the duty of the official issuing the instrument of
alienation, grant, or conveyance in behalf of the Government to cause
such instrument before its delivery to the grantee, to be filed with the
register of deeds for the province where the land lies and to be there
registered like other deeds and conveyances, whereupon a certificate
shall be entered as in other cases of registered land, and an owner’s
duplicate certificate issued to the grantee. The deed, grant, or
instrument of conveyance from the Government shall not take effect as
a conveyance or bind the land, but shall operate only as a contract
between the Government and the grantee and as evidence of authority
to the clerk or register of deeds to make registration. The act of
registration shall be the operative act to convey and affect the land,
and in all cases under this Act registration shall be made in the office of
the register of deeds for the province where the land lies. xxx. (Words
in bracket added)
Upon its registration, the land falls under the operation of Act No. 496
and becomes registered land. Time and again, we have said that a
Torrens certificate is evidence of an indefeasible title to property in
favor of the person whose name appears thereon.11
However, Section 38 of Act No. 496 recognizes the right of a person
deprived of land to institute an action to reopen or revise a decree of
registration obtained by actual fraud. Section 38 of Act No. 496 says
so:
SEC. 38. ― xxx. Every decree of registration shall bind the land, and
quiet title thereto, subject only to the exceptions stated in the following
section. It shall be conclusive upon and against all persons, including
the [Republic of the Philippines] and all the branches thereof, …. Such
decree shall not be opened by reason of the absence, minority, or
other disability of any person affected thereby, nor by any proceeding
in any court for reversing judgments or decrees, subject, however, to
the right of any person deprived of the land or of any estate or interest
therein by decree of registration obtained by actual fraud, to file in the
proper Court of First Instance [now Regional Trial Court] a petition for
review of the decree of registration within one year after entry of the
decree provided no innocent purchaser for value has acquired an
interest. Upon the expiration of said term of one year, every decree or
certificate of title issued in accordance with this section shall be
incontrovertible. xxx. (Emphasis and words in bracket supplied)
Fraud is of two kinds: actual or constructive. Actual or positive fraud
proceeds from an intentional deception practiced by means of the
misrepresentation or concealment of a material fact. Constructive fraud
is construed as a fraud because of its detrimental effect upon public
interests and public or private confidence, even though the act is not
done with an actual design to commit positive fraud or injury upon
other persons.12
Fraud may also be either extrinsic or intrinsic. Fraud is regarded as
intrinsic where the fraudulent acts pertain to an issue involved in the
original action, or where the acts constituting the fraud were or could
have been litigated therein. The fraud is extrinsic if it is employed to
deprive parties of their day in court and thus prevent them from
asserting their right to the property registered in the name of the
applicant.13
The distinctions assume significance because only actual and extrinsic
fraud had been accepted and is contemplated by the law as a ground
to review or reopen a decree of registration. Thus, relief is granted to a
party deprived of his interest in land where the fraud consists in a
deliberate misrepresentation that the lots are not contested when in
fact they are; or in willfully misrepresenting that there are no other
claims; or in deliberately failing to notify the party entitled to notice; or
in inducing him not to oppose an application; or in misrepresenting
about the identity of the lot to the true owner by the applicant causing
the former to withdraw his application. In all these examples, the
overriding consideration is that the fraudulent scheme of the prevailing
litigant prevented a party from having his day in court or from
presenting his case. The fraud, therefore, is one that affects and goes
into the jurisdiction of the court.14
We have repeatedly held that relief on the ground of fraud will not be
granted where the alleged fraud goes into the merits of the case, is
intrinsic and not collateral, and has been controverted and decided.
Thus, we have underscored the denial of relief where it appears that
the fraud consisted in the presentation at the trial of a supposed forged
document, or a false and perjured testimony, or in basing the judgment
on a fraudulent compromise agreement, or in the alleged fraudulent
acts or omissions of the counsel which prevented the petitioner from
properly presenting the case.15
Petitioner fails to convince the Court that the facts relied upon by it to
justify a review of the decree constitute actual and extrinsic fraud. It
has not adduced adequate evidence that would show that respondent
employed actual and extrinsic fraud in procuring the patent and the
corresponding certificate of title. Petitioner miserably failed to prove
that it was prevented from asserting its right over the lot in question
and from properly presenting its case by reason of such fraud. In fact,
other than its peremptory statement in its petition filed before the trial
court that "the patentee, Benjamin Guerrero, obtained the above
indicated sales patent through fraud, false statement of facts and/or
omission of material facts,"16 petitioner did not specifically allege how
fraud was perpetrated by respondent in procuring the sales patent and
the certificate of title. Nor was any evidence proffered to substantiate
the allegation. Fraud cannot be presumed, and the failure of petitioner
to prove it defeats it own cause.
Well-settled is the rule that the party alleging fraud or mistake in a
transaction bears the burden of proof.17 The circumstances evidencing
fraud are as varied as the people who perpetrate it in each case. It may
assume different shapes and forms; it may be committed in as many
different ways.18 Thus, the law requires that fraud be established, not
just by preponderance of evidence, but by clear and convincing
evidence.19
Petitioner relies heavily on the verification survey report20 which stated
that respondent Guerrero was entitled to only 91 square meters of the
subject lot instead of 174 square meters which was awarded to him.
There is, however, no proof that the area eventually awarded to
respondent was intentionally and fraudulently increased. It was never
proven that respondent was a party to any fraud that led to the award
of a bigger area of 174 square meters instead of 91 square meters.
Petitioner even failed to give sufficient proof of any error which may
have been committed by its agents who had surveyed the subject
property nor had petitioner offered a sensible explanation as to the
reason for such discrepancy. Thus, the presumption of regularity in the
performance of official functions must be respected.
This Court agrees with the RTC that the issuance of the sales patent
over the subject lot was made in accordance with the procedure laid
down by Commonwealth Act No. 141, as amended, otherwise known
as the Public Land Act.21 Under Section 91 thereof, an investigation
10
should be conducted for the purpose of ascertaining the veracity of the
material facts set out in the application.22 The law also requires
sufficient notice to the municipality and barrio where the land is located
in order to give adverse claimants the opportunity to present their
claims.23
In the instant case, records reveal that on December 22, 1964, a day
after respondent filed his miscellaneous sales application, an actual
investigation and site verification of the parcel of land was conducted
by Land Investigator Alfonso Tumbocon who reported that the land
was free from claims and conflicts.24 Likewise, the notice of sale of the
lot in question was posted at the District Land Office in San Miguel,
Manila, at the Quezon City Hall, and at Pugad Lawin, Quezon City for
30 consecutive days from February 17, 1965 to March 17, 1965 which
was the date scheduled for the sale of the lot. The said notice was
worded as follows:
If there is any adverse claim to the land, such claim must be filed at the
Bureau of Lands, Manila on or before the date of the sale; otherwise
such claim shall forever be barred.25
Further, the "Order of Award" 26 dated May 20, 1971, as well as the
"Issuance of Patent"27 dated June 28, 1982 were both duly signed by
the Director of Lands. The "Order of Award" even declared that
Guerrero has in good faith established his residence on the land in
question. On the other hand, the "Issuance of Patent" stated that the
land consisting of 174 square meters is free from any adverse claim
and that Guerrero has fully paid the purchase price of the lot. Having
complied with all the requirements of the law preliminary to the
issuance of the patent, respondent was thus issued MSP No. 8991
dated August 16, 1982. Thereafter, the corresponding OCT No. 0-28
was issued on August 27, 1982 in the name of respondent Guerrero.
At any rate, by legal presumption, public officers are deemed to have
regularly performed their official duties. Thus, the proceedings for land
registration that led to the issuance of MSP No. 8991 and OCT No. 0-
28 in respondent’s name are presumptively regular and proper. To
overturn this legal presumption will not only endanger judicial stability,
but also violate the underlying principle of the Torrens system. Indeed,
to do so would reduce the vaunted legal indefeasibility of Torrens titles
to meaningless verbiage.28 Besides, this presumption of regularity has
not been overcome by the evidence presented by petitioner. We,
therefore, cannot sustain petitioner’s contention that fraud tainted the
sales patent granted to respondent Guerrero, as well as the certificate
of title issued in consequence thereof.
Granting that Guerrero committed extrinsic and actual fraud, petitioner
failed to avail itself of the remedy within the prescribed period. Under
Section 38 of Act No. 496, a petition for reopening and review of the
decree of registration must be filed within one year from the date of
entry of said decree.
In the case of public land grants or patents, the one-year period
commences from the issuance of the patent by the government.29
In the instant case, the sales patent was issued to respondent on
August 16, 1982, while petitioner instituted an action to amend
respondent’s certificate of title on November 7, 1989 or after the lapse
of more than seven (7) years from the issuance of the patent. Clearly,
petitioner failed to timely avail of the remedy to contest Guerrero’s title.
Petitioner argues that the right of the State for the reversion of
unlawfully acquired property is not barred by prescription. Thus, it can
still recover the land granted to respondent.
True, prescription, basically, does not run against the State and the
latter may still bring an action, even after the lapse of one year, for the
reversion to the public domain of lands which have been fraudulently
granted to private individuals.30 However, this remedy of reversion can
only be availed of in cases of fraudulent or unlawful inclusion of the
land in patents or certificates of title. In the present case, petitioner
cannot successfully invoke this defense for, as discussed earlier, it was
never proven that respondent’s patent and title were obtained through
actual fraud or other illegal means.
Lest it be overlooked, a piece of land covered by a registered patent
and the corresponding certificate of title ceases to be part of the public
domain. As such, it is considered a private property over which the
Director of Lands has neither control nor jurisdiction.31
Petitioner likewise insists that respondent’s title had yet to attain the
status of indefeasibility. As argued, Angelina Bustamante was able to
timely file a protest on July 29, 1983, which was well within the one-
year prescriptive period.
We do not agree.
While Angelina Bustamante indeed protested the award of a sales
patent in favor of respondent, the protest was, however, filed with the
Bureau of Lands instead of with the regional trial court as mandated by
the aforequoted provision of Section 38 of Act No. 496. Said provision
expressly states that a petition for review of a decree of registration
shall be filed in the "proper Court of First Instance" (now Regional Trial
Court). The law did not say that such petition may be filed with an
administrative agency like the Bureau of Lands. To be sure, what the
law contemplates in allowing a review of the decree of registration is a
full-blown trial before a regular court where each party could be
afforded full opportunity to present his/its case and where each of them
must establish his case by preponderance of evidence and not by
mere substantial evidence, the usual quantum of proof required in
administrative proceedings. The concept of "preponderance of
evidence" refers to evidence which is of greater weight, or more
convincing, than that which is offered in opposition to it; at bottom, it
means probability of truth.32On the other hand, substantial evidence
refers to such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion, even if other minds equally
reasonable might conceivably opine otherwise.33
As the review of a decree of registration constitutes an attack on the
very integrity of land titles and the Torrens system, a full-blown trial on
the merits before a regular court is necessary for the purpose of
achieving a more in-depth and thorough determination of all issues
involved.
Hence, contrary to petitioner’s assertion, the protest filed by
Bustamante with the Bureau of Lands cannot be considered in the
context of a petition to review the decree of registration issued to
respondent. It was only on November 7, 1989 that such petition was
filed by the Director of Lands with the RTC and obviously, it was way
beyond the one-year period prescribed by law.
It is worth stressing that the Torrens system was adopted in this
country because it was believed to be the most effective measure to
guarantee the integrity of land titles and to protect their indefeasibility
once the claim of ownership is established and recognized. If a person
purchases a piece of land on the assurance that the seller’s title
thereto is valid, he should not run the risk of being told later that his
acquisition was ineffectual after all. This would not only be unfair to
him. What is worse is that if this were permitted, public confidence in
the system would be eroded and land transactions would have to be
attended by complicated and not necessarily conclusive investigations
and proof of ownership. The further consequence would be that land
conflicts could be even more abrasive, if not even violent. The
government, recognizing the worthy purposes of the Torrens system,
should be the first to accept the validity of titles issued thereunder once
the conditions laid down by the law are satisfied.34
Instead of stabilizing the Torrens system, petitioner, in filing a suit for
the amendment of OCT No. 0-28, derogates the very integrity of the
system as it gives the impression to Torrens title holders, like herein
respondent, that their titles can be questioned by the same authority
who had approved their titles. In that case, no Torrens title holder shall
be at peace with the ownership and possession of his land, for land
registration officers can question his title any time they make a finding
unfavorable to said title holder. This is all the more frustrating for
respondent Guerrero considering that he had bought the subject lot
from the government itself, the very same party who is now impugning
his title.
While the Torrens system is not a mode of acquiring titles to lands but
merely a system of registration of titles to lands, 35 justice and equity
demand that the titleholder should not be made to bear the unfavorable
effect of the mistake or negligence of the State’s agents, in the
absence of proof of his complicity in a fraud or of manifest damage to
third persons. The real purpose of the Torrens system is to quiet title to
land and put a stop forever to any question as to the legality of the title,
except claims that were noted in the certificate at the time of the
registration or that may arise subsequent thereto.36 Otherwise, the
integrity of the Torrens system shall forever be sullied by the ineptitude
and inefficiency of land registration officials, who are ordinarily
presumed to have regularly performed their duties.37
Respondent’s certificate of title, having been registered under the
Torrens system, was thus vested with the garment of indefeasibility.
WHEREFORE, the instant petition is hereby DENIED and the assailed
decision is AFFIRMED.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-36566 November 7, 1979
11
URBANO JAVIER and LEONILA ALBIELA, petitioners,
vs.
HON. HERMOGENES CONCEPCION, JR., Hon. ANDRES REYES,
Hon. LUIS REYES, LIM CHUA, TAN TIAN ON alias TAN TIAN UNA
and TAN SIOK TAN alias TAN SIOK TUAN, respondents.
Diogracias de Luna for petitioners.
Bengzon, Bengzon, Villaroman & De Vera for private respondents.
SANTOS, J.:
This is a petition for review by certiorari filed on April 12, 1973, of the
decision of the Court of Appeals, in CA-G.R. No. 46801-R, entitled "Lim
Chua, et al., plaintiffs-appellees versus Urbano Javier, et al.,
defendants-appellants", which upheld the decision of the Court of First
Instance of Quezon in Civil Case 6253 ordering the reconveyance of
the landholdings subject matter of the case to herein private
respondents, plaintiffs-appellees below.
On April 24, 1973, We resolved, giving without due course to the
petition, to require the private respondents, plaintiffs appellees below to
comment within ten (10) days from notice. 1 On May 16, 1973 they filed
their comment claiming that the petition raises no important and
substantial question of law as would warrant a review of the appealed
decision, since only questions of fact were raised in the Court of
Appeals, and that the decision itself "will show conclusively" that it was
based on the findings of fact of respondent Court. 2 In a resolution of
May 21, 1973, We gave due course to the petition. 3 On September 29,
1973, petitioners, defendants-appellants below filed their
brief. 4 Respondents' brief having been filed out of time, We resolved
on December 17, 1973 to expunge the said brief from the records, and
to return the same to the said parties. 5 On January 10, 1974, the case
was considered submitted for decision without respondents' brief. 6 On
January 26, 1974, respondents, through counsel, filed a petition for
leave to file the incorporated memorandum, 7 but We resolved on
February 8, 1974 to deny the same. 8
The factual and procedural antecedents which gave rise to this petition
follow. On October 17, 1959, respondents as plaintiffs, Lim Chua, Tan
Tian On alias Tan Tian Una and Tan Sick Tan alias Tan Shiok Tuan
filed against herein petitioners, then defendants- spouses, Urbano
Javier and Leonila Albiela, with the Court of First Instance of the
Province of Quezon, Civil Case No. 6253, for the reconveyance to the
former of a parcel of land with improvements thereon, known as Lot 12
consisting of fifty (50) hectares, more or less, and an accounting and
recovery of the produce of the land from the time the latter, i.e.,
petitioners herein, took possession of the same in 1945 up to the time
possession is returned to the former. 9 Lot 12 is allegedly a portion of a
big parcel of land designated as Lot 6, PSU-5967, located in Quezon
Province and covered by Transfer Certificate of Title No. 16817 issued
by the Office of the Register of Deeds of Quezon Province in the name
of herein respondents, which parcel of land is more particularly
described as follows:
A parcel of land (Lot No. 6, Plan Psu-5967), with
improvements thereon, situated in the Barrio of
Ayusan, Municipality of Dolores. Bounded on the
NE. by a creek and properties of Vicente Gaurano,
Dionisio Capino, Isidro Briones and Macario G.
Caranto; on the S. by property of Crispo Ella; on
the SW by properties of Francisco Natividad,
Rufino Flores, Isidro Bumiel and Margarita
Valenzuela; on the SW by the property of
Bernardo Marquez; and on the NW. by the
Cabatang River, properties of Marcos Gaurano,
Luciano Santos and Juan Poloa, a creek and
property of Vicente Gaurano; containing an area of
ONE MILLION EIGHT HUNDRED FORTY NINE
THOUSAND ONE HUNDRED AND SEVENTY-
TWO SQUARE METERS, (1,849,172), more or
less. 10
It was further alleged that on April 10, 1930, in Expediente No. 1509,
G.L.R.O. Record No. 25133, and in Expediente No. 1679, G.L.R.O.
Record No. 26112 in which Cosme U. Castillo and Florentina Arcoires
were applicants, said Lot 12 was ordered excluded from Psu-16536,
G.L.R.O. Record No. 25133 and in Plan Psu-13449, G.L.R.O. Record
No. 26112 for the reason that the same was already awarded to herein
respondents as owners in Expediente No. 356, Record No. 14322. 11
In an amended answer filed on November 11, 1959, defendants below,
now petitioners denied the material averments of the complaint and
pointed out that Lot 12 could never be a part of Lot 6, Plan Psu-5967,
because between the two lots there exists a big river more than fifty
(50) meters wide and more than twenty (20) meters deep known as the
Guhit River which serves as the natural boundary between the
municipalities of Dolores and Candelaria of Quezon Province; that Lot
No. 6, Plan Psu-5967 is situated within the jurisdiction of Dolores,
Quezon while Lot No. 12 is situated within the jurisdiction of
Candelaria, Quezon. 12
As special defenses, defendants-petitioners alleged inter alia: (1) that
they acquired Lot No. 12 partly by purchase and partly by inheritance
and they, as well as their predecessors-in-interest, have been in
possession of the same adversely, publicly, continuously, peacefully,
and in the concept of owners against the whole world since the
Spanish time up to the present; (2) that they have title to it granted by
the Spanish government on March 11, 1888; (3) that the lot in question
had been adjudicated to defendants-petitioners' predecessors-in-
interest by the Court of First Instance of Tayabas (now Quezon) in the
decision dated January 14, 1930 rendered in Land Registration Cases
Nos. 1509 and 1679; (4) that they have declared the land for tax
purposes since 1906 paying taxes therefor; (5) that they have cleared
the land and planted on it numerous trees, like coconuts, coffee,
bananas, mangoes, lanzones, oranges, avocado, jack fruits and
bamboos, without any interference from plaintiffs-respondents or their
predecessors-in-interest; (6) that plaintiffs-respondents had never been
the owners and possessors of Lot No. 12 or portion thereof, and if the
same had been included in their title, i.e. TCT No. 16817 of the
Register of Deeds of Quezon Province, the registration and issuance of
the same in their favor had been secured thru fraud and deceit, by
making it appear in the application for registration and the notices of
publication that said Lot No. 6 belonged to them and is within the
jurisdiction of Dolores, Quezon, which is not true since the same is
within the jurisdiction of Candelaria, Quezon, thus deceiving the whole
world of the proper location of the land subject of registration and
publication; and (7) that if plaintiffs-respondents have cause or causes
of action the same have already been barred by the statute of
limitations. 13
By way of counterclaim, defendants-petitioners claimed P5,000.00 for
attorney's fees and P1,000.00 for litigation expenses and that in the
event that plaintiffs-respondents are declared the lawful owners of the
lot in question, they be reimbursed the amount of P150,000.00 for the
reasonable value of improvements they introduced thereon consisting
of a house, camarin made of strong materials and various fruit trees. 14
On June 25, 1968 the court a quo rendered a decision the pertinent
portions of which read as follows:
After a careful scrutiny and deliberation on the
evidence presented by the plaintiffs and the
defendants and after a long search in the archive
of this court for the Expediente of Case No. 1679,
Record No. 26112, Land Registration Case No.
1509 and Case No. 356 which involves said
records, the court has arrived at the ineludable
(sic) conclusion that the property in question,
consisting of about sixty (60) hectares, more or
less, and known as Lot No. 12, Psu-13449, now
Psu-16536-Amd. GLRO Record No. 27112 is
included and comprised within Plan Psu-5967, for
Lot No. 6, GLRO Record No. 14232. That Lot No.
6 covering and which includes lot No. 12, the
property in question, is covered by Transfer
Certificate of 'Title No. 16817 of the Register of
Deeds of Quezon and issued in the name of the
herein plaintiffs; that the defendant Urtano Javier,
since 1924, knew of the fact that the property in
question, Lot No. 12. plan Psu-13449, now Psu-
16536-Amd, is a part and parcel of Lot No. 6.
This conclusion of the Court is supported by the
records of Case No. 1679 wherein the defendant
Urbano Javier was one of the oppositors; Case
No, 356, and Land Registration Case No. 1509.
From the records of Case No. 1679, the Chief
Surveyor of the General Land Registration Office
filed with this Court on February 15, 1927 a
manifestation calling the attention of the Court to
the fact that the land described in plan Psu-13449,
Record No. 26112 which refer to Lot No. 12 and
which is the property in question, is also included
in plan Psu-5967 for Lot No. 6. This Chief
Surveyor of the General Land Registration Office
again on April 28, 1939 filed another manifestation
reiterating his previous manifestation of February
15, 1927 and at the same time informing this court
that Lot No. 6 of Plan Psu-5967 has already been
adjudicated to the herein plaintiffs as could be
found in Expediente 356, GLRO Record No.
14912 and that in said plan Psu-5967 for Lot No.
6, is included Lot No. 12 (the property in question)
of plan Psu-13449 and in said manifestation of the
Chief Surveyor of the General Land Registration
Office, he recommended to this Court the issuance
of an order for the exclusion from plan Psu-16536,
GLRO Record No. 15113 and plan Psu-13449,
GLRO Record No. 26112 involving Lot No. 12,
from portion now in conflict with Lot No. 6 of Plan
Psu-395967 which was included and formerly
decreed in Expediente 356, GLRO Record No.
14232 in favor of the herein plaintiffs.
From the indubitable document found in the record
of the court, one could readily see that the claim of
the defendants to the effect that Lot No. 12 which
12
is the property in question, is not a part of lot No. 6
is untenable, the defendants' contention that the
commissioner's report, Exhibit "X", and the plotted
area in conflict prepared by the court's
commissioner, should not be admitted and given
credit because the I.R. (Investigation Report) 268
wherein the commissioner's report was based was
not presented finds no merit because the
commissioner's report is confirmed by the
manifestation of the Chief Surveyor of the General
Land Registration Office filed with this court dated
February 15, 1927 and April 18, 1939.
With respect to the claim of the defendants that
they acquired the property by prescription, the
same is without merit taking into consideration that
the defendant Urbano Javier knew that the
property in question is within lot No. 6 and covered
by a certificate of title in favor of the plaintiffs since
1924 when he filed an opposition to the
registration of the land in question and, therefore,
could not be said to have acted in good faith for
the purpose of applying the provision of the Civil
Code in ordinary prescription. Neither could the
defendants acquire the property by ordinary
prescription because the defendant has not
possessed the property for a period of thirty (30)
years. Finally, the defendant could not acquire the
property in question for the simple reason that the
same is titled in the name of the plaintiffs and as
such the law and jurisprudence says that no title to
registered land may be acquired by prescription or
adverse possession. (Section 46, Act No. 496;
Rodriguez , Sr. vs. Francisco, L-12039, June 30,
1961).
VIEWED IN THE LIGHT OF ALL THE
FOREGOING, and by preponderance of evidence,
the court hereby renders judgment in favor of the
plaintiffs and against the defendants:
1. Declaring the plaintiffs as the owners of the land
in question;
2. Ordering the defendants to surrender the
possession of the same to the plaintiffs;
3. Ordering the defendants to render an
accounting of the fruits received by them from
1945 up to the time they shall deliver possession
to the plaintiffs;
4. To pay the plaintiffs the amount of P20,000.00
as attorney's fees; and to pay the cost of the
proceedings. 15
Appellants, now petitioners, appealed the above decision to
respondent Court of Appeals. On January 31, 1973 the said Court
rendered a decision affirming that of the court a quo, with the
modification that the award of attorney's fees be disallowed on the
ground that appellants, petitioners herein, did not act with evident bad
faith in occupying the land in question. 16 Motion for reconsideration of
the Court of Appeals decision having been denied, appellants-
petitioners resorted to this Court by way of this petition for review by
certiorari.
Petitioners aver in their brief before this Court that the Court of Appeals
erred —
(1) in holding that there was no fraud in the
registration of Lot No. 12, Plan Psu-16536-AMD-3;
(2) in holding that the cause of action of the private
respondents has not been barred by the Statute of
Limitation or by laches;
(3) in not ordering the private respondents to
reconvey the land in question to the petitioners;
and
(4) in not ordering private respondents to pay for
the improvements introduced by them on the land
in question from 1945. 17
We shall now consider and resolve the foregoing in seriatim.
1. Defendants-petitioners assail the registration of the land in question
(Lot No. 12, Plan Psu-16536-AMD-3) as having been secured through
fraud and misrepresentation, considering that in the Notice of Initial
Hearing in Land Registration Case No. 365, G.L.R.O. Record No.
14232, Lot No. 6, which, as found by the lower court includes Lot No:
12, was made to appear as situated in Barrio Ayusan, Municipality of
Dolores only, when in fact it is also situated in Barrio Masalocot
Municipality of Candelaria, both of the province of Quezon, thereby
depriving the whole world, including the petitioners, defendants below,
of their opportunity to oppose the registration thereof. In this
connection, respondent Court of Appeals explicitly found that "after
going over the records, the pleadings and the evidence adduced, We
found no trace of fraud and misrepresentation in the procurement of
the transfer certificate of title. 18 Fraud as a legal basis for review of a
decree means actual or positive fraud as distinguished from
constructive or legal fraud. 19 Since the existence or attendance of
actual or positive fraud is a question of fact, and respondent Court
having ruled out the same, We have no basis to sustain defendants-
petitioners' contention that it attended the procurement of the title. The
lot in question, Lot No. 12, Plan Psu-16536-AMD was also found to be
"part and parcel of Lot No. 6" for which TCT No. 16817 of the Register
of Deeds of Quezon was issued on July 9, 1941 in the name of
plaintiffs, now respondents. 20 This factual finding stands in the
absence of weighty considerations to warrant its reversal. As held
in Evangelista & Co., et al., v. Abad Santos21 "(I)t is not the function of
the Supreme Court to analyze or weigh such evidence all over again,
its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court." Moreover, the factual conclusion
in the case at bar, as in Evangelista & Co., et al. v. Abad Santos, has
been arrived at after weighing both the testimonial and documentary
evidence presented. Finally, the decree of registration has long
become final, absent a showing that the same was questioned within
one (1) year after the entry thereof was made. Under Section 38 of the
Land Registration Act, as amended, the person allegedly deprived of
the land by a decree of registration obtained by fraud should file in the
competent Court of First Instance a petition for review within one year
after the entry of the decree provided no innocent purchaser for value
has acquired an interest. Thus, granting that there was actual or
positive fraud in securing the title, defendants-petitioners are now
barred from questioning the same.
2. Petitioners next contend that respondents' cause of action has
already been barred by the statute of limitations or by laches since they
never asserted their right over the land in question wire petitioners,
defendants below, were in continuous, public and peaceful possession
thereof during the period from December 29, 1927 when the Original
Certificate of Title was issued up to October 17, 1959 when the
complaint was filed, and, therefore, the land in question should be
reconveyed to them.
In a similar case 22 for recovery of possession of registered land, the
defendant set up the defense of prescription and title in himself through
"open, continuous, exclusive and public and notorious possession
under claim of ownership, adverse to the entire world ... from time
immemorial" and that the registration of the land in dispute was
obtained through. "fraud or error and without knowledge (of) or notice
either personal or thru publication to defendant and/or predecessors-in-
interest." 'This Court there held, citing Sorongon v. Makalintal, 23 thus:
As the land in dispute is covered by plaintiff's
Torrens Certificate of Title and was registered in
1914, the decree of registration can no longer be
impugned on the ground of fraud, error or lack of
notice to defendant, as more than one year has
already elapsed from the issuance and entry of the
decree. Neither could the decree be collaterally
attacked by any person claiming title to, or interest
in, the land prior to the registration proceedings.
Defendants', now petitioners', position is untenable, the established
rule being that one cannot acquire title to a registered land by
prescription or adverse possession. Thus, in the same case of Tuason
v. Bolanos, supra, this Court reiterated this principle when it held:
... Nor could title to that land in derogation of that
of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46,
Act No. 496). Adverse, notorious and continuous
possession under claim of ownership for the
period fixed by law is ineffective against a Torrens
title. (Valiente vs. Judge of CFI of Tarlac, etc., 45
Off. Gaz., Supp. 9, p. 43) and it is likewise settled
that the right to secure possession under a decree
of registration does not prescribe. (Francisco vs.
Cruz, 43 Off. Gaz., 5105, 5109-5110) A recent
decision of this Court on this point is that rendered
in the case ofJose Alcantara, et al. vs. Mariano, et
al., 92 Phil. 796 ...
Hence, defendants-petitioners' claim that plaintiffs-respondents' cause
of action has prescribed is without merit.
On the defense of laches, petitioners rely on the authority of Mejia de
Lucas vs. Gamponia, 100 Phil. 277 (1956). There is no parallelism
between the case at bar and that cited by petitioners. In the Mejia de
Lucas case, which was an action for reconveyance, the land was
acquired by Domingo Mejia by means of free patent. Eleven (1 1) days
after the issuance of the patent and before that of the certificate of title,
Domingo Mejia sold the land to Zacarias Ciscar who immediately took
possession and enjoyed the fruits thereof. Upon the latter's death the
13
land was included in the distribution of his estate and adjudicated to
Roque Sanchez who in turn sold the same to Andres Gamponia, the
defendant. The time during which the land in question was
successively held in possession by Ciscar, Sanchez and Gamponia
covered a period of 37 years. Meanwhile, Domingo Mejia died leaving
his brother, Pedro Mejia, as his only surviving kin. When the latter also
died, he was survived by his daughter Concordia Mejia de Lucas, the
plaintiff therein.
On the foregoing facts, this Court upheld the equitable defense of
laches in this wise:
Upon a careful consideration of the facts and
circumstances, we are constrained to find,
however, that while no legal defense to the action
lies, an equitable one lies in favor of the defendant
and that is, the equitable defense of laches. No
(sic, should be We) hold that the defense of
prescription or adverse possession in derogation
of the title of the registered owner Domingo Mejia
does not lie, but that of the equitable defense of
laches. Otherwise stated, We hold that while
defendant may not be considered as having
acquired title by virtue of his and his predecessors'
long continued possession for 37 years, the
original owner's right to recover back the
possession of the property and the title thereto
from the defendant has, by the long period of 37
years and by patentee's inaction and neglect,
been converted into a stale demand. 24
It can be readily seen that in the above-cited case the land in question
came into the possession of the defendant-appellant Gamponia after a
series of transfers from Domingo Mejia, the original owner and plaintiff-
appellee's (Mejia de Lucas') predecessor-in-interest to three other
persons and their successors-in-interest, whose rights and obligation
would have been affected by a contrary decision. Said the Court:
... All of these transfer(s) from Zacarias Ciscar to
his heirs, to Roque Sanchez and to defendant
Andres Gamponia, acts which covered a period of
37 years, would all have to be undone and the
respective rights and obligations of the parties
affected adjusted, unless the defense is
sustained. 25
This circumstance obtaining in the Mejia de Lucas case is not present
in the case at bar. Here, there are no intervening rights of third persons
which may be affected or prejudiced by a decision directing the return
of Lot No. 12 to plaintiffs-respondents, Hence, the equitable defense of
laches will not also apply as against the registered owners in this case.
3. The third assigned error does not raise an issue, and is merely a
consequence of the first and second assigned errors. In the light of our
resolution therein as shown in the foregoing, the same is without merit.
4. As regard the 4th and last issue, We agree with respondent Court of
Appeals' finding that petitioners did not act with evident bad faith in
occupying the land in question. This being likewise a question of fact,
and there being substantial evidence in the records to support the
finding, We reiterate the established principle applied in Evangelista v.
Abad Santos, et al., supra, and a host of other cases cited, that as a
rule the same should not be disturbed.
As possessors in good faith, petitioners are entitled to the fruits
received before their possession was legally interrupted 26 upon receipt
of judicial summons 27 in connection with the filing of the complaint for
reconveyance on October 17, 1959. 28 However, the records do not
show when the summons were received by the defendants-spouses,
Javier, In the absence of such proof and in the interest of justice, We
hold that possession in good faith was legally interrupted on November
11, 1959, when their amended answer was filed,* — which is less than
a month from the date the summons was apparently received. For the
difference of a few days or about two (2) weeks in reckoning the
starting date of possession in bad faith will not materially affect the
prevailing party's entitlement to the fruits of the holding since the same
will be reckoned seasonally. Petitioners should also be refunded the
necessary and useful expenses, with the right to retain the land until
reimbursed of the same, pursuant to Article 546 of the Civil Code.
Under the said provision, respondents have the option to refund the
amount of useful expenses or to pay the increase in value which the
land may have acquired by reason thereof. In this connection,
petitioners have placed the market value of improvements on the
property consisting of various fruit trees, bamboos, a house and
camarin made of strong materials, at P150, 000.00 29 and this amount
does not appear to be disputed. The average share of the owner was
likewise compromised at sixty (60) cavans per year, 30 at an average
price of seven pesos (P7.00) per cavan 31 as of the date of the hearing
on September 23, 1960.
In view of Article 544 of the Civil Code, supra, petitioners shall be
accountable for the fruits of subject property only after 1959, not from
1945.
WHEREFORE, the decision of the Court of Appeals is hereby
AFFIRMED, with the modification that petitioners render an accounting
of the entire produce of the holding from November 11, 1959, which,
with respect to palay crop had been fixed at sixty (60) cavans a year at
seven pesos (p7.00) per cavan as of September 23, 1960, up to the
time the subject land is actually reconveyed to private respondents.
The value of necessary and useful expenses due petitioners in the
amount of One Hundred Fifty Thousand Pesos P150,000.00) having
been proved and not controverted, no further proof is required.
Let the records of this case be remanded to the Court of origin for the
determination of the value of the entire produce, in addition to the palay
crop, to which private respondents are entitled from November 11,
1959 to the time possession of subject property is delivered to them by
petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24864 April 30, l985
FORTUNATO HALILI, doing business under the name and style
HALILI TRANSIT (substituted by EMILIA DE VERA DE
HALILI), petitioner
vs.
COURT OF INDUSTRIAL RELATIONS and HALILI BUS DRIVERS
and CONDUCTORS UNION (PTGWO), respondents.
G.R. No. L-27773 April 30, l985
EMILIA DE VERA VDA. DE HALILI, petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS and HALILI BUS DRIVERS
AND CONDUCTORS UNION (PTGWO), respondents.
G.R. No. L-38655 April 30, l985
FELICIDAD M. TOLENTINO, et al., petitioners,
vs.
COURT OF INDUSTRIAL RELATIONS, et al., respondents.
G.R. No. L-30110 April 30, l985
EMILIA DE VERA VDA. DE HALILI petitioner,
vs.
HALILI BUS DRIVERS AND CONDUCTORS UNION-PTGWO and
COURT OF INDUSTRIAL RELATIONS, respondents.
RESOLUTION
MAKASIAR, J.:
Before Us for resolution is the urgent motion to cite Atty. Benjamin C.
Pineda, Ricardo Capuno and Manila Bank (Cubao Branch) in contempt
for the alleged continued failure of aforenamed parties to comply with
the temporary mandatory restraining order issued by this Court on
September 1, 1983 and with the resolution dated September 13, 1983
which again directed Atty. Pineda and union administrator Capuno to
comply with the aforesaid mandatory restraining order and which
ordered the Manila Bank to transfer the funds allocated for the workers
to the NLRC (p. 376, L-24864, rec.; p. 301, L027773 rec.).
The issuance of the temporary mandatory restraining order stemmed
from the questioned orders of September 23, 1982 and February 9,
1983 issued by Labor Arbiter Raymundo Valenzuela in Case No. 1099-
V before the NLRC which orders respectively allowed the sale of the
property awarded to satisfy or answer for the claims of the union
members in these four cases and authorized the distribution of the
proceeds of the purchase.
For a better appreciation of the aforesaid motion for contempt, We
must recall certain prefatory facts which the Solicitor General has so
aptly summed up. Thus:
The above-entitled cases involve disputes
regarding claims for overtime of more than five
hundred bus drivers and conductors of Halili
Transit. Litigation initially commenced with the
filing of a complaint for overtime with the defunct
Court of Industrial Relations on August 20, 1958
docketed as CIR Case No. 1099-V. The disputes
14
were eventually settled when the contending
parties reached an Agreement on December 23,
1974, the pertinent portions of which are as
follows:
WHEREAS, in the face of this strong urging on the
part of the Supreme Court Justices upon the
parties to put an immediate end to this case by
amicable settlement, the parties repeatedly came
to conference, conscientiously explored all
avenues of settlement, and finally arrived at the
tentative agreement (tentative because of the
condition that the same be sanctioned by the court
in the estate case) whereby the Administratrix
would transfer to the employees title to that tract of
land, covered by TCT No. 36389, containing an
area of approximately 33,952 square meters,
situated in the Barrio of San Bartolome,
Municipality of Caloocan, Province of Rizal, and
pay in addition the cash amount of P25,000.00 in
full and final satisfaction of all the claims and
causes of action of all of the employees against
the estate of Fortunato F. Halili subject of CIR
Case No. 1099-V.
xxx xxx xxx
NOW, THEREFORE, for and in consideration of
the foregoing and of the covenants, stipulations
and undertakings hereinafter contained, the
parties have agreed as follows:
l. The UNION, its officers and members-claimants
relative to CIR Case No. 1099-V, shall withdraw
and dismiss with prejudice Case No. 1099-V filed
by the UNION in behalf of its members-claimants
before the Court of Industrial Relations and all its
incidents thereto.
2. The ESTATE shall deliver or cause to be
delivered, to the UNION the following:
(a) Deed of Transfer of a parcel of land situated in
Barrio San Bartolome, Caloocan City, containing
an area of THIRTY-THREE THOUSAND NINE
HUNDRED FIFTY-TWO (33,952) Square Meters,
more or less, and covered by Transfer Certificate
of Title No. 35389 of the Registry of Deeds of
Rizal, to be made, upon authority and approval
granted by the Court of First of Rizal, Branch IV, at
Quezon City, in Proc. No. Q-10852 in the name of
the Halili Bus Drivers & Conductors Union
(PTGWO), free from any and all liens
encumbrances, and any and all claims
whatsoever.
(b) Negotiable Check for TWENTY-FIVE
THOUSAND (P25,000.00) PESOS in the name of
Domingo D. Cabading, President of the UNION.
3. The transfer of the above-described parcel of
land and receipt of the amount of P25,000.00
constitute the full and final satisfaction of the
claims and award in said CIR Case No. 1099-V, as
well as any and all attorney's liens in said case, for
and in consideration of which the UNION
members-claimants in CIR Case No. 1099-V by
these present now and forever release and
quitclaim Halili Enterprises, Halili Transit,
Fortunato F. Halili his estate, heirs and successors
by reason of CIR Case No. 1099-V, it being their
intention that they be absolutely, completely and
finally absolved and released from any and all
liability in said case, including attorneys' liens the
transfer of the property and payment of the
amount hereinabove stated constituting for all
intents and purposes a full, final and complete
settlement and satisfaction of the award in CIR
Case No. 1099-V and all incidents thereto.
4. The UNION and its undersigned officers hereby
warrant that the UNION is a duly registered labor
organization and that in a special meeting called
for the purpose they were duly authorized on
December 22, 1974, by all the members-
claimants in CIR Case No. 1099-V to sign this
Memorandum of Agreement with Release and
Quitclaim which was unanimously approved and
ratified by said members-claimants as evidenced
by a Resolution dated December 22, 1974, a copy
of which is attached hereto and made a part
hereof as Annex "B", and hereby jointly and
severally hold the estate and heirs of Fortunato F.
Halili free and harness from, and undertake to
 indemnify them for, any and all liability for any
claims by members of the UNION, their heirs,
assigns and agents relating to CIR Case No.
1099-V or attorneys' liens in connection therewith
(69 SCRA 509-510).
On January 6, 1975, pursuant to the Agreement,
the administratrix of the estate of Fortunato F,
Halili executed a Deed of Conveyance of Real
Property, transferring the aforementioned parcel of
land to the Halili Bus and Conductors Union
(PTGWO) in trust for the members of the union
claimants. The parcel of land was eventually
registered in the name of the Union on February
14, 1975. Hence, on February 10, 1976, the
contending parties moved for the dismissal of G.R.
No. L-30110 and G.R. No. L-38655, which this
Honorable Court granted on February 27, 1976
(69 SCRA 505). The two other cases, G.R. No. L-
24864 and G.R. No. L- 27773, were previously
disposed of on February 26, 1968 and December
28, 1970, respectively (22 SCRA 785. and 36
SCRA 522).
On August 9, 1982, the Union, through Atty.
Benjamin C. Pineda, filed an urgent motion with
the Ministry of Labor and Employment (MOLE)
requesting for authority to sell and dispose of the
property. The motion was granted in an order
dated September 23, 1982. A prospective buyer,
the Manila Memorial Park Cemetery, inc.
expressed its misgivings on the authority of the
Union to sell the property in view of sec. 66 of PD
1529 which requires no less than an order from a
court of competent jurisdiction as authority to sell
property in trust. So, Atty. Pineda filed a motion
with the Supreme Court on December 1, 1982
requesting for authority to sell the property, This
Honorable Court, however, merely noted the
motion in a resolution dated December 8, 1982.
Nevertheless, Atty. Pineda, without authority from
the Supreme Court but relying on the earlier
authority given him by the Ministry of Labor, filed
another urgent motion with the latter, praying that
the Union be authorized to sell the lot to the Manila
Memorial Park Cemetery, Inc. and to make
arrangements with it such that payment will be
advanced for the real estate taxes inclusive of
penalties, attorney's lien which is equivalent to a
thirty-five percent (35%) of the total purchase
price, and home developer's fee of P69,000.00.
Apparently, the prospective purchaser had
decided to withdraw its objection regarding the
Union's authority to sell. In an Order dated
February 9, 1983, Labor Arbiter Raymundo R.
Valenzuela granted the motion. So, the sale was
finally consummated on June 7, 1983, resulting in
the execution of an escrow agreement on June 8,
1983 wherein the purchase price was deposited
under escrow with the Manila Bank-Cubao Branch.
The Bank then released the amounts due the
claimants in accordance with the escrow
agreement" (pp. 352- 356, L-24864 rec.).
The dispositive portion in L-24864 is re-stated hereunder:
WHEREFORE, the appealed order and resolution
en banc are hereby affirmed and the Court of
Industrial Relations is hereby enjoined to make a
judicial determination of the union membership of
the claimants, while the Examining Division of said
court shall proceed with its computation of the
compensable hours of work rendered by, and the
corresponding compensation payable to, the
drivers and conductors admitted by both parties to
be union members since October 1, 1956 and
those contended by the union to be such members
but disputed by the employer. No costs. So
ordered (p. 186, L-24864 rec.).
When Atty. Jose C. Espinas (herein movant and alleged original
counsel for the Union) learned of the sale and apportionment of the
proceeds from past Union president Amado Lopez, he requested Labor
Arbiter Raymundo Valenzuela to allow him to look into the records of
Case No. 1099-V. The latter, however, told him that the records of the
aforecited case were missing. Thereupon, Atty. Espinas requested
Director Pascual Reyes of the NLRC to locate the records (p. 356,
L24864 rec.).
Hence, Atty. Espinas filed the urgent motion with prayer for a
temporary mandatory restraining order on August 26, 1983 and the
supplement thereto on August 29, 1983 (pp. 215, 227, L-24864 rec.).
15
On August 30, 1983, the records of Case No. 1099-V were finally
found and Atty. Espinas was dully informed of the development,
The above two motions question the legality of the orders dated
September 23, 1982 and February 9, 1983 issued by Labor Arbiter
Raymundo Valenzuela in Case No. 1099-V before the NLRC which
authorized the sale of the awarded property and the distribution of the
proceeds from such purchase.
Movants Union and counsel Espinas upon filing of the motions urgently
pray of thisourt to:
1. Require Atty. Benjamin C. Pineda to deposit with the NLRC the
amount of P712,992.00 paid to him or deposited to his account at
Manila Bank, Cubao Branch,allegedly representing 35% attorney's
fees on the sale of 33,952 square meters of the lot registered in the
name of the Union;
2. Require the Halili Drivers and Conductors Union through Domingo
Cabading or any of his representatives to deposit with the NIRC the
6% alleged union expenses paid to them or similarly deposited to their
account;
3. Implead with leave of court this Manila Bank Cubao Branch to
require the said bank to prevent further withdrawals of amount
deposited in the name of Atty. Pineda and/or the Halili Drivers and
Conductors Union or any of its officers and to turn over any remaining
deposits to the NLRC for proper disposition;
4. Should Atty. Pineda and the Union officers have already withdrawn
the deposits or parts thereof, require them to post a bond in the
equivalent amounts of 35% (attorney's fee), 6% (union expenses), and
5% (broker's fee) respectively of the total proceeds of the sale of the
property, solidarity (p. 219, L-24864 rec.; p. 160, L-27773 rec.).
Likewise, and after due consideration of the merits, movants prayed
that—
1. the order of Arbiter Valenzuela dated February 9, 983 be nullified
insofar as it allows Atty. Pineda 35% attorney's fees;
2. the NLRC be directed to locate the records of Case No. 1099-V or
reconstitute the same and thereafter to equitably dispose 20% as fees
to all lawyers who participated in the proceedings and any excess
amounts to be again distributed to the workers; and
3. these cases be remanded to the NLRC with instructions as above-
stated and that the proper penalty be imposed on those involved and
who have acted fraudulently and illegally (p. 220, L-24864 rec.; p. 165,
L-27773 rec.).
The succeeding pleadings and developments which are common to all
these cases are now presented chronologically.
On August 29, 1983, Atty. Espinas, for himself and members of the
respondent Union, filed a supplement to urgent motion stating that the
prayers in the urgent motion of August 26, 1983 are reiterated and
praying for the nullification of Arbiter Valenzuela's order not only on the
award of attorney's fees but also on the allowance of payment of
"union obligations" not previously authorized nor approved by the
NLRC (p. 227, L-24864, rec.; p. 176, L-27773 rec.).
In its resolution dated September 1, 1983, this Court impleaded the
Manila Bank, Cubao Branch as party respondent and directed the
issuance of a temporary mandatory restraining order (p. 234, L-24864
rec. & p. 187, L-27773 rec.). This Court correspondingly issued a
temporary mandatory restraining order on the same date which
enjoined Atty. Benjamin C. Pineda or his agents or any person acting
in his stead to deposit with the NLRC the amount of P712,992.00 paid
to him or deposited in his account at Manila Bank, Cubao Branch
allegedly representing 35% attorney's fees on the sale of 33,952
square meters of the lot registered in the name of Halili Drivers and
Conductors Union; directed the Union thru Domingo Cabading or his
agents to deposit with the NLRC 6% alleged union expenses paid to
the Union or similarly deposited to its account; and ordered the NLRC
and Manila Bank, Cubao Branch, or their agents or persons in their
stead not to allow withdrawals of amounts deposited in the name of
Atty. Benjamin C. Pineda and/or the Union or any of its officers (P. 235,
L-24864; p. 188, L-27773 rec.).
On September 6, 1983, respondent Union, thru Atty. Pineda, filed its
comment, in compliance with the resolution of September 1, 1983, on
the urgent motion and the supplement thereto both filed by counsel
Espinas, alleging therein that the subject matter sought to be enjoined
or mandated by the restraining order ceased to exist rendering the
same moot and academic, and thus praying for the dismissal of the
said motion and the supplement thereto (p. 237, L-24864 rec.; p. 191,
L-27773 rec.).
On September 7, 1983, Atty. Pedro Lopez, an original associate of
Atty. Espinas, filed his motion for leave to intervene, with the
submission that the lawyers involved should only divide 20% fees as
per the workers' contract and the rest refunded by Atty. Pineda and the
alleged "union officers" for redistribution to the members (p. 265, L-
24864, rec.; p. 219. L-27773 rec.).
Atty. Espinas, in behalf of the workers, filed a manifestation and motion
to require Atty, Pineda and the union to comply with the temporary
mandatory restraining order on September 9, 1983, with prayer that the
Manila Bank be ordered to transfer the funds allocated for the workers
to the NLRC, which should be instructed to pay the workers upon
proper Identification (without prejudice to additional shares) or to mail
such amounts by money order or manager's check to the workers'
addresses as furnished to the NLRC (p. 274, L-24864, rec.; p. 231, L-
27773 rec.).
On September 12, 1983, petitioner filed a manifestation in compliance
with the resolution of September 2, 1983 stating, among other things,
that its liability had been completely extinguished with the approval of
the Memorandum of Agreement with Release and Quitclaim in L-38655
and L-30110; that said agreement operated as an absolute and
complete release of petitioner from any liability to the Union; and that
petitioner had not been given any notice of any proceedings respecting
cases subsequent to the promulgation of the decisions aforestated (p.
281, L-24864, rec.; p. 237, L-27773 rec.).
Counsel Espinas (for the workers involved) filed his reply to comments
of respondent Union on September 14, 1983 praying for this Court to:
1. nullify the order of February 9, 1983 issued by Arbiter Raymundo
Valenzuela in CIR Case No. 1099-V and others connected therewith
regarding the distribution of proceeds of the sale of the land belonging
to the members-claimants for lack of due process and for being
contrary to law;
2. nullify the 35% attorney's fees of Atty. Benjamin Pineda as illegal
and unconscionable and in disregard of other lawyers in the case;
3. require reimbursement to the members-from the Union P101,856.00
allocated without their consent as Union expenses; P101,856
unreceipted brokers' fees less P4,020.40 expenses for the transfer of
title; to refund the 1 % of the net proceeds, P9,596.18, for named
claimants; and to secure a refund of P308,000.00 from the
P712,992.00 fees of Atty. Pineda (the excess of 20% fees for all
lawyers);
4. subject the balance of P404,992.00 of the remainder of Atty.
Pineda's 35% fees for distribution among the three lawyers as may be
determined by the NLRC; and
5. should this Court so decides, fix the fees (p. 285, L- 24864 rec.; p.
240, L-27773 rec.).
On September 13, 1983, the Solicitor General filed his comment on the
urgent motion and the supplement thereto dated August 25, 1983 and
August 29, 1983, respectively with the recommendations that (1) the
orders of Arbiter Valenzuela dated September 23, 1982 and February
9, 1983 be nullified for having been issued without due process; (2) the
case must be remanded to the NLRC for further proceedings; and (3)
the temporary restraining order issued by this Court on September 1,
1983 be maintained, pending final resolution by the NLRC (p. 351, L-
24864 rec.).
The Solicitor General, on October 6, 1983, filed his manifestation and
motion in lieu of comment on the motion of Atty. Pedro Lopez for leave
to intervene in L-24864 and L-27773 (p. 360, L-24864 rec.; p. 289, L-
27773 rec.).
On October 6, 1983, counsel Espinas filed his comment on the
intervention of Atty. Pedro Lopez wherein he offers no objection to the
latter's intervention and states that said counsel is also entitled to
attorney's fees in accordance with his participation (p. 364, L-24864
rec.; p. 292, L-27773 rec.).
Atty. Pineda filed his comment and manifestation on October 7, 1983,
in compliance with the resolution of September 13, 1983, alleging
therein that as per Retainer's Contract dated January 1, 1967, he
handled Case No. 1099-V before the Court of Industrial Relations
alone. On the mandatory restraining order, Atty. Pineda claims that as
of October 4, 1983, he had a balance of P2,022.70 in his account with
the Manila Bank (p. 370, L-24864 rec.; p. 295, L-27773 rec.).
In its resolution dated October 18, 1983, this Court (1) set, aside as
null and void the orders of September 23, 1982 and February 9, 1983
of Arbiter Raymundo R. Valenzuela; (2) allowed the intervention of
Atty. Pedro Lopez; (3) directed the Manila Bank (Cubao Branch), Atty.
Benjamin Pineda, and the Halili Drivers and Conductors Union through
Domingo Cabading or any of his representatives, to comply with the
temporary mandatory restraining order issued on September 1, 1983
and the resolution dated September 13, 1983, within ten [10] days from
receipt thereof; and (4) remanded these cases to the NLRC for further
proceedings (p. 374, L-24864 rec.; p. 299, L-27773 rec.).
16
The day before or on October 17, 1983, Sergio de Pedro, as
representative of the workers and assisted by Atty. Espinas, thus fided
the urgent motion to cite Atty. Pineda, Ricardo Capuilo and Manila
Bank (Cubao Branch) in contempt, alleging therein that after two letters
dated October 6 and October l4, l983 to the NLRC which inquired as to
whether or not compliant, with the restraining order had been made,
the Commission certified that as of October 14, 1983, no deposits had
been effected by the parties so (directed (p. 376, L-24864 rec.; p. 301,
L-27773 rec.).
In its manifestation and motion filed on November 2, 1983, respondent
Manila Banking Corporation (Rustan-Cubao Branch), in compliance
with this Court's resolution of September 13, 1983, stated that it
transmitted or paid to the NLRC the amount of P417,380.64 under
Cashier's Check No. 34084190 for the account of the Union and
P2,022.70 under Cashier's Check No. 34084191 for the account of
Atty. Pineda and thus prayed therein that the aforesaid transmittals be
deemed as sufficient compliance with the aforecited resolution and that
the urgent motion to cite respondents in contempt dated October 17,
1983 be considered moot and academic (p. 390, L-24864 rec.).
On November 8, 1983, respondent Atty. Pineda filed his manifestation
and motion in lieu of comment in compliance with this Court's
resolution of October 20, 1983, stating that he and respondent Union
thereby adopt the aforecited manifestation and motion of respondent
Manila Banking Corporation and thus prayed that since they have
complied with this Court's resolution of September 13, 1983, the urgent
motion to cite them for contempt be considered moot and academic (p.
394, L-24864 rec.; p. 310, L-27773 rec.).
On November 10, 1983, respondent Manila Banking Corporation filed
another manifestation and motion in lieu of commence, by way of
compliance with the Court's resolution of October 20, 1983 with prayer
that its previous manifestation and motion dated October 28, 1983 and
filed on November 2, 1983 be considered as sufficient compliance with
the resolution of September 13, 1983 which would render the urgent
motion to cite respondents in contempt moot and academic (p. 396, L-
24864 rec. p. 312, L-27773 rec.).
On the foregoing manifestations and motions, representative Sergio de
Pedro, with the assistance of Atty. Espinas, filed a comment on
November 16,1983 wherein he alleged that out of the P2,037,120.00
purchase price, only Pl,940,127.29 was deposited with the Manila
Bank; that Atty. Pineda has yet to return the balance of P710,969,30;
and that the Union has still to account for P111,452.18 (p. 399, L-
24864 rec.; p. 315, L-27773 rec.).
December 14, 1983, respondent Union filed its reply to Mr. de Pedro's
above unsigned comment therein stating among other things that the
alleged missing amount of P96.992.71 was used for the payment of
outstanding real estate taxes on real property of said Union covered by
TCT No. 205755 and that the amount of P2,022.70 only was remitted
by Manila Bank to the NLRC for the account of Atty. Pineda (p. 323, L-
27773 rec.)
On December 20, 1983, Mr. de Pedro and Atty. Espinas, for the
workers involved, filed their rejoinder to the comment of Atty. Pineda
and Mr. Capuno reiterating therein their plea to declare Atty. Pineda
and Mr. Capuno in contempt of court and to mete out the proper
penalty (p. 328, L-27773 rec.).
The Manila Banking Corporation filed its compliance with the Court
resolution of November 22, 1983 on February 3, 1984, praying that its
report to the NLRC on the amount of withdrawals be considered as
sufficient compliance with the said resolution (p. 343, L-27773 rec.).
Atty. Espinas filed his comment and motion on March 15, 1984, stating
among other things that as per report of the Manila Bank to the NLRC,
Atty. Pineda has not yet complied with the said order. He thus moved
that Atty. Pineda be required to post a bond on the undeposited
balance in the amounts of P710,969.30 and that Mr. Capuno be also
required to post a bond before the NLRC on the undeposited balance
of P52,236.04 during the pendency of the motion for contempt (p. 373,
L-27773 rec.).
On April 4, 1984, Mr. Sergio de Pedro filed his reply to the aforesaid
comment of the Union administrator and Atty. Pineda stating therein
that there are still questions to be resolved on the merits before the
NLRC and hence, prays that Arbiter Antonio Tirona be required to
continue hearing the merits of the case pending in the said
Commission (p. 377, L-27773 rec.).
Before We resolve the motion for contempt, certain crucial facts which
have surfaced and which precipitated Our issuance of the resolution of
October 18, 1983 declaring the two questioned orders of Arbiter
Valenzuela as null and void, must be retraced.
Then Union President Amado Lopez, in a letter dated August 21, 1958,
informed J.C. Espinas and Associates that the general membership of
the said Union had authorized a 20% contingent fee for the law firm
based on whatever amount would be awarded the Union (p. 267, L-
24864 rec.).
Atty. Jose C. Espinas, the original counsel, established the award of
897 workers' claim in the main cases before the defunct CIR and the
Supreme Court. In L-24864, the Notice of Judgment of this Court dated
February 26, 1968 was served on Messrs. J.C. Espinas & Associates
(p. 188, L-24864 rec.). In L-27773, the Notice of Judgment dated
December 29, 1970 was sent to Atty. B.C. Pineda & Associates under
same address-716 Puyat Bldg., Suit 404 at Escolta, Manila (p. 147, L-
27773 rec.) Note that this is the same address of Atty. J.C. Espinas &
Associates.
When Atty. 'Pineda appeared for the Union in these cases, still an
associate of the law firm, his appearance carried the firm name B.C.
Pineda and Associates," giving the impression that he was the
principal lawyer in these cases.
Atty. Pineda joined the law firm of Atty. Espinas in 1965 when these
cases were pending resolution. He always held office in the firm's
place at Puyat Building, Escolta until 1974, except in 1966 to 1967
when he transferred to the Lakas ng Manggagawa Offices. During this
one-year stint at the latter office, Atty. Pineda continued handling the
case with the arrangement that he would report the developments to
the Espinas firm. When he rejoined the law firm in 1968, he continued
working on these cases and using the Puyat Building office as his
address in the pleadings.
When Atty. Pineda rejoined the Espinas firm in 1968, he did not reveal
to his partners (he was made the most senior partner) that he had a
retainer's contract entered into on January 1, 1967 which allegedly
took effect in 1966. He stayed with the law firm until 1974 and still did
not divulge the 1967 retainer's contract. Only the officers of the Union
knew of the contract.
The alleged retainer's contract between Atty. Pineda and the Union
appears anomalous and even illegal as well as unethical considering
that-
1. The contract was executed only between Atty. Pineda and the
officers of the Union chosen by about 125 members only. It was not a
contract with the general membership, Only 14% of the total
membership of 897 was represented. This violates Article 242 (d) of
the Labor Code which provides:
The members shall determine by secret ballot,
after due deliberation, any question of major policy
affecting the entire membership of the
organization, unless the nature of the organization
or force majeure renders such secret ballot
impractical, in which case the board of directors of
the organization may make the decision in behalf
of the general membership (emphasis supplied).
2. The contingent fee of 30% for those who were still working with Halili
Transit and the 45% fee for those who were no longer working worked
to the prejudice of the latter group who should and were entitled to
more benefits. Thus, too, when the alleged retainer's contract was
executed in 1967, the Halili Transit had already stopped operations in
Metro Manila. By then, Atty. Pineda knew that all the workers would be
out of work which would mean that the 45% contingent fee would apply
to all.
3. The contract which retroactively took effect on January 1, 1966, was
executed when Atty. Espinas was still handling the appeal of Halili
Transit in the main case before the Supreme Court. Atty. Pineda would
have but did not substitute himself in place of Atty. Espinas or the law
firm on the basis of such contract.
4. When Atty. Pineda filed his motion for approval of his attorney's lien
with Arbiter Valenzuela on February 8, 1983, he did not attach the
retainer's contract.
5. The retainer's contract was not even notarized (p. 248, L-24864
rec.).
The Manila Memorial Park Cemetery, Inc., as the prospective buyer,
initially expresses its misgivings over the authority of the Union to sell
subject property conformably with Section 66 of P.D. No. 1529, which
requires an order from a court of competent jurisdiction authorizing the
sale of a property in trust. The pertinent portion of Section 66 provides:
No instruments which transfers or mortgages or in
any way deals with registered land in trust shall be
registered, unless the enabling power thereto is
expressly conferred in the trust instrument, or
unless a final judgment or order of a court of
competent jurisdiction has construed the
instrument in favor of the power, in which case a
certified copy of such judgment or order may be
registered.
The decision of aforenamed purchaser to stop questioning the Union's
authority to sell and the expeditious manner by which Arbiter
17
Valenzuela granted Atty. Pineda's motion for such authority to sell the
property make the entire transaction dubious and irregular.
Thus, without notice to the other lawyers and parties, Atty. Pineda
commenced the proceeds before the NLRC with the filing of a motion
and manifestation on August 9, 1982 with Arbiter Valenzuela of the
NLRC Office of the Labor Ministry wherein he asked for authority to sell
the property. On September 23, 1983 or just over a month, Arbiter
Valenzuela approved the motion per order of the same date. Notably,
only Atty. Pineda and the lawyers of the purchaser were informed of
such order.
On February 4, 1983, again without notice to Atty. Espinas and Atty.
Lopez, Atty. Pineda filed a motion with Arbiter Valenzuela wherein he
asked for authority to distribute the proceeds of the sale of the
property. This distribution would include his attorney's fee which was
allegedly the subject of a retainer contract entered into between him
and the alleged Union officers, On February 9, 1983, or barely five
days from the day the motion was filed, Arbiter Valenzuela, without
informing the other lawyers and relying exclusively on the unverified
motion of Atty. Pineda (the records of the case were not on hand),
approved the said motion which authorized the appointment.
This Court, as earlier stated, nullified said orders dated September 23,
1982 and February 9, 1983 of Labor Arbiter Valenzuela as violative of
the due process clause. It is a settled rule that in administrative
proceedings, or cases coming before administrative tribunals
exercising quasi-judicial powers, due process requires not only notice
and hearing, but also the consideration by the administrative tribunal of
the evidence presented; the existence of evidence to support the
decision; its substantiality a decision based thereon or at least
contained in the record and disclosed to the parties; such decision by
the administrative tribunal resting on its own independent consideration
of the law and facts of the controversy; and such decision acquainting
the parties with the various issued involved and the reasons therefore
(Ang Tibay vs. Court, 69 Phil. 635, cited on p. 84, Philippine
Constitutional Law, Fernando, 1984 ed.)
Significantly Atty. Pineda's act of filing a motion with this Court on
December 1, 1982 praying for authority to sell was by itself an
admission on his part that he did not possess the authority to sell the
property and that this Court was the proper body which had the power
to grant such authority. He could not and did not even wait for such
valid authority but instead previously obtained the same from the labor
arbiter whom he knew was not empowered to so authorize. Under
Article 224 (a) of the Labor Code, only final decisions or awards of the
NLRC, the Labor Arbiter, or compulsory or voluntary arbitrators may be
implemented or may be the subject of implementing orders by
aforenamed body or officers.
When Atty. Espinas discovered the sale of the property, he went to
Arbiter Valenzuela to look into the transaction who told him that the
records of CIR Case No. 1099-V were missing. It took director Pascual
Reyes of the NLRC to locate the records.
The 45% attorney's lien on the award of those union members who
were no longer working and the 30% lien on the benefits of those who
were still working as provided for in the alleged retainer's contract are
very exorbitant and unconscionable in view of Section 11, Rule VIII of
Book III which explicitly provides:
Sec. 11. Attorney's fees—Attorney's fees on any
judicial or administrative proceedings for the
recovery of wages shall not exceed 10% of the
amount awarded. The fees may be deducted from
the total amount due the winning party.
The amount of P101,856.00 which Atty. Pineda donated to the Union
and which actually corresponds to 5% of the total 35% attorney's fees
taken from the proceeds (p. 263, L-24864, rec.) appears improper
since it amounts to a rebate or commission. This amount was
subsequently treated as union miscellaneous operating expenses
without the consent of the general membership.
Thus, in the case of Amalgamated Laborers' Association vs. Court of
Industrial Relations (L-23467, 22 SCRA 1267 [March 27, 1968]), We
declared:
We strike down the alleged oral agreement that
the union president should share in the attorney's
fees. Canon 34 of Legal Ethics condemns this
arrangement in terms clear and explicit. It says:
'No division of fees for legal services is proper,
except with another lawyer, based upon a division
of service or responsibility.' The union president is
not the attorney for the laborers. He may seek
compensation only as such president. An
agreement whereby a union president is allowed
to share in attorney's fees is immoral. Such a
contract we emphatically reject. It cannot be
justified.
 A contingent fee contract specifying the
percentage of recovery an attorney is to receive in
a suit 'should be reasonable under all the
circumstances of the case, including the risk and
uncertainty of the compensation, but should
always be subject to the supervision of a court, as
to its reasonableness. (emphasis supplied).
A deeper scrutiny of the pleadings in L-24864 notably indicates a
fraudulent or deceitful pattern in the actuations of Atty. Pineda. Thus, in
his motion for execution of judgment filed on September 18, 1965 in
this case, he signed for and in behalf of "J.C. Espinas & Associates" (p.
323, rec.). In his manifestation dated December 10, 1968, he signed as
"B.C. Pineda," lone counsel for petitioner (p. 327, rec.); and yet, he
carried the address of Espinas & Associates at 716 G. Puyat Building,
Escolta.
However, in the October 29, 1968 resolution of this Court, a copy
thereof was served on "Messrs. J.C. Espinas, B.C Pineda, J.J. dela
Rosa & Associates" at Puyat Building, Escolta (p. 324, rec.). In the
notice of judgment dated December 29, 1970, this Court addressed the
said pleading to "Attys. B.C. Pineda & Associates with the same Puyat
Building address (p. 325, rec.). Notably also, then Union President
Amado Lopez addressed his letter dated August 21, 1958 to J.C.
Espinas & Associates" wherein he informed the latter that the general
membership of the Union had authorized them a 20%, contingent fee
on whatever award would be given the workers (p. 267, rec.).
The Manila Banking Corporation (Cubao Branch) has manifested that it
turned over to the NLRC the amount of P417,380.64 for the Union's
account, which appears to be the balance of P950,021.76
corresponding to the net proceeds for distribution to the workers after
deducting P525,480.40, the total payments to claimants. The amount
of P417,380.64 appears lacking, since accurately computed, the
balance should be P424,541,36.
However, the Union has yet to account for P101,856.00, the 5%
donation or share from Atty. Pineda's attorney's fee of 35%.
For the account of Atty. Pineda, the Manila Banking Corporation has
remitted to the NLRC the amount of P2,022.70 only. This means that
Atty. Pineda is still accountable for the amount of P710,969.30. He is
directed to return the amount of P712,992.00 representing the 35%
attorney's fees he unlawfully received.
In view of Our resolution of October 18, 1983, which set aside as null
and void the questioned orders dated September 23, 1982 and
February 9, 1983 issued by Arbiter Raymundo Valenzuela, the sale of
the Union property and the distribution of the proceeds therefrom had
been effected without authority and, therefore, illegal Consequently.
Atty. Pineda and Arbiter Valenzuela become liable for their
unauthorized acts,
Atty. Pineda should be cited for indirect contempt under paragraphs
(b), (c) and (d) of Section 3, Rule 71 of the Revised Rules of Court,
The said paragraphs read thus:
Sec. 3. indirect contempts to be punished after
charge and hearing.—
xxx xxx xxx
(b) Disobedience of or resistance to a lawful writ,
process, order, judgment, or company court, or
injunction granted by a court or judge, including
the act of a person who, after being dispossessed
or ejected from any real property by the judgment
or process of any court of competent jurisdiction,
enters or attempts or induces another to enter into
or upon such real property, for the purpose of
executing acts of ownership or possession, or in
any manner disturbs the possession given to the
person adjudged to be entitled thereto;
(c) Any abuse of or any interference with the
process or proceedings of a court not constituting
direct contempt under section 1 of this rule;
(d) Any improper conduct tending, directly or
indirectly to impede, obstruct, or degrade the
administration of justice.
Contempt of court is a defiance of the authority, justice or dignity of the
court; such conduct as tends to bring the authority and administration
of the law into disrespect or to interfere with or prejudice parties litigant
or their witnesses during litigation (12 Am. jur. 389, cited in 14 SCRA
813).
Contempt of court is defined as a disobedience to the court by acting in
opposition to its authority, justice and dignity. It signifies not only a
willful disregard or disobedience of the court's orders, but such conduct
18
as tends to bring the authority of 'the court and the administration of
law into disrepute or in some manner to impede the due administration
of justice (17 C.J.S. 4).
This Court has thus repeatedly declared that the power to punish for
contempt is inherent in all courts and is essential to the preservation of
order in judicial proceedings and to the enforcement of judgments,
orders, and mandates of the court, and consequently, to the due
administration of justice (Slade Perkins vs. Director of Prisons, 58 Phil.
271; In re Kelly, 35 Phil. 944; Commissioner of Immigration vs.
Cloribel, 20 SCRA 1241; Montalban vs. Canonoy, 38 SCRA 1).
In the matter of exercising the power to punish contempts, this Court
enunciated in the Slade Perkins case that "the exercise of the power to
punish contempts has a twofold aspect, namely (1) the proper
punishment of the guilty party for his disrespect to the court or its order;
and (2) to compel his performance of some act or duty required of him
by the court which he refuses to perform. Due to this twofold aspect of
the exercise of the power to punish them, contempts are classified as
civil or criminal. A civil contempt is the failure to do something ordered
to be done by a court or a judge for the benefit of the opposing party
therein; and a criminal contempt, is conduct directed against the
authority and dignity of a court or of a judge, as in unlawfully assailing
or discrediting the authority or dignity of the court or judge, or in doing
a duly forbidden act. Where the punishment imposed, whether against
a party to a suit or a stranger, is wholly or primarily to protect or
vindicate the dignity and power of the court, either by fine payable to
the government or by imprisonment, or both, it is deemed a judgment
in a criminal case. Where the punishment is by fine directed to be paid
to a party in the nature of damages for the wrong inflicted, or by
imprisonment as a coercive measure to enforce the performance of
some act for the benefit of the party or in aid of the final judgment or
decree rendered in his behalf, the contempt judgment will, if made
before final decree, be treated as in the nature of an interlocutory
order, or, if made after final decree, as remedial in nature, and may be
reviewed only on appeal from the final decree, or in such other mode
as is appropriate to the review of judgments in civil cases. ... The
question of whether the contempt committed is civil or criminal, does
not affect the jurisdiction or the power of a court to punish the same. ...
(58 Phil. 271, 272).
For civil contempt, Section 7, Rule 71 of the Revised Rules of Court
explicitly provides:
Sec. 7, Rule 71. Imprisonment until order obeyed.
When the contempt consists in the omission to do
an act which is yet in the power of the accused to
perform, he may be imprisoned by order of a
superior court until he performs it.
Thus, in the case of Harden vs. Director of Prisons (L-2349, 81 Phil.
741 [Oct. 22, 1948]), where petitioner was confined in prison for
contempt of court, this Court, in denying the petition and resolving the
question of petitioner's indefinite confinement, had the occasion to
apply and clarify the aforequoted provision in the following tenor:
The penalty complained of is neither cruel unjust
nor excessive. In Ex-parte Kemmler 136 U.S. 436,
the United States Supreme Court said that
'punishments are cruel when they involve torture
or a lingering death, but the punishment of death is
not cruel, within the meaning of that word as used
in the constitution. It implies there something
inhuman and barbarous, something more than the
extinguishment of life.
The punishment meted out to the petitioner is not
excessive. It is suitable and adapted to its
objective; and it accords with section 7, Rule 64 of
the Rules of Court which provides that "when the
contempt consists in the omission to do an act
which is yet in the power of the accused to
perform, he may be imprisoned by order of a
superior court until he performs it."
If the term of imprisonment in this case is indefinite
and might last through the natural life of the
petitioner, yet by the terms of the sentence the
way is left open for him to avoid serving any part of
it by complying with the orders of the court, and in
this manner put an end to his incarceration. In
these circumstances, the judgment cannot be said
to be excessive or unjust. (Davis vs. Murphy
[1947], 188 P., 229- 231.) As stated in a more
recent case (De Wees [1948], 210 S.W., 2d, 145-
147), 'to order that one be imprisoned for an
indefinite period in a civil contempt is purely a
remedial measure. Its purpose is to coerce the
contemner to do an act within his or her power to
perform. He must have the means by which he
may purge himself of the contempt . The latter
decision cites Staley vs. South Jersey Realty Co.,
83 N.J. Eq., 300, 90 A., 1042, 1043, in which the
theory is expressed in this language:
 In a "civil contempt" the
proceeding is remedial, it is a
step in the case the object of
which is to coerce one party
for the benefit of the other
party to do or to refrain from
doing some act specified in
the order of the court. Hence,
if imprisonment be ordered, it
is remedial in purpose and
coercive in character, and to
that end must relate to
something to be done by the
defendant by the doing of
which he may discharge
himself. As quaintly
expressed, the imprisoned
man carries the keys to his
prison in his own pocket (pp.
747-748).
Likewise. American courts had long enunciated these rulings:
The aforequoted criminal sanction for unprofessional conduct of an
attorney is without prejudice to proper administrative action, such as
disbarment or suspension of attorneys (p. 503, Criminal Law
Annotated, Padilla, 1972 Ed.).
Labor Arbiter Raymundo Valenzuela should be made to answer for
having acted without or beyond his authority in proper administrative
charges. He could also be prosecuted before the Tanodbayan under
the provisions of the Anti-Graft Law. Independently of his liabilities as a
government officer, he could be the subject of disbarment proceedings
under Section 27, Rule 138 of the Revised Rules of Court.
Atty. Benjamin Pineda could also be held liable under Section 4(b) of
R.A. No. 3019 (Anti-Graft and Corrupt Practices Act) which makes it
unlawful for any person knowingly to induce or cause any public official
to commit any of the offenses defined in Section 3 of said act. Section
3 enumerates the corrupt practices which public officers may be
prosecuted for. Atty. Pineda knowingly induced or caused Labor Arbiter
Valenzuela to issue the questioned orders without or beyond the
latter's authority and to which orders the former was not entitled,
considering that he was not the sole and proper representative.

The Manila Banking Corporation (Cubao Branch) per manifestation

The commitment of one found in contempt of a
and motion dated October 28, 1983 and reiterated on November 10,
court order only until the contemnor shall have
1983, had transmitted to the NLRC the remaining balance of
purged himself of such contempt by complying
P417,380.64 and P2,022.70 for the account of the Union and Atty.
with the order is a decisive characteristic of civil
Pineda, respectively. This turnover of the aforecited amounts is a
contempt. Maggio v. Zeitz, 333 US 56, 92 L. ed.
sufficient compliance with Our restraining order and resolution of
476, 68 S Ct 401.
September 13, 1983 and hence, the Manila Banking Corporation can
no longer be liable for contempt of court.
Civil or quasi-criminal contempt is contemplated by
a statute providing that if any person refused to
Very recently, on August 23, 1984, respondent Union, thru Acting
obey or perform any rule, order, or judgment of
Administrator Ricardo Capuno, filed its motion to drop Halili Bus
court, such court shall have power to fine and
Drivers and Conductors Union from the contempt charge in view of
imprison such person until the rule, order, or
these reasons:
judgment shall be complied with. Evans v. Evans,
193 Miss 468, 9 So 2d. 641. (17 Am. Jur. 2d.)
1. The Manila Bank has already turned over to the NLRC the amount
of P59,716.14 which represents the remaining balance of 5%
The reason for the inherent power of courts to punish for contempt is
earmarked for Union expenses incurred in the case aside from the
that respect of the courts guarantees the stability of the judicial
amounts deposited in escrow for the workers. The amount of
institution. Without such guarantee said institution would be resting on
P42,140.00 was spent legitimately by the Union for administration
a very shaky foundation (Salcedo vs. Hernandez, 61 Phil. 724; Cornejo
purposes relative to the subject property. The Union asserts that it is
vs. Tan, 85 Phil. 722),
ready and willing to account for all expenses and withdrawals from the
bank before the NLRC.
Likewise, Atty. Pineda should be subject to disbarment proceedings
under Section 27 of Rule 138 of the Revised Rules of Court which
2. The alleged 5% donation of Atty. Pineda to the Union taken from the
provides:
35% attorneys' fees was given to and received by then President
Domingo Cabading alone, who thereafter left for the United States.
Sec. 27. Attorneys removed or suspended by
Supreme Court on what grounds.—A member of
3. The 1% allocated for unknown claimants or those not previously
the bar may be removed or suspended from his
listed in the amount of P9,596.18 can easily be accounted for by the
office as attorney by the Supreme Court for any
Union before the NLRC.
deceit, malpractice, or other gross misconduct in
such office, grossly immoral conduct, or by reason
of his conviction of a crime involving moral In the same motion, Mr. Capuno clarifies that with regard to attorneys'
turpitude, or for any violation of the oath which he fees, Atty. Pineda made the Union officers believe that he would be the
is required to take before admission to practice, or one to pay the fees of Attys. Espinas and Lopez for which reason, the
for a willful disobedience of any lawful order of a 35% increased fees was approved by the Union's board in good faith.
superior court, or for corrupt or willfully appearing The Union likewise confirms that Atty. Pineda came into the picture
as an attorney for a party to a case without only when he was assigned by Atty. Espinas in, 1965 to execute the
authority so to do. The practice of soliciting cases CIR decision which, thru Atty. Espinas handling, was upheld by this
at law for the purpose of gain, either personally or Court in L-24864 in 1968. The Union officers were aware that Atty.
through paid agents or brokers, constitutes Espinas was the principal counsel even after Atty. Pineda's
malpractice. assignment. They also knew of the original contract for 20% attorney's
fees which was increased to 35% by Atty. Pineda upon the
arrangement that with the increase, he would answer for the payment
The Court may suspend or disbar a lawyer for any conduct on his part
of Attys. Espinas and Lopez' fees and for necessary representation
showing his unfitness for the confidence and trust which characterize
expenses (p. 450, L-24864 rec.).
the attorney and client relations, and the practice of law before the
courts, or showing such a lack of personal honesty or of good moral
character as to render him unworthy of public confidence (7 C.J.S. Acting on the aforesaid motion, this Court in its resolution of August 28,
733). 1964, dropped the Union and its officers from the within contempt
charge (p. 455, L-24864 rec.).
It is a well-settled rule that the statutory grounds for disbarment or
suspension are not to be taken as a limitation on the general power of WHEREFORE, ATTY. BENJAMIN PINEDA IS HEREBY FOUND
the courts in this respect. The inherent powers of the court over its GUILTY OF INDIRECT CONTEMPT OF COURT FOR WHICH HE IS
officers cannot be restricted (In re Pelaez, 44 Phil. 567). HEREBY SENTENCED TO IMPRISONMENT IN THE MANILA CITY
JAIL UNTIL THE ORDERS OF THIS COURT DATED SEPTEMBER 1
AND SEPTEMBER 13, 1983 ARE COMPLIED WITH.
Finally, Atty. Pineda could be prosecuted for betrayal of trust by an
attorney under Article 209 of the Revised Penal Code. Said article
provides: ATTY. BENJAMIN PINEDA IS ALSO DIRECTED TO SHOW CAUSE
WHY HE SHOULD NOT BE DISBARRED UNDER RULE 138 OF THE
REVISED RULES OF COURT.
Art. 209. Betrayal of must by an attorney or
solicitor. Revelation of secrets.—In addition of the
proper administrative action , the penalty of prision LET COPIES OF THIS RESOLUTION AND THE RESOLUTION OF
correccional in its minimum period, or a fine OCTOBER 18, 1983 BE FURNISHED THE MINISTRY OF LABOR
ranging from 200 to 1,000 pesos, or both shall be AND THE TANODBAYAN FOR APPROPRIATE ACTION.
imposed upon any attorney-at-law or solicitor
(procurador judicial) who, by any malicious breach
of professional duty or inexcusable negligence or SO ORDERED.
ignorance, shall prejudice his client, or reveal any
of the secrets of the latter learned by him in his SECOND DIVISION
professional capacity (emphasis supplied).

19
 FRANCISCO MADRID and
EDGARDO BERNARDO,
Petitioners,
- versus -
SPOUSES BONIFACIO MAPOYand FELICIDAD
MARTINEZ,
Respondents.
x --------------------------------------------------------------------------------------- x
DECISION
BRION, J.:
Before us is the Petition for Review on Certiorari[1] filed by
petitioners Francisco Madrid and Edgardo Bernardo (petitioners-
defendants) to reverse and set aside the Decision[2] dated July 16, 2001
and Resolution[3] dated November 19, 2001 of the Former Second
Division of the Court of Appeals (CA) in CA-G.R. CV No. 47691
entitled Spouses Bonifacio Mapoy and Felicidad Martinez v. Edgardo
Bernardo and Francisco Madrid.
FACTUAL BACKGROUND
The facts of the case, based on the records, are summarized below.
The spouses Bonifacio and Felicidad Mapoy (respondents-plaintiffs)
are the absolute owners of two parcels of land (the properties) known
as Lot Nos. 79 and 80 of Block No. 27 of the Rizal Park Subdivision,
located at No. 1400 Craig Street corner Maria Clara Street, Sampaloc,
Manila, under Transfer Certificate of Title (TCT) Nos. 130064 and
130065 of the Registry of Deeds of Manila. The properties have a
combined area of two-hundred seventy (270) square meters.
On April 4, 1988, the respondents-plaintiffs sought to recover
possession of the properties through an accion publiciana filed with the
Regional Trial Court (RTC) of Manila[4] against Gregorio Miranda and his
family (Mirandas) and two other unnamed defendants. After the pre-trial
conference, the unnamed defendants were identified as the present
petitioners and summons were duly served on them. These defendants
are referred to in this Decision as the petitioners-defendants. The
Mirandas are no longer parties to the present case; they did not appeal
the lower court decision to the CA.
The respondents-plaintiffs alleged that they acquired the
properties from the spouses Procopio and Encarnacion Castelo under a
Deed of Absolute Sale dated June 20, 1978. They merely tolerated the
petitioners-defendants continued occupancy and possession until their
possession became illegal when demands to vacate the properties were
made. Despite the demands, the petitioners-defendants continued to
occupy and unlawfully withhold possession of the properties from the
respondents-plaintiffs, to their damage and prejudice. Efforts to amicably
settle the case proved futile, leaving the respondents-plaintiffs no
recourse but to file a complaint for ejectment which the lower court
dismissed because the respondents-plaintiffs should have filed
an accion publiciana. Thus, they filed their complaint for accion
publiciana, praying for recovery of possession of the properties and the
payment of P1,000.00 as monthly rental for the use of the properties from
January 1987 until the petitioners-defendants vacate the properties,
plus P50,000.00 as moral and exemplary damages, and P30,000.00 as
attorneys fees.
The Mirandas countered that Gregorio Miranda owned the
properties by virtue of an oral sale made in his favor by the original owner,
Vivencio Antonio (Antonio). They claimed that in 1948, Gregorio Miranda
was Antonios carpenter, and they had a verbal contract for Miranda to
stay in, develop, fix and guard the properties; in 1972, Antonio gave the
properties to Gregorio Miranda in consideration of his more than twenty
(20) years of loyal service.
Petitioner-defendant Bernardo also asserted ownership over
the portion he occupies based on an oral sale to him by Antonio. He
alleged that he became a ward of Gregorio Miranda in 1965 when he
was 10 years old and helped in the development of the properties; he
helped construct a bodega and a house within the properties. He and
Antonio met in 1975, and Antonio promised that the bodega would be
given to him in gratitude for his work.
Petitioner-defendant Madrid, for his part, claimed that he
started occupying a portion of the properties in 1974, and constructed a
house on this portion in 1989 with the permission of Bernardo, the son of
Gregorio Miranda.
On the basis of the length of their claimed occupation of the
properties, the petitioners-defendants likewise invoked Section 6 of
Presidential Decree No. 1517 (PD 1517), also known as
the Urban Land Reform Law, which provides that legitimate tenants of
10 year or more, who have built their homes on these lands and who
have continuously resided thereon for the past ten years, shall not be
dispossessed of their occupied lands and shall be allowed the right of
20
G.R. No. 150887first refusal to purchase these lands within a reasonable time and at
reasonable prices.
Present:
THE RTC RULING
*
CARPIO-MORALES, J.,
Acting Chairperson, On July 21, 1994, the RTC-Manila, Branch 3, rendered its
**
CARPIO, decision,[5] the dispositive portion of which states:
***
CHICO-NAZARIO,
****
LEONARDO-DE CASTRO, and WHEREFORE, judgment is rendered,
BRION, JJ. ordering the defendants and all persons claiming
rights thereto to vacate the premises located at the
corner of Ma. Clara and Craig Streets, Sampaloc,
Manila, evidenced by TCT No. 130064 and
Promulgated: 130065 and restore the same to the plaintiffs. The
defendants are hereby ordered to pay plaintiff the
August 14, 2009 sum of P10,000.00 as attorneys fees and the sum
of P1,000.00 as reasonable rental for the use and
occupation of the premises beginning from the
filing of this complaint until they vacated the
premises.
SO ORDERED.[6]
The RTC upheld the respondents-plaintiffs right of possession
as registered owners of the properties. It found no merit in the petitioners-
defendants claims of ownership via an oral sale given the absence of any
public instrument or at least a note or memorandum supporting their
claims. The RTC also found the petitioners-defendants invocation of PD
1517 futile, since its Section 6 refers to a legitimate tenant who has
legally occupied the lands by contract; the petitioners-defendants are
mere squatters.
The petitioners-defendants elevated the RTC decision to the
CA via an ordinary appeal under Rule 41 of the Rules of Court. The
Mirandas did not join them, and thus failed to file a timely appeal. The
petitioners-defendants objected to the RTCs ruling that the sale or
promise of sale should appear in a public instrument, or at least in a note
or memorandum, to be binding and enforceable. They argued that the
RTC failed to consider the respondents-plaintiffs bad faith in acquiring
the properties since they knew of the defects in the title of the owner.
They further argued that the CA should have noted Gregorio Mirandas
occupancy since 1948, Bernardos since 1966 and Madrids since 1973.
The petitioners-defendants further submitted that their continuous
residence for more than ten (10) years entitled them to the rights and
privileges granted by PD 1517. They also argued that the RTC should
not have applied the pre-trial order to them, since they had not then been
served with summons and were not present during the pre-trial.
THE CA RULING
The CA dismissed the appeal in its decision[7] of July 16, 2001,
affirming as a consequence the RTC decision of July 21, 1994. The CA
held that the certificate of title in the name of the respondents-plaintiffs
serves as evidence of an indefeasible and incontrovertible title to the
properties. The CA found that the petitioners-defendants never
submitted any proof of ownership. Also, their reliance on their alleged
continuous occupation is misplaced since petitioner-defendant
Bernardos occupation in the concept of owner started only in 1975 when
Antonio allegedly gave him a portion of the properties as a gift, while
petitioner-defendant Madrids occupation could not have been in the
concept of an owner, as he recognized Gregorio Miranda as the owner
and paid him rents. The CA noted that the petitioners-defendants are not
covered by PD 1517 because the law does not apply to occupants whose
possession is by the owners mere tolerance. The CA also observed that
the RTC did not err in applying the pre-trial order to the petitioners-
defendants because they derive the right of possession from the principal
defendants, the Mirandas, who were duly represented at the pre-trial;
they waived their right to pre-trial by failing to move that one be held.
The petitioners-defendants moved[8] but failed[9] to secure a
reconsideration of the CA decision; hence, they came to us through the
present petition.
THE PETITION and THE PARTIES POSITIONS
The petitioners-defendants essentially reiterate the issues
they raised before the CA, i.e., that the ruling court failed to consider: (1)
the respondents-plaintiffs bad faith in the acquisition of the properties; (2)
the occupancy of Gregorio Miranda since 1948, Bernardos since 1966,
and Madrids since 1973; and, (3) petitioners-defendants continuous
residence for more than ten (10) years entitling them to the rights and
privileges granted by PD 1517. They also contend that the principle of
indefeasibility of the certificate of title should not apply in this case
because fraud attended the respondents-plaintiffs acquisition of title.
They again point out that the pre-trial order should not have been applied
to them since they were not present during the pre-trial conference.
The respondents-plaintiffs counter-argue that the issues
raised by the petitioners-defendants are essentially factual in nature and
all have been well-considered and adequately refuted in the challenged
CA decision.
OUR RULING
We resolve to deny the petition for lack of merit.
 a. Accion Publiciana and Ownership
Accion publiciana, also known as accion plenaria de
[10]
posesion, is an ordinary civil proceeding to determine the better right
of possession of realty independently of title. [11] It refers to an ejectment
suit filed after the expiration of one year from the accrual of the cause of
action or from the unlawful withholding of possession of the realty.[12]
The objective of the plaintiffs in accion publiciana is to recover
possession only, not ownership.[13] However, where the parties raise the
issue of ownership, the courts may pass upon the issue to determine who
between or among the parties has the right to possess the property. This
adjudication, however, is not a final and binding determination of the
issue of ownership; it is only for the purpose of resolving the issue of
possession, where the issue of ownership is inseparably linked to the
issue of possession. The adjudication of the issue of ownership, being
provisional, is not a bar to an action between the same parties involving
title to the property.[14] The adjudication, in short, is not conclusive on the
issue of ownership.[15]
In the present case, both the petitioners-defendants and the
respondents-plaintiffs raised the issue of ownership. The petitioners-
defendants claim ownership based on the oral sale to and occupation by
Gregorio Miranda, their predecessor-in-interest, since 1948. On the other
hand, the respondents-plaintiffs claim that they are the owners, and their
ownership is evidenced by the TCTs in their names. Under this legal
situation, resolution of these conflicting claims will depend on the weight
of the parties' respective evidence, i.e., whose evidence deserves more
weight.
b. Findings of Fact Below Final and Conclusive
A weighing of evidence necessarily involves the consideration
of factual issues an exercise that is not appropriate for the Rule 45
petition that the petitioners-defendants filed; under the Rules of Court,
the parties may raise only questions of law under Rule 45, as the
Supreme Court is not a trier of facts.[16] As a rule, we are not duty-bound
to again analyze and weigh the evidence introduced and considered in
the tribunals below.[17] This is particularly true where the CA has affirmed
the trial court's factual findings, as in the present case. These trial court
findings, when affirmed by the CA, are final and conclusive and are not
open for our review on appeal.[18]
In the present case, both the RTC and the CA gave more
weight to the certificate of title the respondents-plaintiffs presented, and
likewise found that the petitioners-defendants' possession of the
properties was merely upon the respondents-plaintiffs tolerance. We see
no reason to doubt or question the validity of these findings and thus
recognize their finality.
As a matter of law, a Torrens Certificate of Title is evidence of
indefeasible title of property in favor of the person in whose name the title
appears. The title holder is entitled to all the attributes of ownership of
the property, including possession, subject only to limits imposed by
law.[19] In the present case, the respondents-plaintiffs are indisputably the
holders of a certificate of title against which the petitioners-defendants
claim of oral sale cannot prevail. As registered titleholders, they are
entitled to possession of the properties.
c. Claim of Fraud a Prohibited Collateral Attack
Registration of land under the Torrens system, aside from
perfecting the title and rendering it indefeasible after the lapse of the
period allowed by law, also renders the title immune from collateral
attack.[20] A collateral attack transpires when, in another action to obtain
a different relief and as an incident of the present action, an attack is
made against the judgment granting the title.[21] This manner of attack is
to be distinguished from a direct attack against a judgment granting the
title, through an action whose main objective is to annul, set aside, or
enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been
disposed of.[22] To permit a collateral attack on respondents-plaintiffs title
is to water down the integrity and guaranteed legal indefeasibility of a
Torrens title.[23]
The petitioners-defendants attack on the validity of
respondents-plaintiffs title, by claiming that fraud attended its acquisition,
is a collateral attack on the title. It is an attack incidental to their quest to
defend their possession of the properties in an "accion publiciana," not
in a direct action whose main objective is to impugn the validity of the
judgment granting the title.[24] This is the attack that possession of a
Torrens Title specifically guards against; hence, we cannot entertain,
much less accord credit to, the petitioners-defendants claim of fraud to
impugn the validity of the respondents-plaintiffs title to their property.
d. Claimed Protection under PD 1517
To qualify for protection under PD 1517 and avail of the rights
and privileges granted by the said decree, the claimant must be: (1) a
legitimate tenant of the land for ten (10) years or more; (2) must have
built his home on the land by contract; and, (3) has resided continuously
for the last ten (10) years. The tenant covered by PD 1517 is, as defined
under Section 3(f) thereof, "the rightful occupant of land and its
structures, but does not include those whose presence on the land is
merely tolerated and without the benefit of contract, those who enter the
land by force or deceit, or those whose possession is under litigation."
21
Stated differently, those whose possession or occupation of
land is devoid of any legal authority or those whose contracts of lease
are already terminated, or had already expired, or whose possession is
under litigation are not considered "tenants" under the decree.
Conversely, a legitimate tenant is one who is not a usurper or an
occupant by tolerance.[25] The petitioners-defendants whose occupation
has been merely by the owners tolerance obviously fall outside the
coverage of PD 1517 and cannot seek its protection.
e. The Pre-Trial-based Objection
Without doubt, the petitioners-defendants, having been
belatedly served summons and brought into the case, were entitled to a
pre-trial as ordained by Section 2, Rule 18 of the Rules of Court. Unless
substantial prejudice is shown, however, the trial courts failure to
schedule a case for new trial does not render the proceedings illegal or
void ab initio.[26]Where, as in this case, the trial proceeded without any
objection on the part of the petitioners-defendants by their failure to bring
the matter to the attention of the RTC, the petitioners-defendants are
deemed to have effectively forfeited a procedural right granted them
under the Rules. Issues raised for the first time on appeal and not raised
timely in the proceedings in the lower court are barred by
estoppel.[27] Points of law, theories, issues and arguments not brought to
the attention of the trial court ought not to be considered by a reviewing
court, as these cannot be raised for the first time on appeal. [28] To
consider the alleged facts and arguments raised belatedly would amount
to trampling on the basic principles of fair play, justice, and due process.
In arriving at this conclusion, we considered, as the CA did,
that the petitioners-defendants anchored their right to possess the
property on the defenses raised by the original defendant, Gregorio
Miranda, their predecessor-in-interest. While belatedly summoned, the
petitioners-defendants did not raise a substantial matter in their answer
differently from those propounded by Gregorio Miranda; they merely
echoed Mirandas positions and arguments. Thus, no prejudice could
have resulted to the petitioners-defendants, especially after they entered
trial and had the opportunity to fully ventilate their positions.
f. Attorneys Fees
As a general rule, the appellate court may only pass upon
errors assigned by the parties. By way of exception, even unassigned
errors may be taken up by the court on appeal if they involve (1) errors
affecting the lower court's jurisdiction over the subject matter, (2) plain
errors not specified, and (3) clerical errors.[29] In the present case, we
note that the award of attorney's fees appears only in the dispositive
portion of the RTC decision without any elaboration, explanation, and
justification. The award stood there all by itself. We view this as a plain
legal error by the RTC that must be rectified.
Article 2208 of the Civil Code enumerates the instances
justifying the grant of attorneys fees; in all cases, the award must be
reasonable, just and equitable. Attorney's fees as part of damages are
not meant to enrich the winning party at the expense of the losing litigant.
They are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate.[30] The
award of attorney's fees is the exception rather than the general rule.
Thus, findings reflecting the conditions imposed by Article 2208 are
necessary to justify an award; attorney's fees mentioned only in the
dispositive portion of the decision without any prior justification in the
body of the decision is a baseless award that must be struck down. [31]
WHEREFORE, premises considered, we here DENY the
petition for lack of any reversible error, and consequently AFFIRM the
decision of July 16, 2001 of the Court of Appeals in CA-G.R. CV No.
47691, with the MODIFICATION that the attorney's fees awarded to
respondents-plaintiffs are hereby DELETED. Costs against the
petitioners-defendants.
SO ORDERED.
FIRST DIVISION
G.R. No. 175542 & 183205, June 05, 2013
GREEN ACRES HOLDINGS, INC., Petitioner, v. VICTORIA P.
CABRAL, SPS. ENRIQUE T. MORAGA and VICTORIA SORIANO,
FILCON READY MIXED, INC., DEPARTMENT OF AGRARIAN
REFORM ADJUDICATION BOARD (DARAB), and REGISTRY OF
DEEDS OF BULACAN, MEYCAUAYAN BRANCH, Respondents.
VICTORIA P. CABRAL, Petitioner, v. PROVINCIAL ADJUDICATOR,
JOSEPH NOEL C. LONGBOAN / OFFICE OF THE AGRARIAN
REFORM ADJUDICATOR, GREEN ACRES HOLDINGS, INC.,
SPOUSES ENRIQUE T. MORAGA and VICTORIA SORIANO and
FILCON READY MIXED, INC., Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are two consolidated petitions for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, as amended.
In G.R. No. 175542, petitioner Green Acres Holdings, Inc. (hereafter,
Green Acres) assails the November 24, 2006 Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 85766 dismissing its appeal from the
November 3, 2004 Order2 of the Regional Trial Court (RTC) while
in G.R. No. 183205, petitioner Victoria Cabral seeks to set aside the
February 27, 2008 Decision3 and May 29, 2008 Resolution4 of the CA
in CA-G.R. SP No. 99651.
The facts are as follows:cralavvonlinelawlibrary
Victoria Cabral was the original owner of a parcel of land in Barangay
Pandayan, Meycauayan, Bulacan with an area of 11,432 square
meters and covered by Transfer Certificate of Title (TCT) No. T-73737
(M). The land was placed under the coverage of Presidential Decree
(P.D.) No. 27, and on March 23, 1993, three Emancipation Patents
were issued to the spouses Enrique Moraga and Victoria Soriano
(Spouses Moraga) as follows: EP No. 496039 with an area of 861
square meters; EP No. 496040 with an area of 2,159 square meters;
and EP No. 496041 with an area of 8,941 square meters. The
Spouses Moraga thereafter caused the cancellation of EP No. 496041
and its conversion to TCT No. 256260 (M).
On August 29, 1994, Cabral filed a complaint before the Provincial
Agrarian Reform Adjudicator (PARAD) seeking the cancellation of the
Emancipation Patents issued to the Spouses Moraga on the grounds
that these were obtained through fraud and that the land is not suitable
for rice and corn production and has long been classified as residential,
commercial, industrial and nonagricultural land by the Zoning
Administrator of the Housing and Land Use Regulatory Board. The
case was docketed as Reg. Case No. 739-Bul-94.
On December 15, 1995, the PARAD rendered a decision denying the
petition for cancellation of the Emancipation Patents and dismissing
the complaint for lack of merit. Cabral appealed the decision to the
Department of Agrarian Reform Adjudication Board (DARAB). 5
While the appeal was pending, the Spouses Moraga subdivided the lot
covered by TCT No. 256260 (M) into three smaller lots, the properties
subject of this case. TCT Nos. T-270125 (M) covering 3,511 square
meters, T-270126 (M) covering 2,715 square meters, and T-270127
(M) covering 2,715 square meters were thereafter issued in their
names on May 29, 1996. On June 19, 1996, the Spouses Moraga
sold the lots to Filcon Ready Mixed Inc. (Filcon for brevity) and TCT
Nos. T-274486 (M),6 T-274487 (M)7and T-274488 (M)8 were issued in
the name of Filcon on June 24, 1996.
On April 29, 1999, Green Acres purchased9 five lots from Filcon
including the three subject properties covered by TCT Nos. T-274486
(M), T-274487 (M) and T-274488 (M) in the name of Filcon. Except for
an already cancelled annotation of a real estate mortgage in favor of
Philippine Commercial International Bank (PCI Bank),10 the titles were
free from any annotations, liens, notices, claims or encumbrances.
On April 30, 1999, the titles of Filcon were cancelled by the Register of
Deeds of Meycauayan, Bulacan and new titles were issued in the
name of Green Acres including TCT Nos. T-345660 (M),11 T-345661
(M)12 and T-345662 (M)13 covering the subject properties. Green Acres
then constructed a warehouse building complex on the said lots.
On January 17, 2001, the DARAB resolved Cabral’s appeal and
rendered judgment ordering the cancellation of the titles issued in the
names of the Spouses Moraga and those of Filcon for having been
illegally acquired. The dispositive portion of the DARAB decision reads:
WHEREFORE, premises considered, the decision is
hereby REVERSED and SET ASIDEand a NEW JUDGMENT is
rendered disposing as follows:cralavvonlinelawlibrary
1. Ordering the cancellation of TCT No. EP-051 (M) (EP No. 496039;
TCT No. EP-052 (M) (EP No. 496040); TCT No. EP-052 (M) (EP No.
496041); TCT No. T-270125 (M); TCT No. T-270126 (M); and TCT No.
T-270127 (M) – all in the names of defendants spouses Moraga; TCT
No. 274486 (M); TCT No. T-274487 (M), and TCT No. T-274488 (M) –
all in the name of FILCO[N] READY MIXED
INC;chanroblesvirtualawlibrary
2. Directing the Register of Deeds of Bulacan to restore TCT No. T-
73737 (M) in the name of plaintiff Victoria P.
Cabral;chanroblesvirtualawlibrary
3. Ordering defendants Moraga and their assign, FILCO[N]
READY MIXED INC., to vacate the premises of the lands in question
and turn over their possession to herein plaintiff; and,
4. All claims and counterclaims of both parties are hereby dismissed
for insufficiency of evidence.
SO ORDERED.14nadcralavvonlinelawlibrary
When Green Acres learned about the DARAB decision, it sent a
letter15 to Filcon on March 15, 2001 advising the latter that it learned
that the properties it bought from Filcon were the subject of an adverse
decision of the DARAB. Fearing that its titles and possession might be
disturbed by the DARAB decision, Green Acres reminded Filcon of its
warranties under the deed of sale.
22
In a letter16 dated March 30, 2001, Filcon replied that it was also an
innocent purchaser for value since at the time it purchased the subject
property, it had no knowledge of any legal infirmity in the title of the
Spouses Moraga. In fact, it was able to secure a loan from PCI Bank
in the amount of P12 million with the subject property as
collateral. Filcon assured Green Acres that it is coordinating with its
predecessor, the Spouses Moraga, to make sure that Green Acres’
interest over the property is protected.
On April 19, 2001, Green Acres filed a Complaint17 for Quieting of Title,
Damages with Application for Preliminary Injunction and Writ of
Preliminary Attachment before the RTC of Malolos, Bulacan against
Cabral, the Spouses Moraga, Filcon, the DARAB and the Registry of
Deeds of Meycauayan, Bulacan. The case was docketed as Civil
Case No. 279-M-2001. Green Acres sought to quiet its title and
alleged that it is a purchaser in good faith and for value, claiming that it
had no notice or knowledge of any adverse claim, lien, or
encumbrance on the properties. Neither was it a party to the DARAB
proceedings nor did it have notice of the said proceedings where the
DARAB Decision of January 17, 2001 was issued. Green Acres
claimed that the DARAB decision casts a cloud on its titles.
Cabral, in her Answer,18 denied all the material allegations in the
complaint and alleged that Green Acres never acquired valid title to the
subject property, much less, can it claim to be an innocent purchaser
for value. She further averred that a declaratory judgment in a petition
to quiet title will effectively subject the DARAB decision to review.
After Green Acres presented its evidence, Cabral filed a Demurrer to
Plaintiff’s Evidence19 arguing that Green Acres failed to prove that it is
a purchaser in good faith and for value. She maintains that the
complaint is not appropriate for quieting of title since it omitted to assail
her titles over the subject property but instead questioned the
proceedings held at the DARAB. She likewise insisted that the trial
court has no jurisdiction over the subject property since the same is still
within the coverage of the Comprehensive Agrarian Reform Law and
thus under the jurisdiction of the DARAB.
In an Order20 dated November 3, 2004, the trial court granted the
demurrer and ordered the case dismissed.
Green Acres’ motion for reconsideration having been denied, Green
Acres filed with the CA an appeal which was docketed as CA-G.R. CV
No. 85766.
In the meantime, the DARAB decision became final and executory on
April 13, 200521 as no further recourse was sought by the Spouses
Moraga from the denial of their motion for reconsideration on February
24, 2005.22 On July 8, 2005, Cabral filed with the PARAD a Motion for
Issuance of Writ of Execution23 of the DARAB decision.
On January 25, 2006, the PARAD issued a Resolution denying the
Motion for Issuance of Writ of Execution for lack of merit. It
ruled:cralavvonlinelawlibrary
Only the decision of the Board as embodied in the dispositive portion of
the decision can be implemented by virtue of a writ of execution. The
January 17, 2001 decision merely orders the cancellation of the
Emancipation Patent and Transfer Certificate of Titles issued by the
Registry of Deed[s] of Bulacan in favor of Sps. MORAGA and FILCON.
Hence, if ever a Writ of Execution will be issued, it will be up to the
FILCON which was included in the dispositive portion of the Decision
that has become final and executory. Nothing in the body of the
decision as well as the dispositive portion thereof directs the
cancellation of the title issued in favor of GREEN ACRES. If we
subscribe to the prayer of the movant, we will be in effect amending the
aforementioned decision because we will be inserting something that
has not been directed to be done. x x x
xxxx
Aside from amending the final and executory decision in this case, this
Forum will also be violating the generally accepted principle of due
process. It is already settled that even the administrative arm of the
government exercising quasi-judicial functions are not exempt from
observing due process. x x x
xxxx
It is clear as the sun rises from the east that GREEN ACRES was
never made a party in the case at bar. Much less was it mentioned in
the decision sought to be executed itself. GREEN ACRES can not be
made to suffer the consequences of a case where it did not participate.
xxxx
Lastly, to allow movants[’] contention will also render the pending case
of quieting of title filed by GREEN ACRES against herein plaintiff
movant on April 18, 2001 before the Regional Trial Court, Third Judicial
Region, Branch 84 and docketed as Civil Case 279-M-2001 which was
appealed to the Court of Appeals, moot and academic.
All told, the titles of Sps. MORAGA and FILCON sought to be
cancelled in the decision ha[ve] already been cancelled. Therefore,
there is nothing to be done anymore, as the relief prayed for has
become fait accompli. 24
Cabral filed a Motion for Recusation25 and a Motion for
Reconsideration.26 The PARAD, however, denied Cabral’s motions on
September 11, 2006.27 Thus, on November 7, 2006, Cabral filed with
the PARAD a Notice of Appeal.28
In the meantime, the CA, on November 24, 2006, rendered a decision
in CA-G.R. CV No. 85766 dismissing Green Acres’ appeal. Citing the
case of Foster-Gallego v. Spouses Galang,29 the appellate court held
that the trial court had no authority to interfere with the proceedings of
a court of equal jurisdiction, much less to annul the final judgment of a
co-equal court. The appellate court further held that the only issue in
an action to quiet title is whether there is a cloud in a title to real
property because of any instrument, record, claim, encumbrance or a
proceeding that has a prima facie appearance of validity and the
DARAB decision does not fall within said enumeration.
On February 27, 2007, the PARAD issued an Order30 denying due
course to Cabral’s Notice of Appeal and held that the resolution
denying the motion for execution is an interlocutory order against which
the remedy is a petition for certiorari under Rule 65, and not an appeal
to the DARAB. The PARAD further ruled that Cabral’s act of
impleading Green Acres as additional defendant only in the execution
stage is highly irregular and that to enforce the decision against Green
Acres would violate the latter’s right to due process.
On June 18, 2007, Cabral filed with the CA a petition for certiorari
under Rule 65 seeking to annul the January 25, 2006 and September
11, 2006 Resolutions, as well as the February 27, 2007 Order of the
PARAD.
On February 27, 2008, the CA denied Cabral’s petition. The appellate
court ratiocinated as follows:cralavvonlinelawlibrary
An execution can only be issued against a party and not against one
who did not have his day in court x x x. Green Acres was never a party
to the case nor it was (sic) mentioned in the decision sought to be
executed, hence, Green Acres cannot be made to suffer the
consequences of a case where it did not participate. To maintain
otherwise would be to ignore the constitutional prohibition against
depriving a person of his property without due process of law x x x.
Moreover, to apply the decision against Green Acres will amount to
collateral attack against its titles because nowhere in the case or
decision that it was considered or passed upon. Under the Property
Registration Decree, titles issued under the Torrens system can only
be altered, modified or cancelled in direct proceeding in accordance
with law x x x.
Even assuming that spouses Moraga and Filcon fraudulently acquired
the disputed lots, still, Green Acres has valid and legitimate titles over
the same since it is a purchaser in good faith and for value when it
acquired the properties from Filcon. A buyer in good faith is one who
buys the property of another without notice that some other person has
a right to or interest in such property x x x.31 (Citations omitted.)
Both Green Acres and Cabral are now before this Court seeking the
reversal of the CA decisions adverse to them.
In G.R. No. 175542, Green Acres contends that the CA erred
in:cralavvonlinelawlibrary
x x x RULING THAT THE DARAB DECISION IS NOT A SOURCE OF
A CLOUD THAT IS SUSCEPTIBLE TO AN ACTION FOR QUIETING
OF TITLE.
x x x HOLDING THAT THE COURT DOES NOT HAVE AUTHORITY
TO QUIET TITLES TO REAL PROPERTY AND REMOVE A CLOUD
PRODUCED BY A DARAB DECISION.
x x x AFFIRMING THE ORDER OF THE [REGIONAL TRIAL COURT]
DATED NOVEMBER 3, 2004 THEREBY IMPLIEDLY HOLDING THAT
GREEN ACRES IS NOT A PURCHASER IN GOOD FAITH FOR
VALUE; THUS, ITS TITLE CAN NOT BE QUIETED.32
In G.R. No. 183205, Cabral, on the other hand, argues that the CA
erred when it:cralavvonlinelawlibrary
x x x FAILED TO CORRECTLY APPLY THE PERTINENT
PROVISIONS OF THE DARAB 2003 RULES OF PROCEDURE, P.D.
1529 AND THE CIVIL CODE, AMONG OTHERS, AS WELL AS THE
APPLICABLE JURISPRUDENCE.
x x x DISMISSED PETITIONER’S PETITION FOR CERTIORARI.
x x x FAILED TO RULE THAT THERE WAS GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR ABUSE OF
DISCRETION ON THE PART OF PUBLIC RESPONDENT
PROVINCIAL ADJUDICATOR LONGBOAN.
x x x DECLARED THAT THE DECISION PROMULGATED ON
JANUARY 17, 2001 CANNOT BE MADE TO APPLY TO
RESPONDENT GREEN ACRES.
x x x DECLARED THAT (SIC) RESPONDENT GREEN ACRES TO BE
AN “INNOCENT PURCHASER FOR VALUE.”33
Simply put, the issues raised in the two petitions are essentially as
follows: (1) Whether the January 17, 2001 DARAB decision may be
enforced against Green Acres; and (2) Whether the said DARAB
decision in favor of Cabral constitutes a cloud on Green Acres’ title
over the subject properties.
First Issue: Whether the January 17,
2001 DARAB decision may be
enforced against Green Acres.
23
Cabral contends that the PARAD committed grave abuse of discretion
in not issuing the writ of execution to enforce the January 17, 2001
DARAB decision in her favor. She argues that the issuance of a writ of
execution is ministerial under Section 1, Rule XX of the 2003 DARAB
Rules of Procedure which provides that the execution of a final order or
decision shall issue as a matter of course.
Cabral also argues that contrary to the PARAD’s ruling, she is not
seeking the amendment of the final decision sought to be executed.
She contends that the directive to the Register of Deeds to restore TCT
No. T-73737 (M) in her name means that it should be done regardless
of who holds title to the property at the time of execution. In this case,
it is Green Acres. She also points out that the transfer from the
Spouses Moraga to Filcon in 1996 and eventually to Green Acres in
1999 transpired after she filed a case with the DARAB in
1994. Therefore, under Section 12.2, Rule XX of the DARAB Rules,
Green Acres is considered a successor in interest by title subsequent
to the commencement of the action upon whom the final judgment or
order of the DARAB is conclusive. Cabral also insists that Green
Acres cannot be considered an innocent purchaser for value because
the transfers were made to defeat the DARAB ruling.
Green Acres, for its part, submits that the CA did not err in denying
Cabral’s petition for certiorari. Green Acres contends that Cabral,
through her motion for execution, sought the amendment of the
DARAB decision and did not move merely for its execution. Green
Acres points out that Cabral’s motion for execution specifically sought
the cancellation of Green Acres’ titles even though the DARAB
decision neither included Green Acres or its titles. Green Acres points
out that if the issuance of a writ of execution that conforms to the
decision may be denied on the ground that it will be inequitable,
moreso should it be denied in the case where the writ of execution
prayed for goes beyond the decision. Hence, even if the issuance of a
writ of execution to enforce a final and executory decision is a
ministerial duty, the PARAD may not issue a writ of execution against
Filcon and Green Acres as prayed for by Cabral.
Green Acres also argues that it cannot be bound by the DARAB
decision since a writ of execution of a decision can only be issued
against a party to the case and not against one who did not have his
day in court. Moreover, if granted, the execution sought will constitute a
collateral attack against the titles of Green Acres since nowhere in the
DARAB decision sought to be executed were they mentioned. Green
Acres also adds that Cabral misinterpreted Section 12.2 of the DARAB
Rules to mean that a judgment issued in a case is binding upon, and
can be executed, even against those parties not impleaded in the
case. Green Acres submits that Section 12 is a mere reproduction of
Section 47, Rule 39 of the Rules of Court on the principle of res
judicata. Thus, the cited DARAB rule does not operate to bind Green
Acres, either presently or in the future, to the DARAB decision which
does not mention Green Acres either in the body or the dispositive
portion. Green Acres likewise argues that impleading it as an
additional defendant in the execution stage aggravates the violation of
its right to due process.
Green Acres further contends that Cabral’s argument that it is not a
purchaser in good faith and for value may not be considered in the
resolution of her petition before this Court as her argument goes into
the merits of the case and said matters were not raised in her motion
for execution. But even if the argument could be considered, Green
Acres claims that the merits of the case show that it is a purchaser in
good faith and for value. Green Acres points out that when it
purchased the properties from Filcon, the properties were covered by
transfer certificates of title, not Emancipation Patents, without any
indication that the titles had their origins from the application of any
agrarian law. Green Acres also adds that the occupancy or
possession of the properties of both Filcon and Green Acres were not
clandestine as Cabral claims. Neither can it be true, as Cabral
claimed, that its acquisition of the titles to the properties was made
through “surreptitious and illegal transfers.” Green Acres argues that
Cabral must have known about the alleged illegal subdivision of the
property and issuance of the transfer certificates of titles or
Emancipation Patents, or if she did not know, she is nonetheless
deemed to have received constructive notice of the same because the
properties were registered under the Torrens System. Yet, despite
said notice, Cabral, with gross negligence, failed to annotate a notice
of lis pendens on said titles.
We find in favor of Green Acres.
The principle that a person cannot be prejudiced by a ruling rendered
in an action or proceeding in which he was not made a party conforms
to the constitutional guarantee of due process of law. 34 In Muñoz v.
Yabut, Jr.,35 this Court ruled:cralavvonlinelawlibrary
An action for declaration of nullity of title and recovery of ownership of
real property, or re-conveyance, is a real action but it is an action in
personam, for it binds a particular individual only although it concerns
the right to a tangible thing. Any judgment therein is binding only
upon the parties properly impleaded.
Since they were not impleaded as parties and given the opportunity to
participate in Civil Case No. Q-28580, the final judgment in said case
cannot bind BPI Family and the spouses Chan. The effect of the said
judgment cannot be extended to BPI Family and the spouses Chan by
simply issuing an alias writ of execution against them. No man shall
be affected by any proceeding to which he is a stranger, and
strangers to a case are not bound by any judgment rendered by
the court. In the same manner, a writ of execution can be issued
only against a party and not against one who did not have his day
in court. Only real parties in interest in an action are bound by
the judgment therein and by writs of execution issued pursuant
thereto.36 (Emphasis supplied.)
It is beyond dispute that Green Acres was not made a party in the
DARAB case. Consequently, the January 17, 2001 DARAB decision
cannot bind Green Acres. Likewise, the binding effect of the DARAB
decision cannot be extended to Green Acres by the mere issuance of a
writ of execution against it. No one shall be affected by any
proceeding to which he is a stranger, and strangers to a case are not
bound by any judgment rendered by the court. In the same manner, a
writ of execution can be issued only against a party and not against
one who did not have his day in court. Only real parties in interest in
an action are bound by the judgment therein and by writs of execution
and demolition issued pursuant thereto.37
Moreover, a Torrens title, as a general rule, is irrevocable and
indefeasible, and the duty of the court is to see to it that this title is
maintained and respected unless challenged in a direct
proceeding. Section 48 of P.D. No. 1529
provides:cralavvonlinelawlibrary
SEC. 48. Certificate not subject to collateral attack. – A certificate of
title shall not be subject to collateral attack. It cannot be altered,
modified, or cancelled except in a direct proceeding in accordance with
law. (Emphasis supplied.)
In Sps. Sarmiento v. Court of Appeals,38 this Court explained when an
action is a direct attack on a title and when it is
collateral:cralavvonlinelawlibrary
An action is deemed an attack on a title when the object of the action
or proceeding is to nullify the title, and thus challenge the judgment
pursuant to which the title was decreed. The attack is direct when the
object of the action is to annul or set aside such judgment, or enjoin its
enforcement. On the other hand, the attack is indirect or collateral
when, in an action to obtain a different relief, an attack on the judgment
is nevertheless made as an incident thereof.39
In the instant case, Cabral seeks the execution of a final and executory
DARAB decision that directs the cancellation of the TCTs in the name
of the Spouses Moraga and Filcon. Nowhere in the said decision is
Green Acres or its TCTs mentioned. Nonetheless, in her Motion for
Issuance of Writ of Execution, Cabral alleged that Green Acres, like
Filcon, “also never acquired valid title to the subject land” and “[h]ence,
its present TCTs thereto should likewise be cancelled (together with
the respective [Emancipation Patents] and TCTs of Sps. Moraga and
Filcon Ready Mixed, Inc. mentioned in the DARAB Decision) and
reverted back to [her] TCT.”40 She prayed for the issuance of a writ of
execution against the Spouses Moraga and “their subsequent
assigns/successors in interest Filcon Ready Mixed, Inc. and Green
Acres Holdings, Inc.”41 Clearly, seeking the cancellation of the titles of
Green Acres by a mere Motion for Issuance of Writ of Execution of a
decision rendered in a case where said titles were not in issue
constitutes a collateral attack on them which this Court cannot allow.
Furthermore, as correctly ruled by the PARAD and upheld by the
appellate court, only the decision of the DARAB as embodied in the
dispositive portion of the decision can be implemented by a writ of
execution. As held in Ingles v. Cantos:42
A writ of execution should conform to the dispositive portion of the
decision to be executed, and the execution is void if it is in excess of
and beyond the original judgment or award, for it is a settled general
principle that a writ of execution must conform strictly with every
essential particular of the judgment promulgated. It may not vary the
terms of the judgment it seeks to enforce. Nor may it go beyond the
terms of the judgment sought to be executed. Where the writ of
execution is not in harmony with and exceeds the judgment which
gives it life, the writ has pro tanto no validity.43
A reading of the fallo of the DARAB decision would show that nothing
in it directs the cancellation of the titles issued in favor of Green Acres.
To subscribe to Cabral’s prayer in her motion is tantamount to
modifying or amending a decision that has already attained finality in
violation of the doctrine of immutability of judgment.
It is also worth noting that the fact that the DARAB by final judgment
ordered the cancellation of the titles of the Spouses Moraga and Filcon
does not automatically make the titles of Green Acres null and void. It
is settled that a void title may be the source of a valid title in the hands
of an innocent purchaser for value.44 An innocent purchaser for value
is one who, relying on the certificate of title, bought the property from
the registered owner, without notice that some other person has a right
to, or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim
or interest of some other person in the property.45 The rationale
therefor was expressed by this Court in the earlier case of Republic v.
Court of Appeals,46 thus:cralavvonlinelawlibrary
Where innocent third persons, relying on the correctness of the
certificate of title thus issued, acquire rights over the property the court
cannot disregard such rights and order the total cancellation of the
certificate. The effect of such an outright cancellation would be to
impair public confidence in the certificate of title, for everyone dealing
with property registered under the Torrens system would have to
inquire in every instance whether the title has been regularly or
irregularly issued. This is contrary to the evident purpose of the
law. Every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in
24
no way oblige him to go behind the certificate to determine the
condition of the property. x x x47nadcralavvonlinelawlibrary
Green Acres is considered an innocent purchaser for value. It relied on
the certificates of title of Filcon, free from any liens and encumbrances.
The only annotation on them was a cancelled real estate mortgage in
favor of PCI Bank. Thus, as held by the CA, Green Acres was under
no obligation to investigate beyond Filcon’s titles as Green Acres had
all the reason to believe that said titles were free from any lien, claim or
encumbrance.
We also agree with the CA that Cabral’s allegation that the Spouses
Moraga, Filcon and Green Acres were parties to illegal contracts
cannot be given weight as such goes into the merits of the case and
may not be considered in the execution stage.
If there is anyone to be blamed for Cabral’s failure to recover the
subject properties, it is Cabral herself, who, due to her own negligence,
failed to annotate a notice of lis pendens on the titles of the Spouses
Moraga and Filcon and thus give notice to future transferees. She
cannot claim that she was clueless that the subject properties were
being transferred. As Green Acres correctly pointed out, the transfers
to Filcon and eventually to Green Acres were made through public
documents and procedures. Also, considering the significant size of
the properties, occupation of the same cannot be made
clandestinely. In fact, the properties were fenced by concrete walls
and Filcon had constructed a batch plant while Green Acres erected a
warehouse and building on it. Had her adverse claim been annotated
on said titles, said notice would have served as a warning to Green
Acres or other purchasers of the properties that any right they acquire
would be subject to the outcome of the litigation before the
DARAB. Having failed to make such annotation, this Court has no
choice but to uphold the titles of Green Acres, an innocent purchaser
for value.
Whether the DARAB Decision in
favor of Cabral constitutes a cloud
on Green Acres’ title over the subject
properties
Green Acres argues that the DARAB decision is among those
enumerated in Article 47648 of the Civil Code as a possible source of a
cloud on title to real property. It contends that there can hardly be any
doubt that the DARAB Decision is an “instrument,” or if not, a “record”
and reflects a “claim” on the properties, while the proceedings before
the DARAB are “proceedings” directed at the real properties now
owned by Green Acres which are “apparently valid or effective” but
“unenforceable” against the titles of Green Acres. It also contends that
the appellate court’s reliance on Foster-Gallego v. Spouses Galang49 is
misplaced since nothing in said case supports the proposition that a
decision of a coordinate court cannot be a source of cloud under Article
476 of the Civil Code. Green Acres submits that Foster-Gallego is not
applicable because the ruling there was that an action to quiet title is
not the proper remedy when to remove a cloud on a title, a final and
executory decision of the court need to be reviewed or vacated. In the
present case, Green Acres does not seek a review or reversal of the
DARAB decision.
Cabral, for her part, insists that the DARAB decision is not among
those enumerated in Article 476 which may cast a cloud on title to real
property. As to the applicability of Foster-Gallego, she argues that
assuming that the ruling on the main issue in said case is not directly
germane, the pronouncements therein on the nature, function, purpose
and limitations of a case for quieting of title and the power of the courts
in such proceedings are applicable.
Green Acres’ arguments are meritorious.
Article 476 of the Civil Code provides:cralavvonlinelawlibrary
Art. 476. Whenever there is a cloud on title to real property or any
interest therein, by reason of any instrument, record, claim,
encumbrance or proceeding which is apparently valid or effective but is
in truth and in fact invalid, ineffective, voidable, or unenforceable, and
may be prejudicial to said title, an action may be brought to remove
such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon
title to real property or any interest therein.
Quieting of title is a common law remedy for the removal of any cloud
upon, doubt, or uncertainty affecting title to real property. Whenever
there is a cloud on title to real property or any interest in real property
by reason of any instrument, record, claim, encumbrance, or
proceeding that is apparently valid or effective, but is in truth and in
fact, invalid, ineffective, voidable, or unenforceable, and may be
prejudicial to said title, an action may be brought to remove such cloud
or to quiet the title. In such action, the competent court is tasked to
determine the respective rights of the complainant and the other
claimants, not only to place things in their proper places, and make the
claimant, who has no rights to said immovable, respect and not disturb
the one so entitled, but also for the benefit of both, so that whoever has
the right will see every cloud of doubt over the property dissipated, and
he can thereafter fearlessly introduce any desired improvements, as
well as use, and even abuse the property.50
For an action to quiet title to prosper, two indispensable requisites must
concur: (1) the plaintiff or complainant has a legal or equitable title or
interest in the real property subject of the action; and (2) the deed,
claim, encumbrance, or proceeding claimed to be casting a cloud on
his title must be shown to be in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy.51
There is no dispute as to the first requisite since Green Acres has legal
title over the subject properties. The issue lies in the second requisite.
A cloud on title consists of (1) any instrument, record, claim,
encumbrance or proceeding; (2) which is apparently valid or effective;
(3) but is in truth and in fact invalid, ineffective, voidable, or
unenforceable; and (4) may be prejudicial to the title sought to be
quieted.52
This Court holds that the DARAB decision in favor of Cabral satisfies
all four elements of a cloud on title.
As Green Acres correctly points out, the DARAB decision, a final one
at that, is both an “instrument” and a “record.” Black’s Law Dictionary
defines an instrument as a document or writing which gives formal
expression to a legal act or agreement, for the purpose of creating,
securing, modifying or terminating a right.53 A record, on the other
hand, is defined as a written account of some act, court proceeding,
transaction or instrument drawn up under authority of law, by a proper
officer, and designed to remain as a memorial or permanent evidence
of the matters to which it relates.54 It is likewise a “claim” which is
defined as a cause of action or a demand for money or property55 since
Cabral is asserting her right over the subject lots. More importantly, it
is a “proceeding” which is defined as a regular and orderly progress in
form of law including all possible steps in an action from its
commencement to the execution of judgment and may refer not only to
a complete remedy but also to a mere procedural step that is part of a
larger action or special proceeding.56
Also, the DARAB decision is apparently valid and effective. It is a final
decision that has not been reversed, vacated or nullified. It is likewise
apparently effective and may be prejudicial to Green Acres’ titles since
it orders the cancellation of the titles of the Spouses Moraga and Filcon
all from which Green Acres derived its titles. However, as discussed
above, it is ineffective and unenforceable against Green Acres
because Green Acres was not properly impleaded in the DARAB
proceedings nor was there any notice of lis pendens annotated on the
title of Filcon so as to serve notice to Green Acres that the subject
properties were under litigation. As such, Green Acres is an innocent
purchaser for value.
Furthermore, in the case of Dare Adventure Farm Corporation v. Court
of Appeals,57 this Court had the occasion to rule that one of the proper
remedies of a person who was not impleaded in the proceedings
declaring null and void the title from which his title to the property had
been derived, is an action for quieting title. In said case, Dare
Adventure Farm Corporation purchased property from the Goc-ongs.
Dare later discovered that said property was previously mortgaged by
the Goc-ongs to the Ngs. When the Goc-ongs failed to pay their
obligation, the mortgage was foreclosed and the Ngs were declared
owners of the property. Dare, who was not impleaded in the
foreclosure case, filed a petition for annulment of the judgment of the
trial court with the appellate court. The Court upheld the appellate
court’s dismissal of the petition since such remedy may be availed only
when other remedies are wanting. We further ruled that Dare’s resort
to annulment of judgment was unnecessary since it cannot be
prejudiced by the judgment as it was not impleaded. Two remedies
were suggested to Dare as proper recourse, one of which is an action
for quieting of title:cralavvonlinelawlibrary
We agree with the CA’s suggestion that the petitioner’s proper
recourse was either an action for quieting of title or an action for
reconveyance of the property. It is timely for the Court to remind that
the petitioner will be better off if it should go to the courts to obtain
relief through the proper recourse; otherwise, it would waste its own
time and effort, aside from thereby unduly burdening the dockets of the
courts.
The petitioner may vindicate its rights in the property through an action
for quieting of title, a common law remedy designed for the removal of
any cloud upon, or doubt, or uncertainty affecting title to real property.
The action for quieting of title may be brought whenever there is a
cloud on title to real property or any interest in real property by reason
of any instrument, record, claim, encumbrance, or proceeding that is
apparently valid or effective, but is, in truth and in fact, invalid,
ineffective, voidable, or unenforceable, and may be prejudicial to said
title. In the action, the competent court is tasked to determine the
respective rights of the plaintiff and the other claimants, not only to put
things in their proper places, and make the claimant, who has no rights
to the immovable, respect and not disturb the one so entitled, but also
for the benefit of both, so that whoever has the right will see every
cloud of doubt over the property dissipated, and he can thereafter
fearlessly introduce any desired improvements, as well as use, and
even abuse the property.58nadcralavvonlinelawlibrary
WHEREFORE, the petition in G.R. No. 175542 is GRANTED. The
Decision dated November 24, 2006 of the Court of Appeals in CA-G.R.
CV No. 85766 is REVERSED and SET ASIDE. TCT Nos. T-345660
(M), T-345661 (M) and T-345662 (M) registered in the name of Green
Acres Holdings, Inc. are declared VALID and any cloud over such titles
which may have been created by the Decision dated January 17, 2001
of the Department of Agrarian Reform Adjudication Board in DARAB
Case No. 5129 (Reg. Case No. 739-Bul-94) is hereby REMOVED.
The petition in G.R. No. 183205 is DENIED for lack of merit. The
Decision dated February 27, 2008 and Resolution dated May 29, 2008
of the Court of Appeals in CA-G.R. SP No. 99651 are AFFIRMED.
25
With costs against the petitioner in G.R. No. 183205.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17587 September 12, 1967
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-
appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased, defendant-appellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.
CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila. This parcel, with an
area of 2,582.30 square meters, is located on Rizal Avenue and opens
into Florentino Torres street at the back and Katubusan street on one
side. In it are two residential houses with entrance on Florentino Torres
street and the Hen Wah Restaurant with entrance on Rizal Avenue.
The sisters lived in one of the houses, while Wong Heng, a Chinese,
lived with his family in the restaurant. Wong had been a long-time
lessee of a portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the
entire property as her sister died with no other heir. Then already well
advanced in years, being at the time 90 years old, blind, crippled and
an invalid, she was left with no other relative to live with. Her only
companions in the house were her 17 dogs and 8 maids. Her
otherwise dreary existence was brightened now and then by the visits
of Wong's four children who had become the joy of her life. Wong
himself was the trusted man to whom she delivered various amounts
for safekeeping, including rentals from her property at the corner of
Ongpin and Salazar streets and the rentals which Wong himself paid
as lessee of a part of the Rizal Avenue property. Wong also took care
of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses,
masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to
her," Justina Santos executed on November 15, 1957 a contract of
lease (Plff Exh. 3) in favor of Wong, covering the portion then already
leased to him and another portion fronting Florentino Torres street. The
lease was for 50 years, although the lessee was given the right to
withdraw at any time from the agreement; the monthly rental was
P3,120. The contract covered an area of 1,124 square meters. Ten
days later (November 25), the contract was amended (Plff Exh. 4) so
as to make it cover the entire property, including the portion on which
the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from
him, an amount not exceeding P1,000 a month for the food of her dogs
and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving
Wong the option to buy the leased premises for P120,000, payable
within ten years at a monthly installment of P1,000. The option, written
in Tagalog, imposed on him the obligation to pay for the food of the
dogs and the salaries of the maids in her household, the charge not to
exceed P1,800 a month. The option was conditioned on his obtaining
Philippine citizenship, a petition for which was then pending in the
Court of First Instance of Rizal. It appears, however, that this
application for naturalization was withdrawn when it was discovered
that he was not a resident of Rizal. On October 28, 1958 she filed a
petition to adopt him and his children on the erroneous belief that
adoption would confer on them Philippine citizenship. The error was
discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff
Exh. 5) extending the term of the lease to 99 years, and another (Plff
Exh. 6) fixing the term of the option of 50 years. Both contracts are
written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 &
279), she bade her legatees to respect the contracts she had entered
into with Wong, but in a codicil (Plff Exh. 17) of a later date (November
4, 1959) she appears to have a change of heart. Claiming that the
various contracts were made by her because of machinations and
inducements practiced by him, she now directed her executor to
secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First
Instance of Manila. The complaint alleged that the contracts were
obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and (by)
taking advantage of the helplessness of the plaintiff and were made to
circumvent the constitutional provision prohibiting aliens from acquiring
lands in the Philippines and also of the Philippine Naturalization Laws."
The court was asked to direct the Register of Deeds of Manila to
cancel the registration of the contracts and to order Wong to pay
Justina Santos the additional rent of P3,120 a month from November
15, 1957 on the allegation that the reasonable rental of the leased
premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and confidence
as proof of which he volunteered the information that, in addition to the
sum of P3,000 which he said she had delivered to him for safekeeping,
another sum of P22,000 had been deposited in a joint account which
he had with one of her maids. But he denied having taken advantage
of her trust in order to secure the execution of the contracts in
question. As counterclaim he sought the recovery of P9,210.49 which
he said she owed him for advances.
Wong's admission of the receipt of P22,000 and P3,000 was the cue
for the filing of an amended complaint. Thus on June 9, 1960, aside
from the nullity of the contracts, the collection of various amounts
allegedly delivered on different occasions was sought. These amounts
and the dates of their delivery are P33,724.27 (Nov. 4, 1957);
P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000 and
P3,000 (as admitted in his answer). An accounting of the rentals from
the Ongpin and Rizal Avenue properties was also demanded.
In the meantime as a result of a petition for guardianship filed in the
Juvenile and Domestic Relations Court, the Security Bank & Trust Co.
was appointed guardian of the properties of Justina Santos, while
Ephraim G. Gochangco was appointed guardian of her person.
In his answer, Wong insisted that the various contracts were freely and
voluntarily entered into by the parties. He likewise disclaimed
knowledge of the sum of P33,724.27, admitted receipt of P7,344.42
and P10,000, but contended that these amounts had been spent in
accordance with the instructions of Justina Santos; he expressed
readiness to comply with any order that the court might make with
respect to the sums of P22,000 in the bank and P3,000 in his
possession.
The case was heard, after which the lower court rendered judgment as
follows:
[A]ll the documents mentioned in the first cause of action,
with the exception of the first which is the lease contract of
15 November 1957, are declared null and void; Wong Heng
is condemned to pay unto plaintiff thru guardian of her
property the sum of P55,554.25 with legal interest from the
date of the filing of the amended complaint; he is also
ordered to pay the sum of P3,120.00 for every month of his
occupation as lessee under the document of lease herein
sustained, from 15 November 1959, and the moneys he has
consigned since then shall be imputed to that; costs against
Wong Heng.
From this judgment both parties appealed directly to this Court. After
the case was submitted for decision, both parties died, Wong Heng on
October 21, 1962 and Justina Santos on December 28, 1964. Wong
was substituted by his wife, Lui She, the other defendant in this case,
while Justina Santos was substituted by the Philippine Banking
Corporation.
Justina Santos maintained — now reiterated by the Philippine Banking
Corporation — that the lease contract (Plff Exh. 3) should have been
annulled along with the four other contracts (Plff Exhs. 4-7) because it
lacks mutuality; because it included a portion which, at the time, was
in custodia legis; because the contract was obtained in violation of the
fiduciary relations of the parties; because her consent was obtained
through undue influence, fraud and misrepresentation; and because
the lease contract, like the rest of the contracts, is absolutely
simulated.
Paragraph 5 of the lease contract states that "The lessee may at any
time withdraw from this agreement." It is claimed that this stipulation
offends article 1308 of the Civil Code which provides that "the contract
must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them."
We have had occasion to delineate the scope and application of article
1308 in the early case of Taylor v. Uy Tieng Piao.1 We said in that
case:
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for
26
personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the
will of the party to whom is conceded the privilege of
cancellation; for where the contracting parties have agreed
that such option shall exist, the exercise of the option is as
much in the fulfillment of the contract as any other act which
may have been the subject of agreement. Indeed, the
cancellation of a contract in accordance with conditions
agreed upon beforehand is fulfillment.2
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a
lease contract that the lessee, at any time before he erected any
building on the land, might rescind the lease, can hardly be regarded
as a violation of article 1256 [now art. 1308] of the Civil Code."
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in
support of the claim of want of mutuality, because of a difference in
factual setting. In that case, the lessees argued that they could occupy
the premises as long as they paid the rent. This is of course untenable,
for as this Court said, "If this defense were to be allowed, so long as
defendants elected to continue the lease by continuing the payment of
the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue the
lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of
the rentals." Here, in contrast, the right of the lessee to continue the
lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon
his will. At any rate, even if no term had been fixed in the agreement,
this case would at most justify the fixing of a period5 but not the
annulment of the contract.
Nor is there merit in the claim that as the portion of the property
formerly owned by the sister of Justina Santos was still in the process
of settlement in the probate court at the time it was leased, the lease is
invalid as to such portion. Justina Santos became the owner of the
entire property upon the death of her sister Lorenzo on September 22,
1957 by force of article 777 of the Civil Code. Hence, when she leased
the property on November 15, she did so already as owner thereof. As
this Court explained in upholding the sale made by an heir of a
property under judicial administration:
That the land could not ordinarily be levied upon while
in custodia legis does not mean that one of the heirs may not
sell the right, interest or participation which he has or might
have in the lands under administration. The ordinary
execution of property in custodia legis is prohibited in order
to avoid interference with the possession by the court. But
the sale made by an heir of his share in an inheritance,
subject to the result of the pending administration, in no wise
stands in the way of such administration.6
It is next contended that the lease contract was obtained by Wong in
violation of his fiduciary relationship with Justina Santos, contrary to
article 1646, in relation to article 1941 of the Civil Code, which
disqualifies "agents (from leasing) the property whose administration or
sale may have been entrusted to them." But Wong was never an agent
of Justina Santos. The relationship of the parties, although admittedly
close and confidential, did not amount to an agency so as to bring the
case within the prohibition of the law.
Just the same, it is argued that Wong so completely dominated her life
and affairs that the contracts express not her will but only his. Counsel
for Justina Santos cites the testimony of Atty. Tomas S. Yumol who
said that he prepared the lease contract on the basis of data given to
him by Wong and that she told him that "whatever Mr. Wong wants
must be followed."7
The testimony of Atty. Yumol cannot be read out of context in order to
warrant a finding that Wong practically dictated the terms of the
contract. What this witness said was:
Q Did you explain carefully to your client, Doña Justina, the
contents of this document before she signed it?
A I explained to her each and every one of these conditions
and I also told her these conditions were quite onerous for
her, I don't really know if I have expressed my opinion, but I
told her that we would rather not execute any contract
anymore, but to hold it as it was before, on a verbal month to
month contract of lease.
Q But, she did not follow your advice, and she went with the
contract just the same?
A She agreed first . . .
Q Agreed what?
 A Agreed with my objectives that it is really onerous and that
I was really right, but after that, I was called again by her and
she told me to follow the wishes of Mr. Wong Heng.
xxx xxx xxx
Q So, as far as consent is concerned, you were satisfied that
this document was perfectly proper?
xxx xxx xxx
A Your Honor, if I have to express my personal opinion, I
would say she is not, because, as I said before, she told me
— "Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol
embodied in the lease contract, but to say this is not to detract from the
binding force of the contract. For the contract was fully explained to
Justina Santos by her own lawyer. One incident, related by the same
witness, makes clear that she voluntarily consented to the lease
contract. This witness said that the original term fixed for the lease was
99 years but that as he doubted the validity of a lease to an alien for
that length of time, he tried to persuade her to enter instead into a
lease on a month-to-month basis. She was, however, firm and
unyielding. Instead of heeding the advice of the lawyer, she ordered
him, "Just follow Mr. Wong Heng."9 Recounting the incident, Atty.
Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and
her condition, she is a wealthy woman, it is just natural when
she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said
"This is not proper," she said — "You just go ahead, you
prepare that, I am the owner, and if there is any illegality, I
am the only one that can question the illegality."10
Atty. Yumol further testified that she signed the lease contract in the
presence of her close friend, Hermenegilda Lao, and her maid,
Natividad Luna, who was constantly by her side.11 Any of them could
have testified on the undue influence that Wong supposedly wielded
over Justina Santos, but neither of them was presented as a witness.
The truth is that even after giving his client time to think the matter
over, the lawyer could not make her change her mind. This persuaded
the lower court to uphold the validity of the lease contract against the
claim that it was procured through undue influence.
Indeed, the charge of undue influence in this case rests on a mere
inference12 drawn from the fact that Justina Santos could not read (as
she was blind) and did not understand the English language in which
the contract is written, but that inference has been overcome by her
own evidence.
Nor is there merit in the claim that her consent to the lease contract, as
well as to the rest of the contracts in question, was given out of a
mistaken sense of gratitude to Wong who, she was made to believe,
had saved her and her sister from a fire that destroyed their house
during the liberation of Manila. For while a witness claimed that the
sisters were saved by other persons (the brothers Edilberto and
Mariano Sta. Ana)13 it was Justina Santos herself who, according to
her own witness, Benjamin C. Alonzo, said "very emphatically" that she
and her sister would have perished in the fire had it not been for
Wong.14 Hence the recital in the deed of conditional option (Plff Exh. 7)
that "[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang
magkapatid sa halos ay tiyak na kamatayan", and the equally emphatic
avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest of
the contracts (Plff Exhs. 4-7) — the consent of Justina Santos was
given freely and voluntarily. As Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or
Judge Torres and/or both. When we had conferences, they
used to tell me what the documents should contain. But, as I
said, I would always ask the old woman about them and
invariably the old woman used to tell me: "That's okay. It's all
right."15
But the lower court set aside all the contracts, with the exception of the
lease contract of November 15, 1957, on the ground that they are
contrary to the expressed wish of Justina Santos and that their
considerations are fictitious. Wong stated in his deposition that he did
not pay P360 a month for the additional premises leased to him,
because she did not want him to, but the trial court did not believe him.
Neither did it believe his statement that he paid P1,000 as
consideration for each of the contracts (namely, the option to buy the
leased premises, the extension of the lease to 99 years, and the fixing
of the term of the option at 50 years), but that the amount was returned
to him by her for safekeeping. Instead, the court relied on the testimony
of Atty. Alonzo in reaching the conclusion that the contracts are void for
want of consideration.
27
Atty. Alonzo declared that he saw no money paid at the time of the
execution of the documents, but his negative testimony does not rule
out the possibility that the considerations were paid at some other time
as the contracts in fact recite. What is more, the consideration need not
pass from one party to the other at the time a contract is executed
because the promise of one is the consideration for the other.16
With respect to the lower court's finding that in all probability Justina
Santos could not have intended to part with her property while she was
alive nor even to lease it in its entirety as her house was built on it,
suffice it to quote the testimony of her own witness and lawyer who
prepared the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according
to her revelation to me, was to see to it that these properties
be enjoyed, even to own them, by Wong Heng because
Doña Justina told me that she did not have any relatives,
near or far, and she considered Wong Heng as a son and his
children her grandchildren; especially her consolation in life
was when she would hear the children reciting prayers in
Tagalog.17
She was very emphatic in the care of the seventeen (17)
dogs and of the maids who helped her much, and she told
me to see to it that no one could disturb Wong Heng from
those properties. That is why we thought of the ninety-nine
(99) years lease; we thought of adoption, believing that thru
adoption Wong Heng might acquire Filipino citizenship;
being the adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid.
For the testimony just quoted, while dispelling doubt as to the intention
of Justina Santos, at the same time gives the clue to what we view as a
scheme to circumvent the Constitutional prohibition against the transfer
of lands to aliens. "The illicit purpose then becomes the
illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease
to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted
Philippine citizenship. As this Court said in Krivenko v. Register of
Deeds:20
[A]liens are not completely excluded by the Constitution from
the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is
not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property,21 this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi)
but also of the right to dispose of it ( jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition, and so
on, until ultimately all the rights of which ownership is made up are
consolidated in an alien. And yet this is just exactly what the parties in
this case did within the space of one year, with the result that Justina
Santos' ownership of her property was reduced to a hollow concept. If
this can be done, then the Constitutional ban against alien landholding
in the Philippines, as announced in Krivenko v. Register of Deeds,22 is
indeed in grave peril.
It does not follow from what has been said, however, that because the
parties are in pari delicto they will be left where they are, without relief.
For one thing, the original parties who were guilty of a violation of the
fundamental charter have died and have since been substituted by
their administrators to whom it would be unjust to impute their
guilt.23 For another thing, and this is not only cogent but also important,
article 1416 of the Civil Code provides, as an exception to the rule
on pari delicto, that "When the agreement is not illegal per se but is
merely prohibited, and the prohibition by law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered." The Constitutional provision
that "Save in cases of hereditary succession, no private agricultural
land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines"24 is an expression of public policy to
conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we
have no choice. We are construing the Constitution as it is
and not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the
Philippines from owning sites where they may build their
homes. But if this is the solemn mandate of the Constitution,
 we will not attempt to compromise it even in the name of
amity or equity . . . .
For all the foregoing, we hold that under the Constitution
aliens may not acquire private or public agricultural lands,
including residential lands, and, accordingly, judgment is
affirmed, without costs.25
That policy would be defeated and its continued violation sanctioned if,
instead of setting the contracts aside and ordering the restoration of
the land to the estate of the deceased Justina Santos, this Court
should apply the general rule of pari delicto. To the extent that our
ruling in this case conflicts with that laid down in Rellosa v. Gaw Chee
Hun 26 and subsequent similar cases, the latter must be considered
as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of
Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust from
her? It appears that he kept two classes of accounts, one pertaining to
amount which she entrusted to him from time to time, and another
pertaining to rentals from the Ongpin property and from the Rizal
Avenue property, which he himself was leasing.
With respect to the first account, the evidence shows that he received
P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42 on
December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff
Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a
total of P70,007.19. He claims, however, that he settled his accounts
and that the last amount of P18,928.50 was in fact payment to him of
what in the liquidation was found to be due to him.
He made disbursements from this account to discharge Justina Santos'
obligations for taxes, attorneys' fees, funeral services and security
guard services, but the checks (Def Exhs. 247-278) drawn by him for
this purpose amount to only P38,442.84.27 Besides, if he had really
settled his accounts with her on August 26, 1959, we cannot
understand why he still had P22,000 in the bank and P3,000 in his
possession, or a total of P25,000. In his answer, he offered to pay this
amount if the court so directed him. On these two grounds, therefore,
his claim of liquidation and settlement of accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19
(receipts), there is a difference of P31,564 which, added to the amount
of P25,000, leaves a balance of P56,564.3528 in favor of Justina
Santos.
As to the second account, the evidence shows that the monthly income
from the Ongpin property until its sale in Rizal Avenue July, 1959 was
P1,000, and that from the Rizal Avenue property, of which Wong was
the lessee, was P3,120. Against this account the household expenses
and disbursements for the care of the 17 dogs and the salaries of the 8
maids of Justina Santos were charged. This account is contained in a
notebook (Def. Exh. 6) which shows a balance of P9,210.49 in favor of
Wong. But it is claimed that the rental from both the Ongpin and Rizal
Avenue properties was more than enough to pay for her monthly
expenses and that, as a matter of fact, there should be a balance in
her favor. The lower court did not allow either party to recover against
the other. Said the court:
[T]he documents bear the earmarks of genuineness; the
trouble is that they were made only by Francisco Wong and
Antonia Matias, nick-named Toning, — which was the way
she signed the loose sheets, and there is no clear proof that
Doña Justina had authorized these two to act for her in such
liquidation; on the contrary if the result of that was a deficit
as alleged and sought to be there shown, of P9,210.49, that
was not what Doña Justina apparently understood for as the
Court understands her statement to the Honorable Judge of
the Juvenile Court . . . the reason why she preferred to stay
in her home was because there she did not incur in any
debts . . . this being the case, . . . the Court will not
adjudicate in favor of Wong Heng on his counterclaim; on the
other hand, while it is claimed that the expenses were much
less than the rentals and there in fact should be a superavit, .
. . this Court must concede that daily expenses are not easy
to compute, for this reason, the Court faced with the choice
of the two alternatives will choose the middle course which
after all is permitted by the rules of proof, Sec. 69, Rule 123
for in the ordinary course of things, a person will live within
his income so that the conclusion of the Court will be that
there is neither deficit nor superavit and will let the matter
rest here.
Both parties on appeal reiterate their respective claims but we agree
with the lower court that both claims should be denied. Aside from the
reasons given by the court, we think that the claim of Justina Santos
totalling P37,235, as rentals due to her after deducting various
expenses, should be rejected as the evidence is none too clear about
the amounts spent by Wong for food29 masses30 and salaries of her
maids.31 His claim for P9,210.49 must likewise be rejected as his
28
averment of liquidation is belied by his own admission that even as late
as 1960 he still had P22,000 in the bank and P3,000 in his possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled
and set aside; the land subject-matter of the contracts is ordered
returned to the estate of Justina Santos as represented by the
Philippine Banking Corporation; Wong Heng (as substituted by the
defendant-appellant Lui She) is ordered to pay the Philippine Banking
Corporation the sum of P56,564.35, with legal interest from the date of
the filing of the amended complaint; and the amounts consigned in
court by Wong Heng shall be applied to the payment of rental from
November 15, 1959 until the premises shall have been vacated by his
heirs. Costs against the defendant-appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P.,
Zaldivar, Sanchez and Angeles, JJ., concur.
Separate Opinions
FERNANDO, J., concurring:
With the able and well-written opinion of Justice Castro, I am in full
agreement. The exposition of the facts leaves nothing to be desired
and the statement of the law is notable for its comprehensiveness and
clarity. This concurring opinion has been written solely to express what
I consider to be the unfortunate and deplorable consequences of
applying the pari delicto concept, as was, to my mind, indiscriminately
done, to alien landholding declared illegal under the Krivenko doctrine
in some past decisions.
It is to be remembered that in Krivenko v. The Register of Deeds of
Manila,1 this Court over strong dissents held
that residential and commercial lots may be considered agricultural
within the meaning of the constitutional provision prohibiting the
transfer of any private agricultural land to individuals, corporations or
associations not qualified to acquire or hold lands of the public domain
in the Philippines save in cases of hereditary succession.
That provision of the Constitution took effect on November 15, 1935
when the Commonwealth Government was established. The
interpretation as set forth in the Krivenko decision was only handed
down on November 15, 1947. Prior to that date there were many who
were of the opinion that the phrase agricultural land should be
construed strictly and not be made to
cover residential and commercial lots. Acting on that belief, several
transactions were entered into transferring such lots to alien vendees
by Filipino-vendors.
After the Krivenko decision, some Filipino vendors sought recovery of
the lots in question on the ground that the sales were null and void. No
definite ruling was made by this Court until September of 1953, when
on the 29th of said month, Rellosa v. Gaw Chee Hun,2 Bautista v. Uy
Isabelo,3 Talento v. Makiki,4 Caoile v. Chiao Peng5 were decided.
Of the four decisions in September, 1953, the most extensive
discussion of the question is found in Rellosa v. Gaw Chee Hun, the
opinion being penned by retired Justice Bautista Angelo with the
concurrence only of one Justice, Justice Labrador, also retired. Former
Chief Justice Paras as well as the former Justices Tuason and
Montemayor concurred in the result. The necessary sixth vote for a
decision was given by the then Justice Bengzon, who had a two-
paragraph concurring opinion disagreeing with the main opinion as to
the force to be accorded to the two cases,6 therein cited. There were
two dissenting opinions by former Justices Pablo and Alex Reyes. The
doctrine as announced in the Rellosa case is that while the sale by a
Filipino-vendor to an alien-vendee of a residential or a commercial lot
is null and void as held in the Krivenko case, still the Filipino-vendor
has no right to recover under a civil law doctrine, the parties being in
pari delicto. The only remedy to prevent this continuing violation of the
Constitution which the decision impliedly sanctions by allowing the
alien vendees to retain the lots in question is either escheat or
reversion. Thus: "By following either of these remedies, or by
approving an implementary law as above suggested, we can enforce
the fundamental policy of our Constitution regarding our natural
resources without doing violence to the principle of pari delicto."7
Were the parties really in pari delicto? Had the sale by and between
Filipino-vendor and alien-vendee occurred after the decision in
the Krivenko case, then the above view would be correct that both
Filipino-vendor and alien-vendee could not be considered as innocent
parties within the contemplation of the law. Both of them should be
held equally guilty of evasion of the Constitution.
Since, however, the sales in question took place prior to
the Krivenko decision, at a time when the assumption could be
honestly entertained that there was no constitutional prohibition against
the sale of commercial or residential lots by Filipino-vendor to alien-
vendee, in the absence of a definite decision by the Supreme Court, it
would not be doing violence to reason to free them from the imputation
of evading the Constitution. For evidently evasion implies at the very
least knowledge of what is being evaded. The new Civil Code
expressly provides: "Mistakes upon a doubtful or difficult question of
law may be the basis of good faith."8
According to the Rellosa opinion, both parties are equally guilty of
evasion of the Constitution, based on the broader principle that "both
parties are presumed to know the law." This statement that the sales
entered into prior to the Krivenko decision were at that time already
vitiated by a guilty knowledge of the parties may be too extreme a
view. It appears to ignore a postulate of a constitutional system,
wherein the words of the Constitution acquire meaning through
Supreme Court adjudication.1awphîl.nèt
Reference may be made by way of analogy to a decision adjudging a
statute void. Under the orthodox theory of constitutional law, the act
having been found unconstitutional was not a law, conferred no rights,
imposed no duty, afforded no protection.9 As pointed out by former
Chief Justice Hughes though in Chicot County Drainage District v.
Baxter State Bank:10 "It is quite clear, however, that such broad
statements as to the effect of a determination of unconstitutionality
must be taken with qualifications. The actual existence of a statute,
prior to such a determination, is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always
be erased by a new judicial declaration. The effect of subsequent ruling
as to invalidity may have to be considered in various aspects, — with
respect to particular relations, individual and corporate, and particular
conduct, private and official. Questions of rights claimed to have
become vested, of status, of prior determinations deemed to have
finality and acted upon accordingly, of public policy in the light of the
nature both of the statute and of its previous application, demand
examination."
After the Krivenko decision, there is no doubt that continued
possession by alien-vendee of property acquired before its
promulgation is violative of the Constitution. It is as if an act granting
aliens the right to acquire residential and commercial lots were
annulled by the Supreme Court as contrary to the provision of the
Constitution prohibiting aliens from acquiring private agricultural land.
The question then as now, therefore, was and is how to divest the alien
of such property rights on terms equitable to both parties. That
question should be justly resolved in accordance with the mandates of
the Constitution not by a wholesale condemnation of both parties for
entering into a contract at a time when there was no ban as yet arising
from the Krivenko decision, which could not have been anticipated.
Unfortunately, under the Rellosa case, it was assumed that the parties,
being in pari delicto, would be left in the situation in which they were,
neither being in a position to seek judicial redress.
Would it not have been more in consonance with the Constitution, if
instead the decision compelled the restitution of the property by the
alien-vendee to the Filipino-vendor? Krivenko decision held in clear,
explicit and unambigous language that: "We are deciding the instant
case under section 5 of Article XIII of the Constitution which is more
comprehensive and more absolute in the sense that it prohibits the
transfer to aliens of any private agricultural land including residential
land whatever its origin might have been . . . . This prohibition [Rep.
Act No. 133] makes no distinction between private lands that are
strictly agricultural and private lands that are residential or commercial.
The prohibition embraces the sale of private lands of any kind in favor
of aliens, which is again a clear implementation and a legislative
interpretation of the constitutional prohibition. . . . It is well to note at
this juncture that in the present case we have no choice. We are
construing the Constitution as it is and not as we may desire it to be.
Perhaps the effect of our construction is to preclude aliens, admitted
freely into the Philippines, from owning sites where they may build their
homes. But if this is the solemn mandate of the Constitution, we will not
attempt to compromise it even in the name of amity or equity."11
Alien-vendee is therefore incapacitated or disqualified to acquire and
hold real estate. That incapacity and that disqualification should date
from the adoption of the Constitution on November 15, 1935. That
incapacity and that disqualification, however, was made known to
Filipino-vendor and to alien-vendee only upon the promulgation of
the Krivenko decision on November 15, 1947. Alien-vendee, therefore,
cannot be allowed to continue owning and exercising acts of ownership
over said property, when it is clearly included within the Constitutional
prohibition. Alien-vendee should thus be made to restore the property
with its fruits and rents to Filipino-vendor, its previous owner, if it could
be shown that in the utmost good faith, he transferred his title over the
same to alien-vendee, upon restitution of the purchase price of course.
The Constitution bars alien-vendees from owning the property in
question. By dismissing those suits, the lots remained in alien hands.
Notwithstanding the solution of escheat or reversion offered, they are
still at the moment of writing, for the most part in alien hands. There
have been after almost twenty years no proceedings for escheat or
reversion.
29
Yet it is clear that an alien-vendee cannot consistently with the
constitutional provision, as interpreted in the Krivenko decision,
continue owning and exercising acts of ownership over the real estate
in question. It ought to follow then, if such a continuing violation of the
fundamental law is to be put an end to, that the Filipino-vendor, who in
good faith entered into, a contract with an incapacitated person,
transferring ownership of a piece of land after the Constitution went
into full force and effect, should, in the light of the ruling in
the Krivenko case, be restored to the possession and ownership
thereof, where he has filed the appropriate case or proceeding. Any
other construction would defeat the ends and purposes not only of this
particular provision in question but the rest of the Constitution itself.
The Constitution frowns upon the title remaining in the alien-vendees.
Restoration of the property upon payment of price received by Filipino
vendor or its reasonable equivalent as fixed by the court is the answer.
To give the constitutional provision full force and effect, in consonance
with the dictates of equity and justice, the restoration to Filipino-vendor
upon the payment of a price fixed by the court is the better remedy. He
thought he could transfer the property to an alien and did so. After
the Krivenko case had made clear that he had no right to sell nor an
alien-vendee to purchase the property in question, the obvious solution
would be for him to reacquire the same. That way the Constitution
would be given, as it ought to be given, respect and deference.
It may be said that it is too late at this stage to hope for such a solution,
the Rellosa opinion, although originally concurred in by only one
justice, being too firmly imbedded. The writer however sees a welcome
sign in the adoption by the Court in this case of the concurring opinion
of the then Justice, later Chief Justice, Bengzon. Had it been followed
then, the problem would not be still with us now. Fortunately, it is never
too late — not even in constitutional adjudication.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27952 February 15, 1982
TESTATE ESTATE OF JOSE EUGENIO RAMIREZ, MARIA LUISA
PALACIOS, Administratrix, petitioner-appellee,
vs.
MARCELLE D. VDA. DE RAMIREZ, ET AL., oppositors, JORGE
and ROBERTO RAMIREZ, legatees, oppositors- appellants.
ABAD SANTOS, J.:
The main issue in this appeal is the manner of partitioning the testate
estate of Jose Eugenio Ramirez among the principal beneficiaries,
namely: his widow Marcelle Demoron de Ramirez; his two
grandnephews Roberto and Jorge Ramirez; and his companion Wanda
de Wrobleski.
The task is not trouble-free because the widow Marcelle is a French
who lives in Paris, while the companion Wanda is an Austrian who
lives in Spain. Moreover, the testator provided for substitutions.
Jose Eugenio Ramirez, a Filipino national, died in Spain on December
11, 1964, with only his widow as compulsory heir. His will was admitted
to probate by the Court of First Instance of Manila, Branch X, on July
27, 1965. Maria Luisa Palacios was appointed administratrix of the
estate. In due time she submitted an inventory of the estate as follows:
INVENTARIO
Una sexta parte (1/6)
proindiviso de un te
rreno, con sus mejoras y edificaciones, situadoen
la Escolta,
Manila.............................................................
P500,000.00
Una sexta parte (1/6)
proindiviso de dos
parcelas de terreno situadas en Antipolo,
Rizal................... 658.34
Cuatrocientos noventa y uno
(491) acciones
de la 'Central Azucarera de la Carlota a P17.00
 por accion
................................................................................
8,347.00
Diez mil ochocientos seize
(10,806) acciones
de la 'Central Luzon Milling Co.', disuelta y en
liquidacion a P0.15 por accion
..............................................1,620.90
Cuenta de Ahorros en el
Philippine Trust
Co............................................................................
.................. 2,350.73
TOTAL.....................................
......................... P512,976.97
MENOS:
Deuda al Banco de las Islas
Filipinas, garan-
tizada con prenda de las acciones de La Carlota
......... P 5,000,00
VALOR
LIQUIDO.................................
.......... P507,976.97
The testamentary dispositions are as follows:
A.—En nuda propiedad, a D. Roberto y D. Jorge
Ramirez, ambas menores de edad, residentes en
Manila, I.F., calle 'Alright, No. 1818, Malate, hijos
de su sobrino D. Jose Ma. Ramirez, con
sustitucion vulgar a favor de sus respectivos
descendientes, y, en su defecto, con sustitucion
vulgar reciprocal entre ambos.
El precedente legado en nuda propiedad de la
participacion indivisa de la finca Santa Cruz
Building, lo ordena el testador a favor de los
legatarios nombrados, en atencion a que dicha
propiedad fue creacion del querido padre del
otorgante y por ser aquellos continuadores del
apellido Ramirez,
B.—Y en usufructo a saber: —
a. En cuanto a una tercera parte, a favor de la
esposa del testador, Da. Marcelle Ramirez,
domiciliada en IE PECO, calle del General Gallieni
No. 33, Seine Francia, con sustitucion vulgar u
fideicomisaria a favor de Da. Wanda de Wrobleski,
de Palma de Mallorca, Son Rapina Avenida de los
Reyes 13,
b.—Y en cuanto a las dos terceras partes
restantes, a favor de la nombrada Da. Wanda de
Nrobleski con sustitucion vulgar v fideicomisaria a
saber:—
En cuanto a la mitad de dichas dos terceras
partes, a favor de D. Juan Pablo Jankowski, de
Son Rapina Palma de Mallorca; y encuanto a la
mitad restante, a favor de su sobrino, D. Horace V.
Ramirez, San Luis Building, Florida St. Ermita,
Manila, I.F.
A pesar de las sustituciones fideiconiisarias
precedentemente ordinadas, las usufiructuarias
nombradas conjuntamente con los nudo
propietarios, podran en cualquier memento vender
a tercero los bienes objeto delegado, sin
intervencion alguna de los titulares
fideicomisaarios.
On June 23, 1966, the administratrix submitted a project of partition as
follows: the property of the deceased is to be divided into two parts.
One part shall go to the widow 'en pleno dominio" in satisfaction of her
legitime; the other part or "free portion" shall go to Jorge and Roberto
Ramirez "en nuda propriedad." Furthermore, one third (1/3) of the free
portion is charged with the widow's usufruct and the remaining two-
thirds (2/3) with a usufruct in favor of Wanda.
30
Jorge and Roberto opposed the project of partition on the grounds: (a)
that the provisions for vulgar substitution in favor of Wanda de
Wrobleski with respect to the widow's usufruct and in favor of Juan
Pablo Jankowski and Horacio V. Ramirez, with respect to Wanda's
usufruct are invalid because the first heirs Marcelle and Wanda)
survived the testator; (b) that the provisions for fideicommissary
substitutions are also invalid because the first heirs are not related to
the second heirs or substitutes within the first degree, as provided in
Article 863 of the Civil Code; (c) that the grant of a usufruct over real
property in the Philippines in favor of Wanda Wrobleski, who is an
alien, violates Section 5, Article III of the Philippine Constitution; and
that (d) the proposed partition of the testator's interest in the Santa
Cruz (Escolta) Building between the widow Marcelle and the
appellants, violates the testator's express win to give this property to
them Nonetheless, the lower court approved the project of partition in
its order dated May 3, 1967. It is this order which Jorge and Roberto
have appealed to this Court.
1. The widow's legitime.
The appellant's do not question the legality of giving Marcelle one-half
of the estate in full ownership. They admit that the testator's
dispositions impaired his widow's legitime. Indeed, under Art. 900 of
the Civil Code "If the only survivor is the widow or widower, she or he
shall be entitled to one-half of the hereditary estate." And since
Marcelle alone survived the deceased, she is entitled to one-half of his
estate over which he could impose no burden, encumbrance, condition
or substitution of any kind whatsoever. (Art. 904, par. 2, Civil Code.)
It is the one-third usufruct over the free portion which the appellants
question and justifiably so. It appears that the court a quo approved the
usufruct in favor of Marcelle because the testament provides for a
usufruct in her favor of one-third of the estate. The court a quo erred
for Marcelle who is entitled to one-half of the estate "en pleno dominio"
as her legitime and which is more than what she is given under the will
is not entitled to have any additional share in the estate. To give
Marcelle more than her legitime will run counter to the testator's
intention for as stated above his dispositions even impaired her
legitime and tended to favor Wanda.
2. The substitutions.
It may be useful to recall that "Substitution is the appoint- judgment of
another heir so that he may enter into the inheritance in default of the
heir originally instituted." (Art. 857, Civil Code. And that there are
several kinds of substitutions, namely: simple or common, brief or
compendious, reciprocal, and fideicommissary (Art. 858, Civil Code.)
According to Tolentino, "Although the Code enumerates four classes,
there are really only two principal classes of substitutions:
the simple and the fideicommissary. The others are merely variations
of these two." (111 Civil Code, p. 185 [1973].)
The simple or vulgar is that provided in Art. 859 of the Civil Code which
reads:
ART. 859. The testator may designate one or
more persons to substitute the heir or heirs
instituted in case such heir or heirs should die
before him, or should not wish, or should be
incapacitated to accept the inheritance.
A simple substitution, without a statement of the
cases to which it refers, shall comprise the three
mentioned in the preceding paragraph, unless the
testator has otherwise provided.
The fideicommissary substitution is described in the Civil Code as
follows:
ART. 863. A fideicommissary substitution by virtue
of which the fiduciary or first heir instituted is
entrusted with the obligation to preserve and to
transmit to a second heir the whole or part of
inheritance, shall be valid and shall take effect,
provided such substitution does not go beyond
one degree from the heir originally instituted, and
provided further that the fiduciary or first heir and
the second heir are living at time of the death of
the testator.
It will be noted that the testator provided for a vulgar substitution in
respect of the legacies of Roberto and Jorge Ramirez, the appellants,
thus: con sustitucion vulgar a favor de sus respectivos descendientes,
y, en su defecto, con substitution vulgar reciprocal entre ambos.
The appellants do not question the legality of the substitution so
provided. The appellants question the sustitucion vulgar y
fideicomisaria a favor de Da. Wanda de Wrobleski" in connection with
the one-third usufruct over the estate given to the widow Marcelle
However, this question has become moot because as We have ruled
above, the widow is not entitled to any usufruct.
The appellants also question the sustitucion vulgar y fideicomisaria in
connection with Wanda's usufruct over two thirds of the estate in favor
of Juan Pablo Jankowski and Horace v. Ramirez.
They allege that the substitution in its vulgar aspect as void because
Wanda survived the testator or stated differently because she did not
predecease the testator. But dying before the testator is not the only
case for vulgar substitution for it also includes refusal or incapacity to
accept the inheritance as provided in Art. 859 of the Civil Code, supra.
Hence, the vulgar substitution is valid.
As regards the substitution in its fideicommissary aspect, the
appellants are correct in their claim that it is void for the following
reasons:
(a) The substitutes (Juan Pablo Jankowski and Horace V. Ramirez) are
not related to Wanda, the heir originally instituted. Art. 863 of the Civil
Code validates a fideicommissary substitution "provided such
substitution does not go beyond one degree from the heir originally
instituted."
What is meant by "one degree" from the first heir is explained by
Tolentino as follows:
Scaevola Maura, and Traviesas construe "degree"
as designation, substitution, or transmission. The
Supreme Court of Spain has decidedly adopted
this construction. From this point of view, there can
be only one tranmission or substitution, and the
substitute need not be related to the first heir.
Manresa, Morell and Sanchez Roman, however,
construe the word "degree" as generation, and the
present Code has obviously followed this
interpretation. by providing that the substitution
shall not go beyond one degree "from the heir
originally instituted." The Code thus clearly
indicates that the second heir must be related to
and be one generation from the first heir.
From this, it follows that the fideicommissary can
only be either a child or a parent of the first heir.
These are the only relatives who are one
generation or degree from the fiduciary (Op. cit.,
pp. 193-194.)
(b) There is no absolute duty imposed on Wanda to transmit the
usufruct to the substitutes as required by Arts. 865 and 867 of the Civil
Code. In fact, the appellee admits "that the testator contradicts the
establishment of a fideicommissary substitution when he permits the
properties subject of the usufruct to be sold upon mutual agreement of
the usufructuaries and the naked owners." (Brief, p. 26.)
3. The usufruct of Wanda.
The appellants claim that the usufruct over real properties of the estate
in favor of Wanda is void because it violates the constitutional
prohibition against the acquisition of lands by aliens.
The 1935 Constitution which is controlling provides as follows:
SEC. 5. Save in cases of hereditary succession,
no private agricultural land shall be transferred or
assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of
the public domain in the Philippines. (Art. XIII.)
The court a quo upheld the validity of the usufruct given to Wanda on
the ground that the Constitution covers not only succession by
operation of law but also testamentary succession. We are of the
opinion that the Constitutional provision which enables aliens to
acquire private lands does not extend to testamentary succession for
otherwise the prohibition will be for naught and meaningless. Any alien
would be able to circumvent the prohibition by paying money to a
Philippine landowner in exchange for a devise of a piece of land.
This opinion notwithstanding, We uphold the usufruct in favor of
Wanda because a usufruct, albeit a real right, does not vest title to the
land in the usufructuary and it is the vesting of title to land in favor of
aliens which is proscribed by the Constitution.
IN VIEW OF THE FOREGOING, the estate of Jose Eugenio Ramirez
is hereby ordered distributed as follows:
One-half (1/2) thereof to his widow as her legitime;
One-half (1/2) thereof which is the free portion to Roberto and Jorge
Ramirez in naked ownership and the usufruct to Wanda de Wrobleski
with a simple substitution in favor of Juan Pablo Jankowski and Horace
V. Ramirez.
31
The distribution herein ordered supersedes that of the court a quo. No
special pronouncement as to costs.
SO ORDERED.
Barredo (Chairman), Concepcion, Jr., De Castro, Ericta and Escolin,
JJ., concur.
Aquino J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 74833 January 21, 1991
THOMAS C. CHEESMAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and ESTELITA
PADILLA, respondents.
Estanislao L. Cesa, Jr. for petitioner.
Benjamin I. Fernandez for private respondent.
NARVASA, J.:
This appeal concerns the attempt by an American citizen (petitioner
Thomas Cheesman) to annul — for lack of consent on his part — the
sale by his Filipino wife (Criselda) of a residential lot and building to
Estelita Padilla, also a Filipino.
Thomas Cheesman and Criselda P. Cheesman were married on
December 4, 1970 but have been separated since February 15,1981.1
On June 4, 1974, a "Deed of Sale and Transfer of Possessory Rights"
was executed by Armando Altares conveying a parcel of unregistered
land and the house thereon (at No. 7 Neptune Street, Gordon Heights,
Olongapo City) in favor of "Criselda P. Cheesman, of legal age, Filipino
citizen, married to Thomas Cheesman, and residing at Lot No. 1, Blk.
8, Filtration Road, Sta. Rita, Olongapo City . . ."2 Thomas Cheesman,
although aware of the deed, did not object to the transfer being made
only to his wife.3
Thereafter—and again with the knowledge of Thomas Cheesman and
also without any protest by him—tax declarations for the property
purchased were issued in the name only of Criselda Cheesman and
Criselda assumed exclusive management and administration of said
property, leasing it to tenants.4
On July 1, 1981, Criselda Cheesman sold the property to Estelita M.
Padilla, without the knowledge or consent of Thomas Cheesman. 5 The
deed described Criselda as being" . . . of legal age, married to an
American citizen,. . ."6
Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit
in the Court of First Instance at Olongapo City against his wife,
Criselda, and Estelita Padilla, praying for the annulment of the sale on
the ground that the transaction had been executed without his
knowledge and consent.7 An answer was filed in the names of both
defendants, alleging that (1) the property sold was paraphernal, having
been purchased by Criselda with funds exclusively belonging to her
("her own separate money"); (2) Thomas Cheesman, being an
American, was disqualified to have any interest or right of ownership in
the land; and (3) Estelita Padilla was a buyer in good faith.8
During the pre-trial conference, the parties agreed upon certain facts
which were subsequently set out in a pre-trial Order dated October 22,
1981,9 as follows:
1. Both parties recognize the existence of the Deed of Sale
over the residential house located at No. 7 Granada St.,
Gordon Heights, Olongapo City, which was acquired from
Armando Altares on June 4, 1974 and sold by defendant
Criselda Cheesman to Estelita Padilla on July 12, 1981; and
2. That the transaction regarding the transfer of their
property took place during the existence of their marriage as
the couple were married on December 4, 1970 and the
questioned property was acquired sometime on June
4,1974.
The action resulted in a judgment dated June 24, 1982,10 declaring
void ab initio the sale executed by Criselda Cheesman in favor of
Estelita M. Padilla, and ordering the delivery of the property to Thomas
Cheesman as administrator of the conjugal partnership property, and
the payment to him of P5,000.00 as attorney's fees and expenses of
litigation.11
The judgment was however set aside as regards Estelita Padilla on a
petition for relief filed by the latter, grounded on "fraud, mistake and/or
excusable negligence" which had seriously impaired her right to
present her case adequately.12 "After the petition for relief from
judgment was given due course," according to petitioner, "a new judge
presided over the case."13
Estelita Padilla filed a supplemental pleading on December 20, 1982
as her own answer to the complaint, and a motion for summary
judgment on May 17, 1983. Although there was initial opposition by
Thomas Cheesman to the motion, the parties ultimately agreed on the
rendition by the court of a summary judgment after entering into a
stipulation of facts, at the hearing of the motion on June 21, 1983, the
stipulation being of the following tenor:14
(1) that the property in question was bought during the
existence of the marriage between the plaintiff and the
defendant Criselda P. Cheesman;
(2) that the property bought during the marriage was
registered in the name of Criselda Cheesman and that the
Deed of Sale and Transfer of Possessory Rights executed
by the former owner-vendor Armando Altares in favor of
Criselda Cheesman made no mention of the plaintiff;
(3) that the property, subject of the proceedings, was sold by
defendant Criselda Cheesman in favor of the other
defendant Estelita M. Padilla, without the written consent of
the plaintiff.
Obviously upon the theory that no genuine issue existed any longer
and there was hence no need of a trial, the parties having in fact
submitted, as also stipulated, their respective memoranda each
praying for a favorable verdict, the Trial Court15 rendered a "Summary
Judgment" dated August 3, 1982 declaring "the sale executed by . . .
Criselda Cheesman in favor of . . . Estelita Padilla to be valid,"
dismissing Thomas Cheesman's complaint and ordering him "to
immediately turn over the possession of the house and lot subject of . .
. (the) case to . . . Estelita Padilla . . ."16
The Trial Court found that —
1) the evidence on record satisfactorily overcame the
disputable presumption in Article 160 of the Civil Code—that
all property of the marriage belongs to the conjugal
partnership "unless it be proved that it pertains exclusively to
the husband or to the wife"—and that the immovable in
question was in truth Criselda's paraphernal property;
2) that moreover, said legal presumption in Article 160 could
not apply "inasmuch as the husband-plaintiff is an American
citizen and therefore disqualified under the Constitution to
acquire and own real properties; and
3) that the exercise by Criselda of exclusive acts of dominion
with the knowledge of her husband "had led . . . Estelita
Padilla to believe that the properties were the exclusive
properties of Criselda Cheesman and on the faith of such a
belief she bought the properties from her and for value," and
therefore, Thomas Cheesman was, under Article 1473 of the
Civil Code, estopped to impugn the transfer to Estelita
Padilla.
Thomas Cheesman appealed to the Intermediate Appellate Court.
There he assailed the Trial Court acts (1) of granting Estelita Padilla's
petition for relief, and its resolution of matters not subject of said
petition; (2) of declaring valid the sale to Estelita Padilla despite the
lack of consent thereto by him, and the presumption of the conjugal
character of the property in question pursuant to Article 160 of the Civil
Code; (3) of disregarding the judgment of June 24, 1982 which, not
having been set aside as against Criselda Cheesman, continued to be
binding on her; and (4) of making findings of fact not supported by
evidence. All of these contentions were found to be without merit by
the Appellate Tribunal which, on January 7, 1986, promulgated a
decision (erroneously denominated, "Report")17affirming the "Summary
Judgment complained of," "having found no reversible error" therein.
Once more, Thomas Cheesman availed of the remedy of appeal, this
time to this Court. Here, he argues that it was reversible error for the
Intermediate Appellate Court —
1) to find that the presumption that the property in question is conjugal
in accordance with Article 160 had been satisfactorily overcome by
Estelita Padilla;18
32
2) to rule that Estelita Padilla was a purchaser of said property in good
faith, it appearing:
a) that the deed by which the property was
conveyed to Criselda Cheesman described her as
"married to Thomas C. Cheesman," as well as the
deed by which the property was later conveyed to
Estelita Padilla by Criselda Cheesman also
described her as "married to an American citizen,"
and both said descriptions had thus "placed
Estelita on knowledge of the conjugal nature of the
property;" and
b) that furthermore, Estelita had admitted to stating
in the deed by which she acquired the property a
price much lower than that actually paid "in order
to avoid payment of more obligation to the
government;"19
3) to decline to declare that the evidence did not warrant the grant of
Estelita Padilla's petition for relief on the ground of "fraud, mistake
and/or excusable negligence;"20
4) to hold that Thomas Cheesman had waived his objection to
Estelita's petition for relief by failing to appeal from the order granting
the same;
5) to accord to Estelita Padilla a relief other than that she had
specifically prayed for in her petition for relief, ie., "the restoration of the
purchase price which Estelita allegedly paid to Criselda;"21 and
6) to fail to declare that Thomas Cheesman's citizenship is not a bar to
his action to recover the lot and house for the conjugal partnership. 22
Such conclusions as that (1) fraud, mistake or excusable negligence
existed in the premises justifying relief to Estelita Padilla under Rule 38
of the Rules of Court, or (2) that Criselda Cheesman had used money
she had brought into her marriage to Thomas Cheesman to purchase
the lot and house in question, or (3) that Estelita Padilla believed in
good faith that Criselda Cheesman was the exclusive owner of the
property that she (Estelita) intended to and did in fact buy—derived
from the evidence adduced by the parties, the facts set out in the
pleadings or otherwise appearing on record—are conclusions or
findings of fact. As distinguished from a question of law—which exists
"when the doubt or difference arises as to what the law is on a certain
state of facts" — "there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts;" 23 or
when the "query necessarily invites calibration of the whole evidence
considering mainly the credibility of witnesses, existence and relevancy
of specific surrounding circumstances, their relation; to each other and
to the whole and the probabilities of the situation."24
Now, it is axiomatic that only questions of law, distinctly set forth, may
be raised in a petition for the review oncertiorari of a decision of the
Court of Appeals presented to this Court.25 As everyone knows or
ought to know, the appellate jurisdiction of this Court is limited to
reviewing errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence.26 The
creation of the Court of Appeals was precisely intended to take away
from the Supreme Court the work of examining the evidence, and
confine its task to the determination of questions which do not call for
the reading and study of transcripts containing the testimony of
witnesses.27 The rule of conclusiveness of the factual findings or
conclusions of the Court of Appeals is, to be sure, subject to certain
exceptions,28 none of which however obtains in the case at bar.
It is noteworthy that both the Trial Court and the Intermediate Appellate
Court reached the same conclusions on the three (3) factual matters
above set forth, after assessment of the evidence and determination of
the probative value thereof. Both Courts found that the facts on record
adequately proved fraud, mistake or excusable negligence by which
Estelita Padilla's rights had been substantially impaired; that the funds
used by Criselda Cheesman was money she had earned and saved
prior to her marriage to Thomas Cheesman, and that Estelita Padilla
did believe in good faith that Criselda Cheesman was the sole owner of
the property in question. Consequently, these determinations of fact
will not be here disturbed, this Court having been cited to no reason for
doing so.
These considerations dispose of the first three (3) points that petitioner
Cheesman seeks to make in his appeal.1âwphi1They also make
unnecessary an extended discussion of the other issues raised by him.
As to them, it should suffice to restate certain fundamental
propositions.
An order of a Court of First Instance (now Regional Trial Court)
granting a petition for relief under Rule 38 is interlocutory and is not
appealable. Hence, the failure of the party who opposed the petition to
appeal from said order, or his participation in the proceedings
subsequently had, cannot be construed as a waiver of his objection to
the petition for relief so as to preclude his raising the same question on
appeal from the judgment on the merits of the main case. Such a party
need not repeat his objections to the petition for relief, or perform any
act thereafter (e.g., take formal exception) in order to preserve his right
to question the same eventually, on appeal, it being sufficient for this
purpose that he has made of record "the action which he desires the
court to take or his objection to the action of the court and his grounds
therefor."29
Again, the prayer in a petition for relief from judgment under Rule 38 is
not necessarily the same prayer in the petitioner's complaint, answer or
other basic pleading. This should be obvious. Equally obvious is that
once a petition for relief is granted and the judgment subject thereof set
aside, and further proceedings are thereafter had, the Court in its
judgment on the merits may properly grant the relief sought in the
petitioner's basic pleadings, although different from that stated in his
petition for relief.
Finally, the fundamental law prohibits the sale to aliens of residential
land. Section 14, Article XIV of the 1973 Constitution ordains that,
"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 of the public
domain."30Petitioner Thomas Cheesman was, of course, charged with
knowledge of this prohibition. Thus, assuming that it was his intention
that the lot in question be purchased by him and his wife, he acquired
no right whatever over the property by virtue of that purchase; and in
attempting to acquire a right or interest in land, vicariously and
clandestinely, he knowingly violated the Constitution; the sale as to him
was null and void.31 In any event, he had and has no capacity or
personality to question the subsequent sale of the same property by
his wife on the theory that in so doing he is merely exercising the
prerogative of a husband in respect of conjugal property. To sustain
such a theory would permit indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would
accord to the alien husband a not insubstantial interest and right over
land, as he would then have a decisive vote as to its transfer or
disposition. This is a right that the Constitution does not permit him to
have.
As already observed, the finding that his wife had used her own money
to purchase the property cannot, and will not, at this stage of the
proceedings be reviewed and overturned. But even if it were a fact that
said wife had used conjugal funds to make the acquisition, the
considerations just set out militate, on high constitutional grounds,
against his recovering and holding the property so acquired or any part
thereof. And whether in such an event, he may recover from his wife
any share of the money used for the purchase or charge her with
unauthorized disposition or expenditure of conjugal funds is not now
inquired into; that would be, in the premises, a purely academic
exercise. An equally decisive consideration is that Estelita Padilla is a
purchaser in good faith, both the Trial Court and the Appellate Court
having found that Cheesman's own conduct had led her to believe the
property to be exclusive property of the latter's wife, freely disposable
by her without his consent or intervention. An innocent buyer for value,
she is entitled to the protection of the law in her purchase, particularly
as against Cheesman, who would assert rights to the property denied
him by both letter and spirit of the Constitution itself.
WHEREFORE, the appealed decision is AFFIRMED, with costs
against petitioner.
SO ORDERED.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
G.R. No. 149615 August 29, 2006
IN RE: PETITION FOR SEPARATION OF PROPERTY ELENA
BUENAVENTURA MULLER, Petitioner,
vs.
HELMUT MULLER, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari 1 assails the February 26, 2001
Decision 2 of the Court of Appeals in CA-G.R. CV No. 59321 affirming
with modification the August 12, 1996 Decision 3 of the Regional Trial
Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862, which
terminated the regime of absolute community of property between
petitioner and respondent, as well as the Resolution 4 dated August 13,
2001 denying the motion for reconsideration.
The facts are as follows:
Petitioner Elena Buenaventura Muller and respondent Helmut Muller
were married in Hamburg, Germany on September 22, 1989. The
couple resided in Germany at a house owned by respondent’s parents
but decided to move and reside permanently in the Philippines in 1992.
By this time, respondent had inherited the house in Germany from his
parents which he sold and used the proceeds for the purchase of a
parcel of land in Antipolo, Rizal at the cost of P528,000.00 and the
construction of a house amounting to P2,300,000.00. The Antipolo
33
property was registered in the name of petitioner under Transfer
Certificate of Title No. 219438 5 of the Register of Deeds of Marikina,
Metro Manila.
Due to incompatibilities and respondent’s alleged womanizing,
drinking, and maltreatment, the spouses eventually separated. On
September 26, 1994, respondent filed a petition 6 for separation of
properties before the Regional Trial Court of Quezon City.
On August 12, 1996, the trial court rendered a decision which
terminated the regime of absolute community of property between the
petitioner and respondent. It also decreed the separation of properties
between them and ordered the equal partition of personal properties
located within the country, excluding those acquired by gratuitous title
during the marriage. With regard to the Antipolo property, the court
held that it was acquired using paraphernal funds of the respondent.
However, it ruled that respondent cannot recover his funds because
the property was purchased in violation of Section 7, Article XII of the
Constitution. Thus –
However, pursuant to Article 92 of the Family Code, properties
acquired by gratuitous title by either spouse during the marriage shall
be excluded from the community property. The real property, therefore,
inherited by petitioner in Germany is excluded from the absolute
community of property of the herein spouses. Necessarily, the
proceeds of the sale of said real property as well as the personal
properties purchased thereby, belong exclusively to the petitioner.
However, the part of that inheritance used by the petitioner for
acquiring the house and lot in this country cannot be recovered by the
petitioner, its acquisition being a violation of Section 7, Article XII of the
Constitution which provides that "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 of the public domain." The law will leave the parties in the
situation where they are in without prejudice to a voluntary partition by
the parties of the said real property. x x x
xxxx
As regards the property covered by Transfer Certificate of Title No.
219438 of the Registry of Deeds of Marikina, Metro Manila, situated in
Antipolo, Rizal and the improvements thereon, the Court shall not
make any pronouncement on constitutional grounds. 7
Respondent appealed to the Court of Appeals which rendered the
assailed decision modifying the trial court’s Decision. It held that
respondent merely prayed for reimbursement for the purchase of the
Antipolo property, and not acquisition or transfer of ownership to him. It
also considered petitioner’s ownership over the property in trust for the
respondent. As regards the house, the Court of Appeals ruled that
there is nothing in the Constitution which prohibits respondent from
acquiring the same. The dispositive portion of the assailed decision
reads:
WHEREFORE, in view of the foregoing, the Decision of the lower court
dated August 12, 1996 is hereby MODIFIED. Respondent Elena
Buenaventura Muller is hereby ordered to REIMBURSE the petitioner
the amount of P528,000.00 for the acquisition of the land and the
amount of P2,300,000.00 for the construction of the house situated in
Atnipolo, Rizal, deducting therefrom the amount respondent spent for
the preservation, maintenance and development of the aforesaid real
property including the depreciation cost of the house or in the
alternative to SELL the house and lot in the event respondent does not
have the means to reimburse the petitioner out of her own money and
from the proceeds thereof, reimburse the petitioner of the cost of the
land and the house deducting the expenses for its maintenance and
preservation spent by the respondent. Should there be profit, the same
shall be divided in proportion to the equity each has over the property.
The case is REMANDED to the lower court for reception of evidence
as to the amount claimed by the respondents for the preservation and
maintenance of the property.
SO ORDERED. 8
Hence, the instant petition for review raising the following issues:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT THE RESPONDENT HEREIN IS ENTITLED TO
REIMBURSEMENT OF THE AMOUNT USED TO PURCHASE THE
LAND AS WELL AS THE COSTS FOR THE CONSTRUCTION OF
THE HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED AN
ACT DONE WHICH OTHERWISE COULD NOT BE DIRECTLY x x x
DONE, WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL
PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM
ACQUIRING OWNERSHIP OF REAL PROPERTIES LOCATED IN
THE PHILIPPINES.
II
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING
RESPONDENT’S CAUSE OF ACTION WHICH IS ACTUALLY A
DESPERATE ATTEMPT TO OBTAIN OWNERSHIP OVER THE LOT
IN QUESTION, CLOTHED UNDER THE GUISE OF CLAIMING
REIMBURSEMENT.
Petitioner contends that respondent, being an alien, is disqualified to
own private lands in the Philippines; that respondent was aware of the
constitutional prohibition but circumvented the same; and that
respondent’s purpose for filing an action for separation of property is to
obtain exclusive possession, control and disposition of the Antipolo
property.
Respondent claims that he is not praying for transfer of ownership of
the Antipolo property but merely reimbursement; that the funds paid by
him for the said property were in consideration of his marriage to
petitioner; that the funds were given to petitioner in trust; and that
equity demands that respondent should be reimbursed of his personal
funds.
The issue for resolution is whether respondent is entitled to
reimbursement of the funds used for the acquisition of the Antipolo
property.
The petition has merit.
Section 7, Article XII of the 1987 Constitution states:
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 of the public domain.
Aliens, whether individuals or corporations, are disqualified from
acquiring lands of the public domain. Hence, they are also disqualified
from acquiring private lands. 9 The primary purpose of the
constitutional provision is the conservation of the national patrimony. In
the case of Krivenko v. Register of Deeds, 10 the Court held:
Under section 1 of Article XIII of the Constitution, "natural resources,
with the exception of public agricultural land, shall not be alienated,"
and with respect to public agricultural lands, their alienation is limited to
Filipino citizens. But this constitutional purpose conserving agricultural
resources in the hands of Filipino citizens may easily be defeated by
the Filipino citizens themselves who may alienate their agricultural
lands in favor of aliens. It is partly to prevent this result that section 5 is
included in Article XIII, and it reads as follows:
"Sec. 5. Save in cases of hereditary succession, no private agricultural
land will be transferred or assigned except to individuals, corporations,
or associations qualified to acquire or hold lands of the public domain
in the Philippines."
This constitutional provision closes the only remaining avenue through
which agricultural resources may leak into aliens’ hands. It would
certainly be futile to prohibit the alienation of public agricultural lands to
aliens if, after all, they may be freely so alienated upon their becoming
private agricultural lands in the hands of Filipino citizens. x x x
xxxx
If the term "private agricultural lands" is to be construed as not
including residential lots or lands not strictly agricultural, the result
would be that "aliens may freely acquire and possess not only
residential lots and houses for themselves but entire subdivisions, and
whole towns and cities," and that "they may validly buy and hold in
their names lands of any area for building homes, factories, industrial
plants, fisheries, hatcheries, schools, health and vacation resorts,
markets, golf courses, playgrounds, airfields, and a host of other uses
and purposes that are not, in appellant’s words, strictly agricultural."
(Solicitor General’s Brief, p. 6.) That this is obnoxious to the
conservative spirit of the Constitution is beyond question.
Respondent was aware of the constitutional prohibition and expressly
admitted his knowledge thereof to this Court.11 He declared that he had
the Antipolo property titled in the name of petitioner because of the
said prohibition. 12His attempt at subsequently asserting or claiming a
right on the said property cannot be sustained.
The Court of Appeals erred in holding that an implied trust was created
and resulted by operation of law in view of petitioner’s marriage to
respondent. Save for the exception provided in cases of hereditary
succession, respondent’s disqualification from owning lands in the
Philippines is absolute. Not even an ownership in trust is allowed.
Besides, where the purchase is made in violation of an existing statute
and in evasion of its express provision, no trust can result in favor of
the party who is guilty of the fraud. 13 To hold otherwise would allow
circumvention of the constitutional prohibition.
Invoking the principle that a court is not only a court of law but also a
court of equity, is likewise misplaced. It has been held that equity as a
rule will follow the law and will not permit that to be done indirectly
34
which, because of public policy, cannot be done directly. 14 He who
seeks equity must do equity, and he who comes into equity must come
with clean hands. The latter is a frequently stated maxim which is also
expressed in the principle that he who has done inequity shall not have
equity. It signifies that a litigant may be denied relief by a court of
equity on the ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in issue. 15
Thus, in the instant case, respondent cannot seek reimbursement on
the ground of equity where it is clear that he willingly and knowingly
bought the property despite the constitutional prohibition.
Further, the distinction made between transfer of ownership as
opposed to recovery of funds is a futile exercise on respondent’s part.
To allow reimbursement would in effect permit respondent to enjoy the
fruits of a property which he is not allowed to own. Thus, it is likewise
proscribed by law. As expressly held in Cheesman v. Intermediate
Appellate Court: 16
Finally, the fundamental law prohibits the sale to aliens of residential
land. Section 14, Article XIV of the 1973 Constitution ordains that,
"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 of the public domain."
Petitioner Thomas Cheesman was, of course, charged with knowledge
of this prohibition. Thus, assuming that it was his intention that the lot
in question be purchased by him and his wife, he acquired no right
whatever over the property by virtue of that purchase; and in
attempting to acquire a right or interest in land, vicariously and
clandestinely, he knowingly violated the Constitution; the sale as to him
was null and void. In any event, he had and has no capacity or
personality to question the subsequent sale of the same property by
his wife on the theory that in so doing he is merely exercising the
prerogative of a husband in respect of conjugal property. To sustain
such a theory would permit indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would
accord to the alien husband a not insubstantial interest and right over
land, as he would then have a decisive vote as to its transfer or
disposition. This is a right that the Constitution does not permit him to
have.
As already observed, the finding that his wife had used her own money
to purchase the property cannot, and will not, at this stage of the
proceedings be reviewed and overturned. But even if it were a fact that
said wife had used conjugal funds to make the acquisition, the
considerations just set out to militate, on high constitutional grounds,
against his recovering and holding the property so acquired, or any
part thereof. And whether in such an event, he may recover from his
wife any share of the money used for the purchase or charge her with
unauthorized disposition or expenditure of conjugal funds is not now
inquired into; that would be, in the premises, a purely academic
exercise. (Emphasis added)
WHEREFORE, in view of the foregoing, the instant petition is
GRANTED. The Decision dated February 26, 2001 of the Court of
Appeals in CA-G.R. CV No. 59321 ordering petitioner Elena
Buenaventura Muller to reimburse respondent Helmut Muller the
amount of P528,000 for the acquisition of the land and the amount of
P2,300,000 for the construction of the house in Antipolo City, and the
Resolution dated August 13, 2001 denying reconsideration thereof, are
REVERSED and SET ASIDE. The August 12, 1996 Decision of the
Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-
21862 terminating the regime of absolute community between the
petitioner and respondent, decreeing a separation of property between
them and ordering the partition of the personal properties located in the
Philippines equally, is REINSTATED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
Republic of the Philippines
Supreme Court
Manila
FIRST DIVISION
FELIX TING HO, JR., G.R. No. 130115
MERLA TING HO BRADEN,
JUANA TING HO & LYDIA
TING HO BELENZO, Present:
Petitioners, PUNO, C.J., Chairperson,
CARPIO,
CORONA,
- versus - AZCUNA, and
LEONARDO-DE CASTRO, JJ.
Promulgated:
VICENTE TENG GUI,
Respondent. July 16, 2008 the subject lot was issued to him pursuant to a miscellaneous sales

patent granted to him on January 3, 1978.[6]

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
x
The undisputed facts as found by the trial court (RTC), and

DECISION affirmed by the appellate court (CA), are as follows:

PUNO, C.J.: [T]he plaintiffs and the defendant are all

brothers and sisters, the defendant being the
oldest. They are the only legitimate children of the
deceased Spouses Felix Ting Ho and Leonila
This is a Petition for Review on Certiorari[1] assailing the Cabasal. Felix Ting Ho died on June 26, 1970 while
the wife Leonila Cabasal died on December 7,
Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 42993 which 1978. The defendant Vicente Teng Gui is the oldest
among the children as he was born on April 5,
reversed and set aside the Decision of the Regional Trial Court (RTC) 1943. The father of the plaintiffs and the defendant
was a Chinese citizen although their mother was
of Olongapo City, Branch 74, in Civil Case No. 558-0-88. Filipino. That sometime in 1947, the father of the
plaintiffs and defendant, Felix Ting Ho, who was
already then married to their mother Leonila
Cabasal, occupied a parcel of land identified to (sic)
The instant case traces its origin to an action for partition filed as Lot No. 18 Brill which was thereafter identified as
Lot No. 16 situated at Afable Street, East Bajac-
by petitioners Felix Ting Ho, Jr., Merla Ting Ho Braden, Juana Ting Ho Bajac, Olongapo City, by virtue of the permission
granted him by the then U.S. Naval Reservation
and Lydia Ting Ho Belenzo against their brother, respondent Vicente Office, Olongapo, Zambales. The couple thereafter
introduced improvements on the land. They built a
Teng Gui, before the RTC, Branch 74 of Olongapo City. The controversy house of strong material at 16 Afable Street which
is a commercial and residential house and another
revolves around a parcel of land, and the improvements established building of strong material at 18 Afable Streetwhich
was a residential house and a bakery. The couple,
thereon, which, according to petitioners, should form part of the estate as well as their children, lived and resided in the
said properties until their death. The father, Felix
of their deceased father, Felix Ting Ho, and should be partitioned equally Ting Ho had managed the bakery while the mother
managed the sari-sari store. Long before the
among each of the siblings. death of Felix Ting Ho, who died on June 26,
1970, he executed on October 11, 1958 a Deed
of Absolute Sale of a house of strong material
located at 16 Afable Street, Olongapo,
In their complaint before the RTC, petitioners alleged that their Zambales, specifically described in Tax Dec.
No. 5432, in favor of Victoria Cabasal his sister-
father Felix Ting Ho died intestate on June 26, 1970, and left upon his in-law (Exh. C). This Deed of Sale cancelled the
Tax Dec. of Felix Ting Ho over the said building
death an estate consisting of the following: (Exh. C-1) and the building was registered in the
name of the buyer Victoria Cabasal, as per Tax
a) A commercial land consisting of 774 square meters, more Dec. No. 7579 (Exh. C-2). On the same date,
October 11, 1958 the said Felix Ting Ho also
or less, located at Nos. 16 and 18 Afable St., East Bajac-Bajac, sold a building of strong material located at 18
Afable Street, described in Tax Dec. No. 5982, in
Olongapo City, covered by Original Certificate of Title No. P-1064 and favor of Gregorio Fontela, of legal age, an
American citizen, married (Exh. D). This Deed of
Tax Declaration No. 002-2451; Sale, in effect, cancelled Tax Dec. No. 5982 and the
same was registered in the name of the buyer
b) A two-storey residential house on the aforesaid lot; Gregorio Fontela, as per Tax Dec. No. 7580 (Exh.
D-2). In turn Victoria Cabasal and her husband
c) A two-storey commercial building, the first floor rented to Gregorio Fontela sold to Vicente Teng Gui on
October 28, 1961 the buildings which were
different persons and the second floor, Bonanza Hotel, operated by the bought by them from Felix Ting Ho and their tax
declarations for the building they bought (Exhs.
defendant also located on the above described lot; and C-2 and D-2) were accordingly cancelled and the
said buildings were registered in the name of
d) A sari-sari store (formerly a bakery) also located on the the defendant Vicente Teng Gui (Exhs. C-3 and
D-3). On October 25, 1966 the father of the parties
above described lot.[3] Felix Ting Ho executed an Affidavit of Transfer,
Relinquishment and Renouncement of Rights and
Interest including Improvements on Land in favor of
his eldest son the defendant Vicente Teng Gui. On
According to petitioners, the said lot and properties were titled and tax the basis of the said document the defendant who
then chose Filipino citizenship filed a miscellaneous
declared under trust in the name of respondent Vicente Teng Gui for the sales application with the Bureau of
Lands. Miscellaneous Sales Patent No. 7457 of
benefit of the deceased Felix Ting Ho who, being a Chinese citizen, was the land which was then identified to be Lot No.
418, Ts-308 consisting of 774 square meters
then disqualified to own public lands in the Philippines; and that upon was issued to the applicant Vicente Teng Gui
and accordingly on the 24th of January, 1978
the death of Felix Ting Ho, the respondent took possession of the same Original Certificate of Title No. P-1064 covering
the lot in question was issued to the defendant
for his own exclusive use and benefit to their exclusion and prejudice. [4]
Vicente Teng Gui. Although the buildings and
improvements on the land in question were sold by
In his answer, the respondent countered that on October 11,
Felix Ting Ho to Victoria Cabasal and Gregorio
Fontela in 1958 and who in turn sold the buildings
1958, Felix Ting Ho sold the commercial and residential buildings to his
to the defendant in 1961 the said Felix Ting Ho and
sister-in-law, Victoria Cabasal, and the bakery to his brother-in-law, his wife remained in possession of the properties as
Felix Ting Ho continued to manage the bakery while
Gregorio Fontela.[5] He alleged that he acquired said properties from the the wife Leonila Cabasal continued to manage the
sari-sari store. During all the time that the alleged
respective buyers on October 28, 1961 and has since then been in buildings were sold to the spouses Victoria Cabasal
and Gregorio Fontela in 1958 and the subsequent
possession of subject properties in the concept of an owner; and that sale of the same to the defendant Vicente Teng Gui
in October of 1961 the plaintiffs and the defendant
on January 24, 1978, Original Certificate of Title No. P-1064 covering continued to live and were under the custody of
their parents until their father Felix Ting Ho died in
1970 and their mother Leonila Cabasal died in
1978.[7] (Emphasis supplied)

35
 In light of these factual findings, the RTC found that Felix Ting
Ho, being a Chinese citizen and the father of the petitioners and
respondent, resorted to a series of simulated transactions in order to
preserve the right to the lot and the properties thereon in the hands of
the family. As stated by the trial court:
After a serious consideration of the
testimonies given by both one of the plaintiffs and
the defendant as well as the documentary exhibits
presented in the case, the Court is inclined to
believe that Felix Ting Ho, the father of the plaintiffs
and the defendant, and the husband of Leonila
Cabasal thought of preserving the properties in
question by transferring the said properties to his
eldest son as he thought that he cannot acquire the
properties as he was a Chinese citizen. To transfer
the improvements on the land to his eldest son the
defendant Vicente Teng Gui, he first executed
simulated Deeds of Sales in favor of the sister and
brother-in-law of his wife in 1958 and after three (3)
years it was made to appear that these vendees
had sold the improvements to the defendant
Vicente Teng Gui who was then 18 years old. The
Court finds that these transaction (sic) were
simulated and that no consideration was ever paid
by the vendees.
xxxxxxxxx
With regards (sic) to the transfer and
relinquishment of Felix Ting Hos right to the land in
question in favor of the defendant, the Court
believes, that although from the face of the
document it is stated in absolute terms that without
any consideration Felix Ting Ho was transferring
and renouncing his right in favor of his son, the
defendant Vicente Teng Gui, still the Court believes
that the transaction was one of implied trust
executed by Felix Ting Ho for the benefit of his
family[8]
Notwithstanding such findings, the RTC considered the
Affidavit of Transfer, Relinquishment and Renouncement of Rights and
Interests over the land as a donation which was accepted by the donee,
the herein respondent. With respect to the properties in the lot, the trial
court held that although the sales were simulated, pursuant to Article
1471 of the New Civil Code[9] it can be assumed that the intention of
Felix Ting Ho in such transaction was to give and donate such properties
to the respondent. As a result, it awarded the entire conjugal share of
Felix Ting Ho in the subject lot and properties to the respondent and
divided only the conjugal share of his wife among the siblings. The
dispositive portion of the RTC decision decreed:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiffs and against the
defendant as the Court orders the partition and the
adjudication of the subject properties, Lot 418, Ts-
308, specifically described in original Certificate of
Title No. P-1064 and the residential and commercial
houses standing on the lot specifically described in
Tax Decs. Nos. 9179 and 9180 in the name of
Vicente Teng Gui in the following manner, to wit: To
the defendant Vicente Teng Gui is adjudicated an
undivided six-tenth (6/10) of the aforementioned
properties and to each of the plaintiffs Felix Ting Ho,
Jr., Merla Ting-Ho Braden, Juana Ting and Lydia
Ting Ho-Belenzo each an undivided one-tenth
(1/10) of the properties[10]
From this decision, both parties interposed their respective appeals. The
petitioners claimed that the RTC erred in awarding respondent the entire
conjugal share of their deceased father in the lot and properties in
question contrary to its own finding that an implied trust existed between
the parties. The respondent, on the other hand, asserted that
the RTCerred in not ruling that the lot and properties do not form part of
the estate of Felix Ting Ho and are owned entirely by him.
36
On appeal, the CA reversed and set aside the decision of the RTC. The
appellate court held that the deceased Felix Ting Ho was never the
owner and never claimed ownership of the subject lot since he is
disqualified under Philippine laws from owning public lands, and that
respondent Vicente Teng Gui was the rightful owner over said lot by
virtue of Miscellaneous Sales Patent No. 7457 issued in his favor, viz:
The deceased Felix Ting Ho, plaintiffs and defendants late
father, was never the owner of the subject lot,
now identified as Lot No. 418, Ts-308 covered by
OCT No. P-1064 (Exh. A; Record, p. 104). As
stated by Felix Ting Ho no less in the Affidavit
of Transfer, Relinquishment and
Renouncement of Rights and Interest etc. (Exh.
B: Record, p. 107), executed on October 25,
1966 he, the late Felix Ting Ho, was merely a
possessor or occupant of the subject lot by
virtue of a permission granted by the
then U.S. Naval Reservation Office, Olongapo,
Zambales. The late Felix Ting Ho was never the
owner and never claimed ownership of the land.
(Emphasis supplied)
The affidavit, Exhibit B, was subscribed and sworn to before
a Land Investigator of the Bureau of Lands and in
the said affidavit, the late Felix Ting Ho expressly
acknowledged that because he is a Chinese citizen
he is not qualified to purchase public lands under
Philippine laws for which reason he thereby
transfers, relinquishes and renounces all his rights
and interests in the subject land, including all the
improvements thereon to his son, the defendant
Vicente Teng Gui, who is of legal age, single,
Filipino citizen and qualified under the public land
law to acquire lands.
xxxxxxxxx
Defendant Vicente Teng Gui acquired
the subject land by sales patent or purchase
from the government and not from his father,
the late Felix Ting Ho. It cannot be said that he
acquired or bought the land in trust for his father
because on December 5, 1977 when the subject
land was sold to him by the government and on
January 3, 1978 when Miscellaneous Sales Patent
No. 7457 was issued, the late Felix Ting Ho was
already dead, having died on June 6, 1970 (TSN,
January 10, 1990, p. 4).[11]
Regarding the properties erected over the said lot, the CA held that the
finding that the sales of the two-storey commercial and residential
buildings and sari-sari store to Victoria Cabasal and Gregorio Fontela
and subsequently to respondent were without consideration and
simulated is supported by evidence, which clearly establishes that these
properties should form part of the estate of the late spouses Felix Ting
Ho and Leonila Cabasal.
Thus, while the appellate court dismissed the complaint for
partition with respect to the lot in question, it awarded the petitioners a
four-fifths (4/5) share of the subject properties erected on the said
lot. The dispositive portion of the CA ruling reads as follows:
WHEREFORE, premises considered, the decision
appealed from is REVERSED and SET ASIDE and
NEW JUDGMENT rendered:
1. DISMISSING plaintiff-appellants complaint with
respect to the subject parcel of land, identified as
Lot No. 418, Ts-308, covered by OCT No. P-1064,
in the name of plaintiff-appellants [should be
defendant-appellant];
2. DECLARING that the two-storey commercial
building, the two-storey residential building and
sari-sari store (formerly a bakery), all erected on the
subject lot No. 418, Ts-308, form part of the estate
of the deceased spouses Felix Ting Ho and Leonila
Cabasal, and that plaintiff-appellants are entitled to
four-fifths (4/5) thereof, the remaining one-fifth (1/5)
being the share of the defendant-appellant;

3. DIRECTING the court a quo to partition the said
two-storey commercial building, two-storey
residential building and sari-sari store (formerly a
bakery) in accordance with Rule 69 of the Revised
Rules of Court and pertinent provisions of the Civil
Code;
4. Let the records of this case be remanded to the
court of origin for further proceedings;
5. Let a copy of this decision be furnished the Office
of the Solicitor General; and
6. There is no pronouncement as to
costs.
SO ORDERED.[12]
Both petitioners and respondent filed their respective motions
for reconsideration from this ruling, which were summarily denied by the
CA in its Resolution[13] dated August 5, 1997. Hence, this petition.
According to the petitioners, the CA erred in declaring that Lot
No. 418, Ts-308 does not form part of the estate of the deceased Felix
Ting Ho and is owned alone by respondent. Respondent, on the other
hand, contends that he should be declared the sole owner not only of
Lot No. 418, Ts-308 but also of the properties erected thereon and that
the CA erred in not dismissing the complaint for partition with respect to
the said properties.
The primary issue for consideration is whether both Lot No.
418, Ts-308 and the properties erected thereon should be included in
the estate of the deceased Felix Ting Ho.
We affirm the CA ruling.
With regard to Lot No. 418, Ts-308, Article XIII, Section 1 of
the 1935 Constitution states:
Section 1. All agricultural timber, and mineral
lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of
potential energy and other natural resources of the
Philippines belong to the State, and their
disposition, exploitation, development, or
utilization shall be limited to citizens of the
Philippines or to corporations or associations
at least sixty per centum of the capital of which
is owned by such citizens, subject to any existing
right, grant, lease, or concession at the time of the
inauguration of the Government established under
this Constitution (Emphasis supplied)
Our fundamental law cannot be any clearer. The right to
acquire lands of the public domain is reserved for Filipino citizens or
corporations at least sixty percent of the capital of which is owned by
Filipinos. Thus, in Krivenko v. Register of Deeds,[14] the Court
enunciated that:
Perhaps the effect of our construction is to
preclude aliens, admitted freely into
the Philippines from owning sites where they
may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt
to compromise it even in the name of amity or
equity. We are satisfied, however, that aliens are
not completely excluded by the Constitution from
the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may
be granted temporary rights such as a lease
contract which is not forbidden by the Constitution.
Should they desire to remain here forever and
37
share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.[15]
In the present case, the father of petitioners and respondent
was a Chinese citizen; therefore, he was disqualified from acquiring and
owning real property in the Philippines. In fact, he was only occupying
the subject lot by virtue of the permission granted him by the then U.S.
Naval Reservation Office of Olongapo, Zambales. As correctly found by
the CA, the deceased Felix Ting Ho was never the owner of the subject
lot in light of the constitutional proscription and the respondent did not at
any instance act as the dummy of his father.
On the other hand, the respondent became the owner of Lot
No. 418, Ts-308 when he was granted Miscellaneous Sales Patent No.
7457 on January 3, 1978, by the Secretary of Natural Resources By
Authority of the President of the Philippines, and when Original
Certificate of Title No. P-1064 was correspondingly issued in his
name. The grant of the miscellaneous sales patent by the Secretary of
Natural Resources, and the corresponding issuance of the original
certificate of title in his name, show that the respondent possesses all
the qualifications and none of the disqualifications to acquire alienable
and disposable lands of the public domain. These issuances bear the
presumption of regularity in their performance in the absence of
evidence to the contrary.
Registration of grants and patents involving public lands is governed by
Section 122 of Act No. 496, which was subsequently amended by
Section 103 of Presidential Decree No. 1529, viz:
Sec. 103. Certificate of title pursuant to
patents.Whenever public land is by the
Government alienated, granted or conveyed to any
person, the same shall be brought forthwith under
the operation of this Decree. It shall be the duty of
the official issuing the instrument of alienation,
grant, patent or conveyance in behalf of the
Government to cause such instrument to be filed
with the Register of Deeds of the province or city
where the land lies, and to be there registered like
other deeds and conveyance, whereupon a
certificate of title shall be entered as in other cases
of registered land, and an owners duplicate issued
to the grantee. The deeds, grant, patent or
instrument of conveyance from the Government to
the grantee shall not take effect as a conveyance or
bind the land, but shall operate only as a contract
between the Government and the grantee and as
evidence of authority to the Register of Deeds to
make registration. It is the act of registration that
shall be the operative act to affect and convey the
land, and in all cases under this Decree registration
shall be made in the office of the Register of Deeds
of the province or city where the land lies. The fees
for registration shall be paid by the grantee. After
due registration and issuance of the certificate
of title, such land shall be deemed to be
registered land to all intents and purposes
under this Decree.[16] (Emphasis supplied)
Under the law, a certificate of title issued pursuant to any grant or patent
involving public land is as conclusive and indefeasible as any other
certificate of title issued to private lands in the ordinary or cadastral
registration proceeding. The effect of the registration of a patent and the
issuance of a certificate of title to the patentee is to vest in him an
incontestable title to the land, in the same manner as if ownership had
been determined by final decree of the court, and the title so issued is
absolutely conclusive and indisputable, and is not subject to collateral
[17]
attack.
Nonetheless, petitioners invoke equity considerations and claim that the
ruling of the RTC that an implied trust was created between respondent
and their father with respect to the subject lot should be upheld.
This contention must fail because the prohibition against an alien from
owning lands of the public domain is absolute and not even an implied
trust can be permitted to arise on equity considerations.
In the case of Muller v. Muller,[18] wherein the respondent, a
German national, was seeking reimbursement of funds claimed by him
to be given in trust to his petitioner wife, a Philippine citizen, for the
purchase of a property in Antipolo, the Court, in rejecting the claim, ruled
that:
Respondent was aware of the
constitutional prohibition and expressly admitted his
knowledge thereof to this Court. He declared that
he had the Antipolo property titled in the name of
the petitioner because of the said prohibition. His
attempt at subsequently asserting or claiming a
right on the said property cannot be sustained.
The Court of Appeals erred in holding
that an implied trust was created and resulted
by operation of law in view of petitioner's
marriage to respondent. Save for the exception
provided in cases of hereditary succession,
respondent's disqualification from owning
lands in the Philippines is absolute. Not even an
ownership in trust is allowed. Besides, where the
purchase is made in violation of an existing statute
and in evasion of its express provision, no trust can
result in favor of the party who is guilty of the fraud.
To hold otherwise would allow circumvention of the
constitutional prohibition.
Invoking the principle that a court is not
only a court of law but also a court of equity, is
likewise misplaced. It has been held that equity as
a rule will follow the law and will not permit that to
be done indirectly which, because of public policy,
cannot be done directly...[19]
Coming now to the issue of ownership of the properties
erected on the subject lot, the Court agrees with the finding of the trial
court, as affirmed by the appellate court, that the series of transactions
resorted to by the deceased were simulated in order to preserve the
properties in the hands of the family. The records show that during all
the time that the properties were allegedly sold to the spouses Victoria
Cabasal and Gregorio Fontela in 1958 and the subsequent sale of the
same to respondent in 1961, the petitioners and respondent, along with
their parents, remained in possession and continued to live in said
properties.
However, the trial court concluded that:
In fairness to the defendant, although the Deeds of
Sale executed by Felix Ting Ho regarding the
improvements in favor of Victoria Cabasal and
Gregorio Fontela and the subsequent transfer of the
same by Gregorio Fontela and Victoria Cabasal to
the defendant are all simulated, yet, pursuant to
Article 1471 of the New Civil Code it can be
assumed that the intention of Felix Ting Ho in
such transaction was to give and donate the
improvements to his eldest son the defendant
Vicente Teng Gui [20]
38
Its finding was based on Article 1471 of the Civil Code, which
provides that:
Art. 1471. If the price is simulated, the
sale is void, but the act may be shown to have been
in reality a donation, or some other act or
contract.[21]
The Court holds that the reliance of the trial court on the
provisions of Article 1471 of the Civil Code to conclude that the simulated
sales were a valid donation to the respondent is misplaced because its
finding was based on a mere assumption when the law requires
positive proof.
The respondent was unable to show, and the records are
bereft of any evidence, that the simulated sales of the properties were
intended by the deceased to be a donation to him. Thus, the Court holds
that the two-storey residential house, two-storey residential building and
sari-sari store form part of the estate of the late spouses Felix Ting Ho
and Leonila Cabasal, entitling the petitioners to a four-fifths (4/5) share
thereof.
IN VIEW WHEREOF, the petition is DENIED. The assailed
Decision dated December 27, 1996 of the Court of Appeals in CA-G.R.
CV No. 42993 is hereby AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 164584 June 22, 2009
PHILIP MATTHEWS, Petitioner,
vs.
BENJAMIN A. TAYLOR and JOSELYN C. TAYLOR, Respondents.
DECISION
NACHURA, J.:
Assailed in this petition for review on certiorari are the Court of Appeals
(CA) December 19, 2003 Decision1 and July 14, 2004 Resolution2 in
CA-G.R. CV No. 59573. The assailed decision affirmed and upheld the
June 30, 1997 Decision3 of the Regional Trial Court (RTC), Branch 8,
Kalibo, Aklan in Civil Case No. 4632 for Declaration of Nullity of
Agreement of Lease with Damages.
On June 30, 1988, respondent Benjamin A. Taylor (Benjamin), a British
subject, married Joselyn C. Taylor (Joselyn), a 17-year old Filipina.4 On
June 9, 1989, while their marriage was subsisting, Joselyn bought from
Diosa M. Martin a 1,294 square-meter lot (Boracay property) situated
at Manoc-Manoc, Boracay Island, Malay, Aklan, for and in
consideration of ₱129,000.00.5 The sale was allegedly financed by
Benjamin.6 Joselyn and Benjamin, also using the latter’s funds,
constructed improvements thereon and eventually converted the
property to a vacation and tourist resort known as the Admiral Ben Bow
Inn.7 All required permits and licenses for the operation of the resort
were obtained in the name of Ginna Celestino, Joselyn’s sister.8
However, Benjamin and Joselyn had a falling out, and Joselyn ran
away with Kim Philippsen. On June 8, 1992, Joselyn executed a
Special Power of Attorney (SPA) in favor of Benjamin, authorizing the
latter to maintain, sell, lease, and sub-lease and otherwise enter into
contract with third parties with respect to their Boracay property. 9
On July 20, 1992, Joselyn as lessor and petitioner Philip Matthews as
lessee, entered into an Agreement of Lease10(Agreement) involving the
Boracay property for a period of 25 years, with an annual rental of
₱12,000.00. The agreement was signed by the parties and executed
before a Notary Public. Petitioner thereafter took possession of the
property and renamed the resort as Music Garden Resort.1avvphi1
Claiming that the Agreement was null and void since it was entered
into by Joselyn without his (Benjamin’s) consent, Benjamin instituted
an action for Declaration of Nullity of Agreement of Lease with
Damages11 against Joselyn and the petitioner. Benjamin claimed that
his funds were used in the acquisition and improvement of the Boracay
property, and coupled with the fact that he was Joselyn’s husband, any
transaction involving said property required his consent.
No Answer was filed, hence, the RTC declared Joselyn and the
petitioner in defeault. On March 14, 1994, the RTC rendered judgment
by default declaring the Agreement null and void.12 The decision was,
however, set aside by the CA in CA-G.R. SP No. 34054.13 The CA also
ordered the RTC to allow the petitioner to file his Answer, and to
conduct further proceedings.
In his Answer,14 petitioner claimed good faith in transacting with
Joselyn. Since Joselyn appeared to be the owner of the Boracay
property, he found it unnecessary to obtain the consent of Benjamin.
Moreover, as appearing in the Agreement, Benjamin signed as a
witness to the contract, indicating his knowledge of the transaction and,
impliedly, his conformity to the agreement entered into by his wife.
Benjamin was, therefore, estopped from questioning the validity of the
Agreement.
There being no amicable settlement during the pre-trial, trial on the
merits ensued.
On June 30, 1997, the RTC disposed of the case in this manner:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants as follows:
1. The Agreement of Lease dated July 20, 1992 consisting of
eight (8) pages (Exhibits "T", "T-1", "T-2", "T-3", "T-4", "T-5",
"T-6" and "T-7") entered into by and between Joselyn C.
Taylor and Philip Matthews before Notary Public Lenito T.
Serrano under Doc. No. 390, Page 79, Book I, Series of
1992 is hereby declared NULL and VOID;
2. Defendants are hereby ordered, jointly and severally, to
pay plaintiff the sum of SIXTEEN THOUSAND (₱16,000.00)
PESOS as damages representing unrealized income for the
residential building and cottages computed monthly from
July 1992 up to the time the property in question is restored
to plaintiff; and
3. Defendants are hereby ordered, jointly and severally, to
pay plaintiff the sum of TWENTY THOUSAND (₱20,000.00)
PESOS, Philippine Currency, for attorney’s fees and other
incidental expenses.
15
SO ORDERED.
The RTC considered the Boracay property as community property of
Benjamin and Joselyn; thus, the consent of the spouses was
necessary to validate any contract involving the property. Benjamin’s
right over the Boracay property was bolstered by the court’s findings
that the property was purchased and improved through funds provided
by Benjamin. Although the Agreement was evidenced by a public
document, the trial court refused to consider the alleged participation of
Benjamin in the questioned transaction primarily because his signature
appeared only on the last page of the document and not on every page
thereof.
On appeal to the CA, petitioner still failed to obtain a favorable
decision. In its December 19, 2003 Decision,16 the CA affirmed the
conclusions made by the RTC. The appellate court was of the view that
if, indeed, Benjamin was a willing participant in the questioned
transaction, the parties to the Agreement should have used the phrase
"with my consent" instead of "signed in the presence of." The CA noted
that Joselyn already prepared an SPA in favor of Benjamin involving
the Boracay property; it was therefore unnecessary for Joselyn to
participate in the execution of the Agreement. Taken together, these
circumstances yielded the inevitable conclusion that the contract was
null and void having been entered into by Joselyn without the consent
of Benjamin.
Aggrieved, petitioner now comes before this Court in this petition for
review on certiorari based on the following grounds:
4.1. THE MARITAL CONSENT OF RESPONDENT
BENJAMIN TAYLOR IS NOT REQUIRED IN THE
AGREEMENT OF LEASE DATED 20 JULY 1992.
GRANTING ARGUENDO THAT HIS CONSENT IS
REQUIRED, BENJAMIN TAYLOR IS DEEMED TO HAVE
GIVEN HIS CONSENT WHEN HE AFFIXED HIS
SIGNATURE IN THE AGREEMENT OF LEASE AS
39
WITNESS IN THE LIGHT OF THE RULING OF THE
SUPREME COURT IN THE CASE OF SPOUSES PELAYO
VS. MELKI PEREZ, G.R. NO. 141323, JUNE 8, 2005.
4.2. THE PARCEL OF LAND SUBJECT OF THE
AGREEMENT OF LEASE IS THE EXCLUSIVE PROPERTY
OF JOCELYN C. TAYLOR, A FILIPINO CITIZEN, IN THE
LIGHT OF CHEESMAN VS. IAC, G.R. NO. 74833,
JANUARY 21, 1991.
4.3. THE COURTS A QUO ERRONEOUSLY APPLIED
ARTICLE 96 OF THE FAMILY CODE OF THE PHILIPPINES
WHICH IS A PROVISION REFERRING TO THE
ABSOLUTE COMMUNITY OF PROPERTY. THE
PROPERTY REGIME GOVERNING THE PROPERTY
RELATIONS OF BENJAMIN TAYLOR AND JOSELYN
TAYLOR IS THE CONJUGAL PARTNERSHIP OF GAINS
BECAUSE THEY WERE MARRIED ON 30 JUNE 1988
WHICH IS PRIOR TO THE EFFECTIVITY OF THE FAMILY
CODE. ARTICLE 96 OF THE FAMILY CODE OF THE
PHILIPPINES FINDS NO APPLICATION IN THIS CASE.
4.4. THE HONORABLE COURT OF APPEALS IGNORED
THE PRESUMPTION OF REGULARITY IN THE
EXECUTION OF NOTARIAL DOCUMENTS.
4.5. THE HONORABLE COURT OF APPEALS FAILED TO
PASS UPON THE COUNTERCLAIM OF PETITIONER
DESPITE THE FACT THAT IT WAS NOT CONTESTED
AND DESPITE THE PRESENTATION OF EVIDENCE
ESTABLISHING SAID CLAIM.17
The petition is impressed with merit.
In fine, we are called upon to determine the validity of an Agreement of
Lease of a parcel of land entered into by a Filipino wife without the
consent of her British husband. In addressing the matter before us, we
are confronted not only with civil law or conflicts of law issues, but
more importantly, with a constitutional question.
It is undisputed that Joselyn acquired the Boracay property in 1989.
Said acquisition was evidenced by a Deed of Sale with Joselyn as the
vendee. The property was also declared for taxation purposes under
her name. When Joselyn leased the property to petitioner, Benjamin
sought the nullification of the contract on two grounds: first, that he was
the actual owner of the property since he provided the funds used in
purchasing the same; and second, that Joselyn could not enter into a
valid contract involving the subject property without his consent.
The trial and appellate courts both focused on the property relations of
petitioner and respondent in light of the Civil Code and Family Code
provisions. They, however, failed to observe the applicable
constitutional principles, which, in fact, are the more decisive.
Section 7, Article XII of the 1987 Constitution states:18
Section 7. 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 of the public
domain.1avvphi1
Aliens, whether individuals or corporations, have been disqualified from
acquiring lands of the public domain. Hence, by virtue of the aforecited
constitutional provision, they are also disqualified from acquiring
private lands.19The primary purpose of this constitutional provision is
the conservation of the national patrimony.20 Our fundamental law
cannot be any clearer. The right to acquire lands of the public domain
is reserved only to Filipino citizens or corporations at least sixty percent
of the capital of which is owned by Filipinos.21
In Krivenko v. Register of Deeds,22 cited in Muller v. Muller,23 we had
the occasion to explain the constitutional prohibition:
Under Section 1 of Article XIII of the Constitution, "natural resources,
with the exception of public agricultural land, shall not be alienated,"
and with respect to public agricultural lands, their alienation is limited to
Filipino citizens. But this constitutional purpose conserving agricultural
resources in the hands of Filipino citizens may easily be defeated by
the Filipino citizens themselves who may alienate their agricultural
lands in favor of aliens. It is partly to prevent this result that Section 5 is
included in Article XIII, and it reads as follows:
"Section 5. Save in cases of hereditary succession, no private
agricultural land will be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines."
This constitutional provision closes the only remaining avenue through
which agricultural resources may leak into alien’s hands. It would
certainly be futile to prohibit the alienation of public agricultural lands to
aliens if, after all, they may be freely so alienated upon their becoming
private agricultural lands in the hands of Filipino citizens. x x x
xxxx
If the term "private agricultural lands" is to be construed as not
including residential lots or lands not strictly agricultural, the result
would be that "aliens may freely acquire and possess not only
residential lots and houses for themselves but entire subdivisions, and
whole towns and cities," and that "they may validly buy and hold in
their names lands of any area for building homes, factories, industrial
plants, fisheries, hatcheries, schools, health and vacation resorts,
markets, golf courses, playgrounds, airfields, and a host of other uses
and purposes that are not, in appellant’s words, strictly agricultural."
(Solicitor General’s Brief, p. 6) That this is obnoxious to the
conservative spirit of the Constitution is beyond question. 24
The rule is clear and inflexible: aliens are absolutely not allowed to
acquire public or private lands in the Philippines, save only in
constitutionally recognized exceptions.25 There is no rule more settled
than this constitutional prohibition, as more and more aliens attempt to
circumvent the provision by trying to own lands through another. In a
long line of cases, we have settled issues that directly or indirectly
involve the above constitutional provision. We had cases where aliens
wanted that a particular property be declared as part of their father’s
estate;26 that they be reimbursed the funds used in purchasing a
property titled in the name of another;27 that an implied trust be
declared in their (aliens’) favor;28 and that a contract of sale be nullified
for their lack of consent.29
In Ting Ho, Jr. v. Teng Gui,30 Felix Ting Ho, a Chinese citizen, acquired
a parcel of land, together with the improvements thereon. Upon his
death, his heirs (the petitioners therein) claimed the properties as part
of the estate of their deceased father, and sought the partition of said
properties among themselves. We, however, excluded the land and
improvements thereon from the estate of Felix Ting Ho, precisely
because he never became the owner thereof in light of the above-
mentioned constitutional prohibition.
In Muller v. Muller,31 petitioner Elena Buenaventura Muller and
respondent Helmut Muller were married in Germany. During the
subsistence of their marriage, respondent purchased a parcel of land in
Antipolo City and constructed a house thereon. The Antipolo property
was registered in the name of the petitioner. They eventually
separated, prompting the respondent to file a petition for separation of
property. Specifically, respondent prayed for reimbursement of the
funds he paid for the acquisition of said property. In deciding the case
in favor of the petitioner, the Court held that respondent was aware that
as an alien, he was prohibited from owning a parcel of land situated in
the Philippines. He had, in fact, declared that when the spouses
acquired the Antipolo property, he had it titled in the name of the
petitioner because of said prohibition. Hence, we denied his attempt at
subsequently asserting a right to the said property in the form of a
claim for reimbursement. Neither did the Court declare that an implied
trust was created by operation of law in view of petitioner’s marriage to
respondent. We said that to rule otherwise would permit circumvention
of the constitutional prohibition.
In Frenzel v. Catito,32 petitioner, an Australian citizen, was married to
Teresita Santos; while respondent, a Filipina, was married to Klaus
Muller. Petitioner and respondent met and later cohabited in a
common-law relationship, during which petitioner acquired real
properties; and since he was disqualified from owning lands in the
Philippines, respondent’s name appeared as the vendee in the deeds
of sale. When their relationship turned sour, petitioner filed an action
for the recovery of the real properties registered in the name of
respondent, claiming that he was the real owner. Again, as in the other
cases, the Court refused to declare petitioner as the owner mainly
because of the constitutional prohibition. The Court added that being a
party to an illegal contract, he could not come to court and ask to have
his illegal objective carried out. One who loses his money or property
by knowingly engaging in an illegal contract may not maintain an action
for his losses.
Finally, in Cheesman v. Intermediate Appellate Court,33 petitioner (an
American citizen) and Criselda Cheesman acquired a parcel of land
that was later registered in the latter’s name. Criselda subsequently
sold the land to a third person without the knowledge of the petitioner.
The petitioner then sought the nullification of the sale as he did not give
his consent thereto. The Court held that assuming that it was his
(petitioner’s) intention that the lot in question be purchased by him and
his wife, he acquired no right whatever over the property by virtue of
that purchase; and in attempting to acquire a right or interest in land,
vicariously and clandestinely, he knowingly violated the Constitution;
thus, the sale as to him was null and void.
In light of the foregoing jurisprudence, we find and so hold that
Benjamin has no right to nullify the Agreement of Lease between
Joselyn and petitioner. Benjamin, being an alien, is absolutely
prohibited from acquiring private and public lands in the Philippines.
Considering that Joselyn appeared to be the designated "vendee" in
the Deed of Sale of said property, she acquired sole ownership thereto.
This is true even if we sustain Benjamin’s claim that he provided the
funds for such acquisition. By entering into such contract knowing that
40
it was illegal, no implied trust was created in his favor; no
reimbursement for his expenses can be allowed; and no declaration
can be made that the subject property was part of the
conjugal/community property of the spouses. In any event, he had and
has no capacity or personality to question the subsequent lease of the
Boracay property by his wife on the theory that in so doing, he was
merely exercising the prerogative of a husband in respect of conjugal
property. To sustain such a theory would countenance indirect
controversion of the constitutional prohibition. If the property were to be
declared conjugal, this would accord the alien husband a substantial
interest and right over the land, as he would then have a decisive vote
as to its transfer or disposition. This is a right that the Constitution does
not permit him to have.34
In fine, the Agreement of Lease entered into between Joselyn and
petitioner cannot be nullified on the grounds advanced by Benjamin.
Thus, we uphold its validity.
With the foregoing disquisition, we find it unnecessary to address the
other issues raised by the petitioner.
WHEREFORE, premises considered, the December 19, 2003 Decision
and July 14, 2004 Resolution of the Court of Appeals in CA-G.R. CV
No. 59573, are REVERSED and SET ASIDE and a new one is entered
DISMISSING the complaint against petitioner Philip Matthews.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8451 December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF
DAVAO, INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF
DEEDS OF DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor
General Jose G. Bautista and Troadio T. Quianzon, Jr., for
respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic
Administrator of Davao seeking the reversal of a resolution by the Land
Registration Commissioner in L.R.C. Consulta No. 14. The facts of the
case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of
the City of Davao, executed a deed of sale of a parcel of land located
in the same city covered by Transfer Certificate No. 2263, in favor of
the Roman Catholic Apostolic Administrator of Davao Inc., s
corporation sole organized and existing in accordance with Philippine
Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent. When the deed of sale was presented to Register of Deeds
of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of
the Court of First Instance of Manila wherein the Carmelite
Nuns of Davao were made to prepare an affidavit to the
effect that 60 per cent of the members of their corporation
were Filipino citizens when they sought to register in favor of
their congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that
60 per cent of the members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to
submit an affidavit, both not in the same tenor as that made the
Progress of the Carmelite Nuns because the two cases were not
similar, for whereas the congregation of the Carmelite Nuns had five
incorporators, the corporation sole has only one; that according to their
articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at bar,
the totality of the Catholic population of Davao would become the
owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the
registerability if the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance
with section 4 of Republic Act No. 1151. Proper hearing on the matter
was conducted by the Commissioner and after the petitioner
corporation had filed its memorandum, a resolution was rendered on
September 21, 1954, holding that in view of the provisions of Section 1
and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of
proof that at least 60 per centum of the capital, property, or assets of
the Roman Catholic Apostolic Administrator of Davao, Inc., was
actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole was a
Canadian citizen. It was also the opinion of the Land Registration
Commissioner that section 159 of the corporation Law relied upon by
the vendee was rendered operative by the aforementioned provisions
of the Constitution with respect to real estate, unless the precise
condition set therein — that at least 60 per cent of its capital is owned
by Filipino citizens — be present, and, therefore, ordered the
Registered Deeds of Davao to deny registration of the deed of sale in
the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action
for mandamus was instituted with this Court by said corporation sole,
alleging that under the Corporation Law as well as the settled
jurisprudence on the matter, the deed of sale executed by Mateo L.
Rodis in favor of petitioner is actually a deed of sale in favor of the
Catholic Church which is qualified to acquire private agricultural lands
for the establishment and maintenance of places of worship, and
prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question. In its
resolution of November 15, 1954, this Court gave due course to this
petition providing that the procedure prescribed for appeals from the
Public Service Commission of the Securities and Exchange
Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire
or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public
domain, water, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to cititzens of the
Philippines, or to corporations or associations at least sixty per centum
of the capital of which is owned by such citizens, SUBJECT TO ANY
EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER
CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or
leases for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five
years, renewable for another twenty-five years, except as to water
rights for irrigation, water supply, fisheries, or industrial uses other than
the development of water power, in which cases other than the
development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are
considered "qualified" to acquire and hold agricultural lands in the
Philippines? What is the effect of these constitutional prohibition of the
right of a religious corporation recognized by our Corporation Law and
registered as a corporation sole, to possess, acquire and register real
estates in its name when the Head, Manager, Administrator or actual
incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective
of the citizenship of its incumbent, is not prohibited or disqualified to
acquire and hold real properties. The Corporation Law and the Canon
Law are explicit in their provisions that a corporation sole or "ordinary"
is not the owner of the of the properties that he may acquire but merely
the administrator thereof. The Canon Law also specified that church
temporalities are owned by the Catholic Church as a "moral person" or
by the diocess as minor "moral persons" with the ordinary or bishop as
administrator.
And elaborating on the composition of the Catholic Church in the
Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions — the clergy or
religious members and the faithful or lay members. The 1948 figures of
the Bureau of Census showed that there were 277,551 Catholics in
Davao and aliens residing therein numbered 3,465. Ever granting that
all these foreigners are Catholics, petitioner contends that Filipino
citizens form more than 80 per cent of the entire Catholics population
of that area. As to its clergy and religious composition, counsel for
petitioner presented the Catholic Directory of the Philippines for 1954
(Annex A) which revealed that as of that year, Filipino clergy and
women novices comprise already 60.5 per cent of the group. It was,
therefore, allowed that the constitutional requirement was fully met and
satisfied.
Respondents, on the other hand, averred that although it might be true
that petitioner is not the owner of the land purchased, yet he has
41
control over the same, with full power to administer, take possession
of, alienate, transfer, encumber, sell or dispose of any or all lands and
their improvements registered in the name of the corporation sole and
can collect, receive, demand or sue for all money or values of any kind
that may be kind that may become due or owing to said corporation,
and vested with authority to enter into agreements with any persons,
concerns or entities in connection with said real properties, or in other
words, actually exercising all rights of ownership over the properties. It
was their stand that the theory that properties registered in the name of
the corporation sole are held in true for the benefit of the Catholic
population of a place, as of Davao in the case at bar should be
sustained because a conglomeration of persons cannot just be pointed
out as the cestui que trust or recipient of the benefits from the property
allegedly administered in their behalf. Neither can it be said that the
mass of people referred to as such beneficiary exercise ant right of
ownership over the same. This set-up, respondents argued, falls short
of a trust. The respondents instead tried to prove that in reality, the
beneficiary of ecclesiastical properties are not members or faithful of
the church but someone else, by quoting a portion a portion of the
ought of fidelity subscribed by a bishop upon his elevation to the
episcopacy wherein he promises to render to the Pontificial Father or
his successors an account of his pastoral office and of all things
appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the
constitutional provision calling for 60 per cent of Filipino citizenship, the
criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say
the following: A corporation sole is a special form of corporation usually
associated with the clergy. Conceived and introduced into the common
law by sheer necessity, this legal creation which was referred to as
"that unhappy freak of English law" was designed to facilitate the
exercise of the functions of ownership carried on by the clerics for and
on behalf of the church which was regarded as the property owner
(See I Couvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors
(who will always be one at a time), in some particular station, who are
incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural
persons they could not have had. In this sense, the king is a sole
corporation; so is a bishop, or dens, distinct from their several chapters
(Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are
illuminating and sustain the stand of petitioner. Section 154 thereof
provides:
SEC. 154. — For the administration of the temporalities of
any religious denomination, society or church and the
management of the estates and the properties thereof, it
shall be lawful for the bishop, chief priest, or presiding either
of any such religious denomination, society or church to
become a corporation sole, unless inconsistent wit the rules,
regulations or discipline of his religious denomination,
society or church or forbidden by competent authority
thereof.
See also the pertinent provisions of the succeeding sections of the
same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop,
chief priest, or presiding elder of any religious denomination,
society or church must file with the Securities and Exchange
Commissioner articles of incorporation setting forth the
following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he
is charged with the administration of the temporalities and
the management of the estates and properties of his
religious denomination, society, or church within its territorial
jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and
Exchange Commissioner of the said articles of incorporation,
which verified by affidavit or affirmation as aforesaid and
accompanied by the copy of the commission, certificate of
election, or letters of appointment of the bishop, chief priest,
or presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or
presiding elder, as the case may be, shall become a
corporation sole and all temporalities, estates, and properties
the religious denomination, society, or church therefore
administered or managed by him as such bishop, chief
priest, or presiding elder, shall be held in trust by him as a
 corporation sole, for the use, purpose, behalf, and sole
benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan, asylums,
parsonages, and cemeteries thereof. For the filing of such
articles of incorporation, the Securities and Exchange
Commissioner shall collect twenty-five pesos. (As amended
by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all
property held or owned by a religious order or society, or by
the diocese, synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to
the corporation and shall be held in trust for the use, purpose
behalf, and benefit of the religious society, or order so
incorporated or of the church of which the diocese, or district
organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the
corporation sole or ordinary as administrator of the church properties,
as follows:
Al Ordinario local pertenence vigilar diligentemente sobre
la administracion de todos los bienes eclesiasticos que se
hallan en su territorio y no estuvieren sustraidos de su
jurisdiccion, salvs las prescriciones legitimas que le
concedan mas aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres
y circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes
eclesciasticos, dando las oportunas instucciones
particularles dentro del narco del derecho comun. (Title
XXVIII, Codigo de Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the
case may be, as corporation's sole are merely administrators of the
church properties that come to their possession, in which they hold in
trust for the church. It can also be said that while it is true that church
properties could be administered by a natural persons, problems
regarding succession to said properties can not be avoided to rise
upon his death. Through this legal fiction, however, church properties
acquired by the incumbent of a corporation sole pass, by operation of
law, upon his death not his personal heirs but to his successor in office.
It could be seen, therefore, that a corporation sole is created not only
to administer the temporalities of the church or religious society where
he belongs but also to hold and transmit the same to his successor in
said office. If the ownership or title to the properties do not pass to the
administrators, who are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise
comment:
In matters regarding property belonging to the Universal
Church and to the Apostolic See, the Supreme Pontiff
exercises his office of supreme administrator through the
Roman Curia; in matters regarding other church property,
through the administrators of the individual moral persons in
the Church according to that norms, laid down in the Code of
Cannon Law. This does not mean, however, that the Roman
Pontiff is the owner of all the church property; but merely that
he is the supreme guardian (Bouscaren and Ellis, Cannon
Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia
Canonica, ruled in the case of Trinidad vs. Roman Catholic Archbishop
of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the
ownership of the properties constituting the endowment of
the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in
whom the ownership of the ecclesiastical properties is
vested, with respect to which we shall, for our purpose,
confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the
Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in
the latter, and, consequently, ecclesiastical properties are
owned by the churches, institutions and canonically
established private corporations to which said properties
have been donated.
Considering that nowhere can We find any provision conferring
ownership of church properties on the Pope although he appears to be
the supreme administrator or guardian of his flock, nor on the
corporation sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these
temporalities logically fall and develop upon the church, diocese or
congregation acquiring the same. Although this question of ownership
of ecclesiastical properties has off and on been mentioned in several
decisions of the Court yet in no instance was the subject of citizenship
of this religious society been passed upon.
42
We are not unaware of the opinion expressed by the late Justice
Perfecto in his dissent in the case of Agustines vs. Court of First
Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman
Catholic Archbishop of Manila is only a branch of a universal church by
the Pope, with permanent residence in Rome, Italy". There is no
question that the Roman Catholic Church existing in the Philippines is
a tributary and part of the international religious organization, for the
word "Roman" clearly expresses its unity with and recognizes the
authority of the Pope in Rome. However, lest We become hasty in
drawing conclusions, We have to analyze and take note of the nature
of the government established in the Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme
authority and jurisdiction over clergy and laity alike as held
by the pope who (since the Middle Ages) is elected by the
cardinals assembled in conclave, and holds office until his
death or legitimate abdication. . . While the pope is obviously
independent of the laws made, and the officials appointed,
by himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law
and through the congregations, tribunals and offices of the
Curia Romana. In their respective territories (called generally
dioceses) and over their respective subjects, the patriarchs,
metropolitans or archbishops and bishops exercise a
jurisdiction which is called ordinary (as attached by law to an
office given to a person. . . (Collier's Encyclopedia, Vol. 17,
p. 93).
While it is true and We have to concede that in the profession of their
faith, the Roman Pontiff is the supreme head; that in the religious
matters, in the exercise of their belief, the Catholic congregation of the
faithful throughout the world seeks the guidance and direction of their
Spiritual Father in the Vatican, yet it cannot be said that there is a
merger of personalities resultant therein. Neither can it be said that the
political and civil rights of the faithful, inherent or acquired under the
laws of their country, are affected by that relationship with the Pope.
The fact that the Roman Catholic Church in almost every country
springs from that society that saw its beginning in Europe and the fact
that the clergy of this faith derive their authorities and receive orders
from the Holy See do not give or bestow the citizenship of the Pope
upon these branches. Citizenship is a political right which cannot be
acquired by a sort of "radiation". We have to realize that although there
is a fraternity among all the catholic countries and the dioceses therein
all over the globe, the universality that the word "catholic" implies,
merely characterize their faith, a uniformity in the practice and the
interpretation of their dogma and in the exercise of their belief, but
certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the
management and ownership of their temporalities. To allow theory that
the Roman Catholic Churches all over the world follow the citizenship
of their Supreme Head, the Pontifical Father, would lead to the
absurdity of finding the citizens of a country who embrace the Catholic
faith and become members of that religious society, likewise citizens of
the Vatican or of Italy. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world.
The same thing be said with regard to the nationality or citizenship of
the corporation sole created under the laws of the Philippines, which is
not altered by the change of citizenship of the incumbent bishops or
head of said corporation sole.
We must therefore, declare that although a branch of the Universal
Roman Catholic Apostolic Church, every Roman Catholic Church in
different countries, if it exercises its mission and is lawfully
incorporated in accordance with the laws of the country where it is
located, is considered an entity or person with all the rights and
privileges granted to such artificial being under the laws of that country,
separate and distinct from the personality of the Roman Pontiff or the
Holy See, without prejudice to its religious relations with the latter
which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We
may draw on this matter will have a far reaching influence, nor can We
overlook the pages of history that arouse indignation and criticisms
against church landholdings. This nurtured feeling that snowbailed into
a strong nationalistic sentiment manifested itself when the provisions
on natural to be embodied in the Philippine Constitution were framed,
but all that has been said on this regard referred more particularly to
landholdings of religious corporations known as "Friar Estates" which
have already bee acquired by our government, and not to properties
held by corporations sole which, We repeat, are properties held in trust
for the benefit of the faithful residing within its territorial jurisdiction.
Though that same feeling probably precipitated and influenced to a
large extent the doctrine laid down in the celebrated Krivenco decision,
We have to take this matter in the light of legal provisions and
jurisprudence actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal
Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of
Davao, Inc., is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only
persons or corporations qualified to acquire hold lands of the public
domain in the Philippines may acquire or be assigned and hold private
agricultural lands. Consequently, the decisive factor in the present
controversy hinges on the proposition or whether or not the petitioner
in this case can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission,
We find that the Roman Catholic Bishop of Zamboanga was
incorporated (as a corporation sole) in September, 1912, principally to
administer its temporalities and manage its properties. Probably due to
the ravages of the last war, its articles of incorporation
were reconstructed in the Securities and Exchange Commission on
April 8, 1948. At first, this corporation sole administered all the
temporalities of the church existing or located in the island of
Mindanao. Later on, however, new dioceses were formed and new
corporations sole were created to correspond with the territorial
jurisdiction of the new dioceses, one of them being petitioner herein,
the Roman Catholic Apostolic Administrator of Davao, Inc., which was
registered with the Securities and Exchange Commission on
September 12, 1950, and succeeded in the administrative for all the
"temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April
1, 1906, a corporation sole.
is organized and composed of a single individual, the head
of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or
church. By "temporalities" is meant estate and properties not
used exclusively for religious worship. The successor in
office of such religious head or chief priest incorporated as a
corporation sole shall become the corporation sole on
ascension to office, and shall be permitted to transact
business as such on filing with the Securities and Exchange
Commission a copy of his commission, certificate of election
or letter of appointment duly certified by any notary public or
clerk of court of record (Guevara's The Philippine
Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold
real estate and personal; property for its church, charitable,
benevolent, or educational purposes, and may receive
bequests or gifts of such purposes. Such corporation may
mortgage or sell real property held by it upon obtaining an
order for that purpose from the Court of First Instance of the
province in which the property is situated; but before making
the order proof must be made to the satisfaction of the Court
that notice of the application for leave to mortgage or sell has
been given by publication or otherwise in such manner and
for such time as said Court or the Judge thereof may have
directed, and that it is to the interest of the corporation that
leave to mortgage or sell must be made by petition, duly
verified by the bishop, chief priest, or presiding elder acting
as corporation sole, and may be opposed by any member of
the religious denomination, society or church represented by
the corporation sole: Provided, however, That in cases
where the rules, regulations, and discipline of the religious
denomination, society or church concerned represented by
such corporation sole regulate the methods of acquiring,
holding, selling and mortgaging real estate and personal
property, such rules, regulations, and discipline shall control
and the intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to
purchase real property, like the power exercised in the case at bar, it is
not restricted although the power to sell or mortgage sometimes is,
depending upon the rules, regulations, and discipline of the church
concerned represented by said corporation sole. If corporations sole
can purchase and sell real estate for its church, charitable, benevolent,
or educational purposes, can they register said real properties? As
provided by law, lands held in trust for specific purposes me be subject
of registration (section 69, Act 496), and the capacity of a corporation
sole, like petitioner herein, to register lands belonging to it is
acknowledged, and title thereto may be issued in its name (Bishop of
Nueva Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it is
absurd that while the corporations sole that might be in need of
acquiring lands for the erection of temples where the faithful can pray,
or schools and cemeteries which they are expressly authorized by law
to acquire in connection with the propagation of the Roman Catholic
Apostolic faith or in furtherance of their freedom of religion they could
not register said properties in their name. As professor Javier J.
Nepomuceno very well says "Man in his search for the immortal and
imponderable, has, even before the dawn of recorded history, erected
temples to the Unknown God, and there is no doubt that he will
continue to do so for all time to come, as long as he continues
'imploring the aid of Divine Providence'" (Nepomuceno's Corporation
Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under
the circumstances of this case, We might safely state that even before
the establishment of the Philippine Commonwealth and of the Republic
of the Philippines every corporation sole then organized and registered
had by express provision of law the necessary power and
qualification to purchase in its name private lands located in the
territory in which it exercised its functions or ministry and for which it
was created, independently of the nationality of its incumbent unique
43
and single member and head, the bishop of the dioceses. It can be
also maintained without fear of being gainsaid that the Roman Catholic
Apostolic Church in the Philippines has no nationality and that the
framers of the Constitution, as will be hereunder explained, did not
have in mind the religious corporations sole when they provided that 60
per centum of the capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered
corporation sole is an artificial being having the right of succession and
the power, attributes, and properties expressly authorized by law or
incident to its existence (section 1, Corporation Law). In outlining the
general powers of a corporation. Public Act. No. 1459 provides among
others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage,
encumber, and otherwise deal with such real and personal
property as the purpose for which the corporation was
formed may permit, and the transaction of the lawful
business of the corporation may reasonably and necessarily
require, unless otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form
of corporation recognized by the same law, Section 159 aforequoted
expressly allowed the corporation sole to purchase and hold real as
well as personal properties necessary for the promotion of the objects
for which said corporation sole is created. Respondent Land
Registration Commissioner, however, maintained that since the
Philippine Constitution is a later enactment than public Act No. 1459,
the provisions of Section 159 in amplification of Section 13 thereof, as
regard real properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the
Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. It is undeniable that the
naturalization and conservation of our national resources was one of
the dominating objectives of the Convention and in drafting the present
Article XII of the Constitution, the delegates were goaded by the desire
(1) to insure their conservation for Filipino posterity; (2) to serve as an
instrument of national defense, helping prevent the extension into the
country of foreign control through peaceful economic penetration; and
(3) to prevent making the Philippines a source of international conflicts
with the consequent danger to its internal security and independence
(See The Framing of the Philippine Constitution by Professor Jose M.
Aruego, a Delegate to the Constitutional Convention, Vol. II. P. 592-
604). In the same book Delegate Aruego, explaining the reason behind
the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino
capital had been to be rather shy. Filipinos hesitated s a
general rule to invest a considerable sum of their capital for
the development, exploitation and utilization of the natural
resources of the country. They had not as yet been so used
to corporate as the peoples of the west. This general apathy,
the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital
would be encouraged to come and help in that
development. They knew that the naturalization of the
natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But
there was a general feeling in the Convention that it was
better to have such a development retarded or even
postpone together until such time when the Filipinos would
be ready and willing to undertake it rather than permit the
natural resources to be placed under the ownership or
control of foreigners in order that they might be immediately
be developed, with the Filipinos of the future serving not as
owners but utmost as tenants or workers under foreign
masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the
Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and
develop our natural resources, saving these undeveloped wealth for
our people to clear and enrich when they are already prepared and
capable of doing so. But that is not the case of corporations sole in the
Philippines, for, We repeat, they are mere administrators of the
"temporalities" or properties titled in their name and for the benefit of
the members of their respective religion composed of an overwhelming
majority of Filipinos. No mention nor allusion whatsoever is made in the
Constitution as to the prohibition against or the liability of the Roman
Catholic Church in the Philippines to acquire and hold agricultural
lands. Although there were some discussions on landholdings, they
were mostly confined in the inclusion of the provision allowing the
Government to break big landed estates to put an end to absentee
landlordism.
But let us suppose, for the sake of argument, that the above referred to
inhibitory clause of Section 1 of Article XIII of the constitution does
have bearing on the petitioner's case; even so the clause requiring that
at least 60 per centum of the capital of the corporation be owned by
Filipinos is subordinated to the petitioner's aforesaid right already
existing at the time of the inauguration of the Commonwealth and the
Republic of the Philippines. In the language of Mr. Justice Jose P.
Laurel (a delegate to the Constitutional Convention), in his concurring
opinion of the case of Gold Creek mining Corporation, petitioner vs.
Eulogio Rodriguez, Secretary of Agriculture and Commerce, and
Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil.
259:
The saving clause in the section involved of the Constitution
was originally embodied in the report submitted by the
Committee on Naturalization and Preservation of Land and
Other Natural Resources to the Constitutional Convention on
September 17, 1954. It was later inserted in the first draft of
the Constitution as section 13 of Article XIII thereof, and
finally incorporated as we find it now. Slight have been the
changes undergone by the proviso from the time when it
comes out of the committee until it was finally adopted.
When first submitted and as inserted to the first draft of the
Constitution it reads: 'subject to any right, grant, lease, or
concession existing in respect thereto on the date of the
adoption of the Constitution'. As finally adopted, the proviso
reads: 'subject to any existing right, grant, lease, or
concession at the time of the inauguration of the
Government established under this Constitution'. This
recognition is not mere graciousness but springs form the
just character of the government established. The framers of
the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of
acquired property rights. Withal, they erected a government
neither episodic nor stationary but well-nigh conservative in
the protection of property rights. This notwithstanding
nationalistic and socialistic traits discoverable upon even a
sudden dip into a variety of the provisions embodied in the
instrument.
The writer of this decision wishes to state at this juncture that during
the deliberation of this case he submitted to the consideration of the
Court the question that may be termed the "vested right saving clause"
contained in Section 1, Article XII of the Constitution, but some of the
members of this Court either did not agree with the theory of the writer,
or were not ready to take a definite stand on the particular point I am
now to discuss deferring our ruling on such debatable question for a
better occasion, inasmuch as the determination thereof is not
absolutely necessary for the solution of the problem involved in this
case. In his desire to face the issues squarely, the writer will endeavor,
at least as a disgression, to explain and develop his theory, not as a
lucubration of the Court, but of his own, for he deems it better and
convenient to go over the cycle of reasons that are linked to one
another and that step by step lead Us to conclude as We do in the
dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution
provides, among other things, that "all agricultural lands of the public
domain and their disposition shall be limited to citizens of the
Philippines or to corporations at least 60 per centum of the capital of
which is owned by such citizens, SUBJECT TO ANY EXISTING
RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold
Creek Mining Corporation vs. Rodriguez et al., 66 Phil. 259, "this
recognition (in the clause already quoted), is not mere
graciousness but springs from the just character of the government
established. The farmers of the Constitution were not obscured by the
rhetoric of democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural resources
did not mean destruction or annihilation of ACQUIRED PROPERTY
RIGHTS".
But respondents' counsel may argue that the preexisting right of
acquisition of public or private lands by a corporation which does not
fulfill this 60 per cent requisite, refers to purchases of the Constitution
and not to later transactions. This argument would imply that even
assuming that petitioner had at the time of the enactment of the
Constitution the right to purchase real property or right could not be
exercised after the effectivity of our Constitution, because said power
or right of corporations sole, like the herein petitioner, conferred in
virtue of the aforequoted provisions of the Corporation Law, could no
longer be exercised in view of the requisite therein prescribed that at
least 60 per centum of the capital of the corporation had to be Filipino.
It has been shown before that: (1) the corporation sole, unlike the
ordinary corporations which are formed by no less than 5
incorporators, is composed of only one persons, usually the head or
bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the corporation
sole is only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful residing
in the diocese or territory of the corporation sole; and (4) the latter, as
such, has no nationality and the citizenship of the incumbent Ordinary
has nothing to do with the operation, management or administration of
the corporation sole, nor effects the citizenship of the faithful connected
with their respective dioceses or corporation sole.
44
In view of these peculiarities of the corporation sole, it would seem
obvious that when the specific provision of the Constitution invoked by
respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the
facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at
least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We
might say that a reading of said Section 1 will show that it does not
refer to any actual acquisition of land up to the right, qualification or
power to acquire and hold private real property. The population of the
Philippines, Catholic to a high percentage, is ever increasing. In the
practice of religion of their faithful the corporation sole may be in need
of more temples where to pray, more schools where the children of the
congregation could be taught in the principles of their religion, more
hospitals where their sick could be treated, more hallow or consecrated
grounds or cemeteries where Catholics could be buried, many more
than those actually existing at the time of the enactment of our
Constitution. This being the case, could it be logically maintained that
because the corporation sole which, by express provision of law, has
the power to hold and acquire real estate and personal property of its
churches, charitable benevolent, or educational purposes (section 159,
Corporation Law) it has to stop its growth and restrain its necessities
just because the corporation sole is a non-stock corporation composed
of only one person who in his unity does not admit of any percentage,
especially when that person is not the owner but merely an
administrator of the temporalities of the corporation sole? The writer
leaves the answer to whoever may read and consider this portion of
the decision.
Anyway, as stated before, this question is not a decisive factor in
disposing the case, for even if We were to disregard such saving
clause of the Constitution, which reads: subject to any existing right,
grant, etc., at the same time of the inauguration of the Government
established under this Constitution, yet We would have, under the
evidence on record, sufficient grounds to uphold petitioner's contention
on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si
Temple, 2 G.R. No. L-6776, promulgated May 21, 1955, wherein this
question was considered from a different angle, this Court through Mr.
Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no
capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign
nationality. The purpose of the sixty per centum requirement
is obviously to ensure that corporation or associations
allowed to acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the spirit of
the Constitution demands that in the absence of capital
stock, the controlling membership should be composed of
Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a
corporation sole but a corporation aggregate, i.e., an unregistered
organization operating through 3 trustees, all of Chinese nationality,
and that is why this Court laid down the doctrine just quoted. With
regard to petitioner, which likewise is a non-stock corporation, the case
is different, because it is a registered corporation sole, evidently of no
nationality and registered mainly to administer the temporalities and
manage the properties belonging to the faithful of said church residing
in Davao. But even if we were to go over the record to inquire into the
composing membership to determine whether the citizenship
requirement is satisfied or not, we would find undeniable proof that the
members of the Roman Catholic Apostolic faith within the territory of
Davao are predominantly Filipino citizens. As indicated before,
petitioner has presented evidence to establish that the clergy and lay
members of this religion fully covers the percentage of Filipino citizens
required by the Constitution. These facts are not controverted by
respondents and our conclusion in this point is sensibly obvious.
Dissenting Opinion—Discussed. — After having developed our theory
in the case and arrived at the findings and conclusions already
expressed in this decision. We now deem it proper to analyze and
delve into the basic foundation on which the dissenting opinion stands
up. Being aware of the transcendental and far-reaching effects that Our
ruling on the matter might have, this case was thoroughly considered
from all points of view, the Court sparing no effort to solve the delicate
problems involved herein.
At the deliberations had to attain this end, two ways were open to a
prompt dispatch of the case: (1) the reversal of the doctrine We laid
down in the celebrated Krivenko case by excluding urban lots and
properties from the group of the term "private agricultural lands" use in
this section 5, Article XIII of the Constitution; and (2) by driving Our
reasons to a point that might indirectly cause the appointment of
Filipino bishops or Ordinary to head the corporations sole created to
administer the temporalities of the Roman Catholic Church in the
Philippines. With regard to the first way, a great majority of the
members of this Court were not yet prepared nor agreeable to follow
that course, for reasons that are obvious. As to the second way, it
seems to be misleading because the nationality of the head of a
diocese constituted as a corporation sole has no material bearing on
the functions of the latter, which are limited to the administration of the
temporalities of the Roman Catholic Apostolic Church in the
Philippines.
Upon going over the grounds on which the dissenting opinion is based,
it may be noticed that its author lingered on the outskirts of the issues,
thus throwing the main points in controversy out of focus. Of course
We fully agree, as stated by Professor Aruego, that the framers of our
Constitution had at heart to insure the conservation of the natural
resources of Our motherland of Filipino posterity; to serve them as an
instrument of national defense, helping prevent the extension into the
country of foreign control through peaceful economic penetration; and
to prevent making the Philippines a source of international conflicts
with the consequent danger to its internal security and independence.
But all these precautions adopted by the Delegates to Our
Constitutional Assembly could have not been intended for or directed
against cases like the one at bar. The emphasis and wonderings on
the statement that once the capacity of a corporation sole to acquire
private agricultural lands is admitted there will be no limit to the areas
that it may hold and that this will pave the way for the "revival or
revitalization of religious landholdings that proved so troublesome in
our past", cannot even furnish the "penumbra" of a threat to the future
of the Filipino people. In the first place, the right of Filipino citizens,
including those of foreign extraction, and Philippine corporations, to
acquire private lands is not subject to any restriction or limit as to
quantity or area, and We certainly do not see any wrong in that. The
right of Filipino citizens and corporations to acquire public agricultural
lands is already limited by law. In the second place, corporations sole
cannot be considered as aliens because they have no nationality at all.
Corporations sole are, under the law, mere administrators of the
temporalities of the Roman Catholic Church in the Philippines. In the
third place, every corporation, be it aggregate or sole, is only entitled to
purchase, convey, sell, lease, let, mortgage, encumber and otherwise
deal with real properties when it is pursuant to or in consonance with
the purposes for which the corporation was formed, and when the
transactions of the lawful business of the corporation reasonably and
necessarily require such dealing — section 13-(5) of the Corporation
Law, Public Act No. 1459 — and considering these provisions in
conjunction with Section 159 of the same law which provides that a
corporation sole may only "purchase and hold real estate and personal
properties for its church, charitable, benevolent or educational
purposes", the above mentioned fear of revitalization of religious
landholdings in the Philippines is absolutely dispelled. The fact that the
law thus expressly authorizes the corporations sole to receive
bequests or gifts of real properties (which were the main source that
the friars had to acquire their big haciendas during the Spanish
regime), is a clear indication that the requisite that bequests or gifts of
real estate be for charitable, benevolent, or educational purposes, was,
in the opinion of the legislators, considered sufficient and adequate
protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when
the Delegates to the Constitutional Convention drafted and approved
Article XIII of the Constitution they do not have in mind the corporation
sole. We come to this finding because the Constitutional Assembly,
composed as it was by a great number of eminent lawyers and jurists,
was like any other legislative body empowered to enact either the
Constitution of the country or any public statute, presumed to know the
conditions existing as to particular subject matter when it enacted a
statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176;
N. C. 377).
Immemorial customs are presumed to have been always in
the mind of the Legislature in enacting legislation. (In re
Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the
state of the law on the subjects upon which it legislates.
(Clover Valley Land and Stock Co. vs. Lamb et al., 187, p.
723,726.)
The Court in construing a statute, will assume that the
legislature acted with full knowledge of the prior legislation
on the subject and its construction by the courts. (Johns vs.
Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the
subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory
construction. (People vs. Lowell, 230 N. W. 202, 250 Mich.
349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich.
436.).
It is not to be presumed that a provision was inserted in a
constitution or statute without reason, or that a result was
intended inconsistent with the judgment of men of common
sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566,
288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252,
45
310 Ill. 591, and may other authorities that can be cited in
support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of
a single individual, the head of any religious society or
church operating within the zone, area or jurisdiction covered
by said corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not
own the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of
any administrator has absolutely no bearing on the
nationality of the person desiring to acquire real property in
the Philippines by purchase or other lawful means other than
by hereditary succession, who according to the Constitution
must be a Filipino (sections 1 and 5, Article XIII).
5. That section 159 of the Corporation
Law expressly authorized the corporation sole to purchase
and holdreal estate for its church, charitable, benevolent or
educational purposes, and to receive bequests or gifts for
such purposes;
6. That in approving our Magna Carta the Delegates to the
Constitutional Convention, almost all of whom were Roman
Catholics, could not have intended to curtail the propagation
of the Roman Catholic faith or the expansion of the activities
of their church, knowing pretty well that with the growth of
our population more places of worship, more schools where
our youth could be taught and trained; more hallow grounds
where to bury our dead would be needed in the course of
time.
Long before the enactment of our Constitution the law authorized the
corporations sole even to receive bequests or gifts of real estates and
this Court could not, without any clear and specific provision of the
Constitution, declare that any real property donated, let as say this
year, could no longer be registered in the name of the corporation sole
to which it was conveyed. That would be an absurdity that should not
receive our sanction on the pretext that corporations sole which have
no nationality and are non-stock corporations composed of only one
person in the capacity of administrator, have to establish first that at
least sixty per centum of their capital belong to Filipino citizens. The
new Civil Code even provides:
ART. 10. — In case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the
properties of a Filipino can acquire, in the name of the latter, private
lands without any limitation whatsoever, and that is so because the
properties thus acquired are not for and would not belong to the
administrator but to the Filipino whom he represents. But the dissenting
Justice inquires: If the Ordinary is only the administrator, for whom
does he administer? And who can alter or overrule his acts? We will
forthwith proceed to answer these questions. The corporations sole by
reason of their peculiar constitution and form of operation have no
designed owner of its temporalities, although by the terms of the law it
can be safely implied that the Ordinary holds them in trust for the
benefit of the Roman Catholic faithful to their respective locality or
diocese. Borrowing the very words of the law, We may say that the
temporalities of every corporation sole are held in trust for the use,
purpose, behalf and benefit of the religious society, or order so
incorporated or of the church to which the diocese, synod, or district
organization is an organized and constituent part (section 163 of the
Corporation Law).
In connection with the powers of the Ordinary over the temporalities of
the corporation sole, let us see now what is the meaning and scope of
the word "control". According to the Merriam-Webster's New
International Dictionary, 2nd ed., p. 580, on of the acceptations of the
word "control" is:
4. To exercise restraining or directing influence over; to
dominate; regulate; hence, to hold from action; to curb;
subject; also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention
of the courts is not necessary, to mortgageor sell real property held by
the corporation sole where the rules, regulations and discipline of the
religious denomination, society or church concerned presented by such
corporation sole regulates the methods of acquiring, holding, selling
and mortgaging real estate, and that the Roman Catholic faithful
residing in the jurisdiction of the corporation sole has no say either in
the manner of acquiring or of selling real property. It may be also
admitted that the faithful of the diocese cannot govern or overrule the
acts of the Ordinary, but all this does not mean that the latter can
administer the temporalities of the corporation sole without check or
restraint. We must not forget that when a corporation sole is
incorporated under Philippine laws, the head and only member thereof
subjects himself to the jurisdiction of the Philippine courts of justice and
these tribunals can thus entertain grievances arising out of or with
respect to the temporalities of the church which came into the
possession of the corporation sole as administrator. It may be alleged
that the courts cannot intervene as to the matters of doctrine or
teachings of the Roman Catholic Church. That is correct, but the courts
may step in, at the instance of the faithful for whom the temporalities
are being held in trust, to check undue exercise by the corporation sole
of its power as administrator to insure that they are used for the
purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an
action brought by persons claiming to be members of a
church, who allege a wrongful and fraudulent diversion of the
church property to uses foreign to the purposes of the
church, since no ecclesiastical question is involved and
equity will protect from wrongful diversion of the
property (Hendryx vs. Peoples United Church, 42 Wash.
336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and
control over the officers of such corporations in respect to
the performance of their official duties; but as in respect to
the property which they hold for the corporation, they stand
in position of TRUSTEES and the courts may exercise the
same supervision as in other cases of trust (Ramsey vs.
Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. —
n.s. — 665; Hendryx vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of
church rules or discipline unless civil rights become involved
and which must be protected (Morris St., Baptist Church vs.
Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol.
II, Cooley's Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above
enumerated and of the provisions of law relative to existing conditions
as to management and operation of corporations sole in the
Philippines, and if, on the other hand, almost all of the Delegates
thereto embraced the Roman Catholic faith, can it be imagined even
for an instant that when Article XIII of the Constitution was approved
the framers thereof intended to prevent or curtail from then on the
acquisition sole, either by purchase or donation, of real properties that
they might need for the propagation of the faith and for there religious
and Christian activities such as the moral education of the youth, the
care, attention and treatment of the sick and the burial of the dead of
the Roman Catholic faithful residing in the jurisdiction of the respective
corporations sole? The mere indulgence in said thought would impress
upon Us a feeling of apprehension and absurdity. And that is precisely
the leit motiv that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted
with in this appeal, hinges around the necessity of a proper and
adequate interpretation of sections 1 and 5 of Article XIII of the
Constitution. Let Us then be guided by the principles of statutory
construction laid down by the authorities on the matter:
The most important single factor in determining the intention
of the people from whom the constitution emanated is the
language in which it is expressed. The words employed are
to be taken in their natural sense, except that legal or
technical terms are to be given their technical meaning. The
imperfections of language as a vehicle for conveying
meanings result in ambiguities that must be resolved by
result to extraneous aids for discovering the intent of the
framers. Among the more important of these are a
consideration of the history of the times when the provision
was adopted and of the purposes aimed at in its adoption.
The debates of constitutional convention, contemporaneous
construction, and practical construction by the legislative and
executive departments, especially if long continued, may be
resorted to resolve, but not to create, ambiguities. . .
. Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important
interpretative device. . . . The purposes of many of the
broadly phrased constitutional limitations were the promotion
of policies that do not lend themselves to definite and
specific formulation. The courts have had to define those
policies and have often drawn on natural law and natural
rights theories in doing so. The interpretation of constitutions
tends to respond to changing conceptions of political and
social values. The extent to which these extraneous aids
affect the judicial construction of constitutions cannot be
formulated in precise rules, but their influence cannot be
ignored in describing the essentials of the process
(Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
46
There are times that when even the literal expression of
legislation may be inconsistent with the general objectives of
policy behind it, and on the basis of equity or spirit of the
statute the courts rationalize a restricted meaning of the
latter. A restricted interpretation is usually applied where the
effect of literal interpretation will make for injustice and
absurdity or, in the words of one court, the language must be
so unreasonable 'as to shock general common sense'. (Vol.
3, Sutherland on Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the
development of a country nor an obstruction to its progress
and foreign relations (Moscow Fire Ins. Co. of Moscow,
Russia vs. Bank of New York and Trust Co., 294 N. Y.
S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain
fixed and unchanged from the time of its adoption, a
constitution must be construed as if intended to stand for a
great length of time, and it is progressive and not static.
Accordingly, it should not receive too narrow or literal an
interpretation but rather the meaning given it should be
applied in such manner as to meet new or changed
conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L.
Ed., 1368).
Effect should be given to the purpose indicated by a fair
interpretation of the language used and that construction
which effectuates, rather than that which destroys a plain
intent or purpose of a constitutional provision, is not only
favored but will be adopted (State ex rel. Randolph Country
vs. Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and
purpose the construction should be broad or liberal or
equitable, as the better method of ascertaining that intent,
rather than technical (Great Southern Life Ins. Co. vs. City of
Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the
Constitution had not in mind the corporations sole, nor intended to
apply them the provisions of section 1 and 5 of said Article XIII when
they passed and approved the same. And if it were so as We think it is,
herein petitioner, the Roman Catholic Apostolic Administrator of
Davao, Inc., could not be deprived of the right to acquire by purchase
or donation real properties for charitable, benevolent and educational
purposes, nor of the right to register the same in its name with the
Register of Deeds of Davao, an indispensable requisite prescribed by
the Land Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question
above referred to as "the vested right saving clause" contained in
section 1, Article XIII of the Constitution. The dissenting Justice hurls
upon the personal opinion expressed on the matter by the writer of the
decision the most pointed darts of his severe criticism. We think,
however, that this strong dissent should have been spared, because as
clearly indicated before, some members of this Court either did not
agree with the theory of the writer or were not ready to take a definite
stand on that particular point, so that there being no majority opinion
thereon there was no need of any dissension therefrom. But as the
criticism has been made the writer deems it necessary to say a few
words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a
capacity to acquire (property) in futuro, is not in itself a vested or
existing property right that the Constitution protects from impairment.
For a property right to be vested (or acquired) there must be a
transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have become
'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the
case at bar has to be considered as an exception to the rule because
among the rights granted by section 159 of the Corporation Law was
the right to receive bequests or gifts of real properties for charitable,
benevolent and educational purposes. And this right to receive such
bequests or gifts (which implies donations in futuro), is not a mere
potentiality that could be impaired without any specific provision in the
Constitution to that effect, especially when the impairment would
disturbingly affect the propagation of the religious faith of the immense
majority of the Filipino people and the curtailment of the activities of
their Church. That is why the writer gave us a basis of his contention
what Professor Aruego said in his book "The Framing of the Philippine
Constitution" and the enlightening opinion of Mr. Justice Jose P.
Laurel, another Delegate to the Constitutional Convention, in his
concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio
Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not
deem necessary to pass upon said "vested right saving clause" for the
final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration
Commission of September 21, 1954, holding that in view of the
provisions of sections 1 and 5 of Article XIII of the Philippine
Constitution the vendee (petitioner) is not qualified to acquire lands in
the Philippines in the absence of proof that at least 60 per centum of
the capital, properties or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc. is actually owned or controlled by Filipino
citizens, and denying the registration of the deed of sale in the absence
of proof of compliance with such requisite, is hereby reversed.
Consequently, the respondent Register of Deeds of the City of Davao
is ordered to register the deed of sale executed by Mateo L. Rodis in
favor of the Roman Catholic Apostolic Administrator of Davao, Inc.,
which is the subject of the present litigation. No pronouncement is
made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C.J., and Bengzon, J., concur in the result.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,
vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix
V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for
record a deed of donation executed in due form on January 22, 1953,
by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in
Caloocan, Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O.
Record No. 11267, in favor of the unregistered religious organization
"Ung Siu Si Temple", operating through three trustees all of Chinese
nationality. The donation was duly accepted by Yu Juan, of Chinese
nationality, founder and deaconess of the Temple, acting in
representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth
Branch of the Court of First Instance of Manila. On March 14, 1953, the
Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above
transcribed consulta is whether a deed of donation of a
parcel of land executed in favor of a religious organization
whose founder, trustees and administrator are Chinese
citizens should be registered or not.
It appearing from the record of the Consulta that UNG SIU SI
TEMPLE is a religious organization whose deaconess,
founder, trustees and administrator are all Chinese citizens,
this Court is of the opinion and so hold that in view of the
provisions of the sections 1 and 5 of Article XIII of the
Constitution of the Philippines limiting the acquisition of land
in the Philippines to its citizens, or to corporations or
associations at least sixty per centum of the capital stock of
which is owned by such citizens adopted after the enactment
of said Act No. 271, and the decision of the Supreme Court
in the case of Krivenko vs. the Register of Deeds of Manila,
the deed of donation in question should not be admitted for
admitted for registration. (Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for
the donee Uy Siu Si Temple has appealed to this Court, claiming: (1)
that the acquisition of the land in question, for religious purposes, is
authorized and permitted by Act No. 271 of the old Philippine
Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of
whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not
incorporated at all, to hold land in the Philippine Islands upon
which to build churches, parsonages, or educational or
charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall
hold the land in the name of three Trustees for the use of
such associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of
religion clause of our Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in
view of the absolute terms of section 5, Title XIII, of the Constitution,
the provisions of Act No. 271 of the old Philippine Commission must be
47
deemed repealed since the Constitution was enacted, in so far as
incompatible therewith. In providing that, —
Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations or associations qualified to acquire
or hold lands of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations.
Neither is there any such saving found in sections 1 and 2 of Article
XIII, restricting the acquisition of public agricultural lands and other
natural resources to "corporations or associations at least sixty per
centum of the capital of which is owned by such citizens" (of the
Philippines).
The fact that the appellant religious organization has no capital stock
does not suffice to escape the Constitutional inhibition, since it is
admitted that its members are of foreign nationality. The purpose of the
sixty per centum requirement is obviously to ensure that corporations
or associations allowed to acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire
agricultural lands would be to drive the opening wedge to revive alien
religious land holdings in this country. We can not ignore the historical
fact that complaints against land holdings of that kind were among the
factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative
of the freedom of religion guaranteed by Article III of the Constitution,
we are by no means convinced (nor has it been shown) that land
tenure is indispensable to the free exercise and enjoyment of religious
profession or worship; or that one may not worship the Deity according
to the dictates of his own conscience unless upon land held in fee
simple.
The resolution appealed from is affirmed, with costs against appellant.
Pablo, Acting C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo,
Labrador, and Concepcion, JJ., concur.
G.R. No. 124293 January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner,
J.G. Summit Holdings, Inc. for reconsideration of our Resolution dated
September 24, 2003 and to elevate this case to the Court En Banc.
The petitioner questions the Resolution which reversed our Decision of
November 20, 2000, which in turn reversed and set aside a Decision of
the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of
September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development
Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI
will contribute ₱330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively. One of its salient features is the
grant to the parties of the right of first refusal should either of them
decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its
interest in SNS [PHILSECO] to any third party without giving the other
under the same terms the right of first refusal. This provision shall not
apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest
in PHILSECO to the Philippine National Bank (PNB). Such interests
were subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President
Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust
(APT) to take title to, and possession of, conserve, manage and
dispose of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into
between the National Government and the APT wherein the latter was
named the trustee of the National Government's share in PHILSECO.
In 1989, as a result of a quasi-reorganization of PHILSECO to settle its
huge obligations to PNB, the National Government's shareholdings in
PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP
and the APT deemed it best to sell the National Government's share in
PHILSECO to private entities. After a series of negotiations between
the APT and KAWASAKI, they agreed that the latter's right of first
refusal under the JVA be "exchanged" for the right to top by five
percent (5%) the highest bid for the said shares. They further agreed
that KAWASAKI would be entitled to name a company in which it was
a stockholder, which could exercise the right to top. On September 7,
1990, KAWASAKI informed APT that Philyards Holdings, Inc.
(PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested
bidders were given copies of the JVA between NIDC and KAWASAKI,
and of the Asset Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in PHILSECO. The
provisions of the ASBR were explained to the interested bidders who
were notified that the bidding would be held on December 2, 1993. A
portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through
public bidding is the National Government's equity in PHILSECO
consisting of 896,869,942 shares of stock (representing 87.67% of
PHILSECO's outstanding capital stock), which will be sold as a whole
block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis.
The Indicative price set for the National Government's 87.67% equity in
PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(₱1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of
Trustees at its regular meeting following the bidding, for the purpose of
determining whether or not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the same. The APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT within
which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. exercise their "Option to Top the Highest Bid," they shall
so notify the APT about such exercise of their option and deposit with
APT the amount equivalent to ten percent (10%) of the highest bid plus
five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days
from the receipt of the APT's notice within which to pay the balance of
their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. fail to exercise their "Option to Top the Highest Bid"
within the thirty (30)-day period, APT will declare the highest bidder as
the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with
appropriate care these rules, the official bid forms, including any
addenda or amendments thereto issued during the bidding period. The
bidder shall likewise be responsible for informing itself with respect to
any and all conditions concerning the PHILSECO Shares which may,
in any manner, affect the bidder's proposal. Failure on the part of the
bidder to so examine and inform itself shall be its sole risk and no relief
for error or omission will be given by APT or COP. . . .
48
At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc.2 submitted a bid of Two Billion and Thirty Million Pesos
(₱2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up
to thirty (30) days to act on APT's recommendation based on the result
of this bidding. Should the COP approve the highest bid, APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT within
which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the
sale on December 3, 1993 "subject to the right of Kawasaki Heavy
Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5%
as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting
the offer of PHI to top its bid on the grounds that: (a) the
KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS],
Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR
because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b)
only KAWASAKI could exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted benefit to a third party; (d)
no right of first refusal can be exercised in a public bidding or auction
sale; and (e) the JG Summit consortium was not estopped from
questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7,
1994, the APT notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved the same on
January 6, 1994. On February 24, 1994, the APT and PHI executed a
Stock Purchase Agreement. Consequently, petitioner filed with this
Court a Petition for Mandamus under G.R. No. 114057. On May 11,
1994, said petition was referred to the Court of Appeals. On July 18,
1995, the Court of Appeals denied the same for lack of merit. It ruled
that the petition for mandamus was not the proper remedy to question
the constitutionality or legality of the right of first refusal and the right to
top that was exercised by KAWASAKI/PHI, and that the matter must be
brought "by the proper party in the proper forum at the proper time and
threshed out in a full blown trial." The Court of Appeals further ruled
that the right of first refusal and the right to top are prima facie legal
and that the petitioner, "by participating in the public bidding, with full
knowledge of the right to top granted to KAWASAKI/[PHILYARDS]
is…estopped from questioning the validity of the award given to
[PHILYARDS] after the latter exercised the right to top and had paid in
full the purchase price of the subject shares, pursuant to the ASBR."
Petitioner filed a Motion for Reconsideration of said Decision which
was denied on March 15, 1996. Petitioner thus filed a Petition for
Certiorari with this Court alleging grave abuse of discretion on the part
of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling
among others that the Court of Appeals erred when it dismissed the
petition on the sole ground of the impropriety of the special civil action
of mandamus because the petition was also one of certiorari. It further
ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of the 87.67%
equity of the National Government in PHILSECO is illegal — not only
because it violates the rules on competitive bidding — but more so,
because it allows foreign corporations to own more than 40% equity in
the shipyard. It also held that "although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding, it
cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof." Thus, this Court voided the transfer of
the national government's 87.67% share in PHILSECO to Philyard[s]
Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is
GRANTED. The assailed Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay
to APT its bid price of Two Billion Thirty Million Pesos
(₱2,030,000,000.00), less its bid deposit plus interests upon the finality
of this Decision. In turn, APT is ordered to:
(a) accept the said amount of ₱2,030,000,000.00 less bid
deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates
of stocks representing 87.6% of PHILSECO's total
capitalization;
 (d) return to private respondent PHGI the amount of Two
Billion One Hundred Thirty-One Million Five Hundred
Thousand Pesos (₱2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to
PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three
basic issues for x x x resolution: (1) Whether PHILSECO is a public
utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its
right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI
violates the principles of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of
the respondents. On the first issue, we held that Philippine Shipyard
and Engineering Corporation (PHILSECO) is not a public utility, as by
nature, a shipyard is not a public utility4 and that no law declares a
shipyard to be a public utility.5 On the second issue, we found nothing
in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring
more than 40% of PHILSECO’s total capitalization.6 On the final issue,
we held that the right to top granted to KAWASAKI in exchange for its
right of first refusal did not violate the principles of competitive bidding. 7
On October 20, 2003, the petitioner filed a Motion for
Reconsideration8 and a Motion to Elevate This Case to the Court En
Banc.9 Public respondents Committee on Privatization (COP) and
Asset Privatization Trust (APT), and private respondent Philyards
Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit
Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion
to Elevate This Case to the Court En Banc on January 29, 2004 and
February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this
litigation are the following:
1. Whether there are sufficient bases to elevate the case at
bar to the Court en banc.
2. Whether the motion for reconsideration raises any new
matter or cogent reason to warrant a reconsideration of this
Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en
banc on the following grounds:
1. The main issue of the propriety of the bidding process
involved in the present case has been confused with the
policy issue of the supposed fate of the shipping industry
which has never been an issue that is determinative of this
case.10
2. The present case may be considered under the Supreme
Court Resolution dated February 23, 1984 which included
among en banc cases those involving a novel question of
law and those where a doctrine or principle laid down by the
Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial
functions of the Court when the Honorable Jose Isidro
Camacho, Secretary of Finance, forwarded to Chief Justice
Davide, a memorandum dated November 5, 2001, attaching
a copy of the Foreign Chambers Report dated October 17,
2001, which matter was placed in the agenda of the Court
and noted by it in a formal resolution dated November 28,
2001.12
Opposing J.G. Summit’s motion to elevate the case en banc,
PHILYARDS points out the petitioner’s inconsistency in
previously opposing PHILYARDS’ Motion to Refer the Case to the
Court En Banc. PHILYARDS contends that J.G. Summit should now be
estopped from asking that the case be referred to the Court en banc.
PHILYARDS further contends that the Supreme Court en banc is not
an appellate court to which decisions or resolutions of its divisions may
be appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel question of law
involved in the present case as the assailed Resolution was based on
well-settled jurisprudence. Likewise, PHILYARDS stresses that the
Resolution was merely an outcome of the motions for reconsideration
filed by it and the COP and APT and is "consistent with the inherent
power of courts to ‘amend and control its process and orders so as to
49
make them conformable to law and justice.’ (Rule 135, sec.
5)"14 Private respondent belittles the petitioner’s allegations regarding
the change in ponente and the alleged executive interference as
shown by former Secretary of Finance Jose Isidro Camacho’s
memorandum dated November 5, 2001 arguing that these do not
justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En
Banc should be granted, J.G. Summit further argued that: its
Opposition to the Office of the Solicitor General’s Motion to Refer is
different from its own Motion to Elevate; different grounds are invoked
by the two motions; there was unwarranted "executive interference";
and the change in ponente is merely noted in asserting that this case
should be decided by the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the
bidding process involved in the present case has been confused with
the policy issue of the fate of the shipping industry which, petitioner
maintains, has never been an issue that is determinative of this case.
The Court’s Resolution of September 24, 2003 reveals a clear and
definitive ruling on the propriety of the bidding process. In discussing
whether the right to top granted to KAWASAKI in exchange for its right
of first refusal violates the principles of competitive bidding, we made
an exhaustive discourse on the rules and principles of public bidding
and whether they were complied with in the case at bar. 16This Court
categorically ruled on the petitioner’s argument that PHILSECO, as a
shipyard, is a public utility which should maintain a 60%-40% Filipino-
foreign equity ratio, as it was a pivotal issue. In doing so, we
recognized the impact of our ruling on the shipbuilding industry which
was beyond avoidance.17
We reject petitioner’s argument that the present case may be
considered under the Supreme Court Resolution dated February 23,
1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by
the court en banc or in division may be modified or reversed. The case
was resolved based on basic principles of the right of first refusal in
commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and
have been recognized in numerous cases.18 Estoppel is too known a
civil law concept to require an elongated discussion. Fundamental
principles on public bidding were likewise used to resolve the issues
raised by the petitioner. To be sure, petitioner leans on the right to top
in a public bidding in arguing that the case at bar involves a novel
issue. We are not swayed. The right to top was merely a condition or a
reservation made in the bidding rules which was fully disclosed to all
bidding parties. In Bureau Veritas, represented by Theodor H.
Hunermann v. Office of the President, et al., 19 we dealt with this
conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons
v. Aytona, et al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an
"invitation to bid, there is a condition imposed upon the bidders to
the effect that the bidding shall be subject to the right of the
government to reject any and all bids subject to its discretion. In
the case at bar, the government has made its choice and unless
an unfairness or injustice is shown, the losing bidders have no
cause to complain nor right to dispute that choice. This is a well-
settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in
the Government agencies entrusted with that function. The discretion
given to the authorities on this matter is of such wide latitude that the
Courts will not interfere therewith, unless it is apparent that it is used as
a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486
[1960]). x x x The exercise of this discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and
deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has
transgressed its constitutional boundaries. But the Courts will not
interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-
making.
It is only upon a clear showing of grave abuse of discretion that the
Courts will set aside the award of a contract made by a government
entity. Grave abuse of discretion implies a capricious, arbitrary and
whimsical exercise of power (Filinvest Credit Corp. v. Intermediate
Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The
abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform a duty
enjoined by law, as to act at all in contemplation of law, where the
power is exercised in an arbitrary and despotic manner by reason of
passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-
40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of
discretion on the part of public respondents when they awarded the
CISS contract to Respondent SGS. In the "Invitation to Prequalify and
Bid" (Annex "C," supra), the CISS Committee made an express
reservation of the right of the Government to "reject any or all
bids or any part thereof or waive any defects contained thereon
and accept an offer most advantageous to the Government." It is
a well-settled rule that where such reservation is made in an
Invitation to Bid, the highest or lowest bidder, as the case may be,
is not entitled to an award as a matter of right (C & C Commercial
Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the
lowest Bid or any Bid may be rejected or, in the exercise of sound
discretion, the award may be made to another than the lowest bidder
(A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788).
(emphases supplied)1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a
condition imposed by the government in the bidding rules which was
made known to all parties. It was a condition imposed on all bidders
equally, based on the APT’s exercise of its discretion in deciding
on how best to privatize the government’s shares in PHILSECO. It
was not a whimsical or arbitrary condition plucked from the ether and
inserted in the bidding rules but a condition which the APT approved as
the best way the government could comply with its contractual
obligations to KAWASAKI under the JVA and its mandate of getting the
most advantageous deal for the government. The right to top had its
history in the mutual right of first refusal in the JVA and was reached by
agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this
Court by the mere filing of a memorandum by Secretary of Finance
Jose Isidro Camacho. The memorandum was merely "noted" to
acknowledge its filing. It had no further legal significance. Notably
too, the assailed Resolution dated September 24, 2003 was
decided unanimously by the Special First Division in favor of the
respondents.
Again, we emphasize that a decision or resolution of a Division is that
of the Supreme Court20 and the Court en banc is not an appellate court
to which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to
the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for
Reconsideration. First, that a fair resolution of the case should be
based on contract law, not on policy considerations; the contracts do
not authorize the right to top to be derived from the right of first
refusal.22 Second, that neither the right of first refusal nor the right to
top can be legally exercised by the consortium which is not the proper
party granted such right under either the JVA or the Asset Specific
Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40%
relationship between the National Investment and Development
Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and
need not be a public utility to be bound by the 60%-40% constitutional
limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G.
Summit has not been able to show compelling reasons to warrant a
reconsideration of the Decision of the Court.25 PHILYARDS denies that
the Decision is based mainly on policy considerations and points out
that it is premised on principles governing obligations and contracts
and corporate law such as the rule requiring respect for contractual
stipulations, upholding rights of first refusal, and recognizing the
assignable nature of contracts rights.26 Also, the ruling that shipyards
are not public utilities relies on established case law and fundamental
rules of statutory construction. PHILYARDS stresses that KAWASAKI’s
right of first refusal or even the right to top is not limited to the 40%
equity of the latter.27 On the landholding issue raised by J.G. Summit,
PHILYARDS emphasizes that this is a non-issue and even involves a
question of fact. Even assuming that this Court can take cognizance of
such question of fact even without the benefit of a trial, PHILYARDS
opines that landholding by PHILSECO at the time of the bidding is
irrelevant because what is essential is that ultimately a qualified entity
would eventually hold PHILSECO’s real estate properties.28 Further,
given the assignable nature of the right of first refusal, any applicable
nationality restrictions, including landholding limitations, would not
affect the right of first refusal itself, but only the manner of its
exercise.29 Also, PHILYARDS argues that if this Court takes
cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s
landholding, it must also recognize PHILYARDS’ assertions that
PHILSECO’s landholdings were sold to another corporation. 30 As
regards the right of first refusal, private respondent explains that
KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not
translate to a deprivation or loss of its contractually granted right of first
refusal.31 Also, the bidding was valid because PHILYARDS exercised
the right to top and it was of no moment that losing bidders later joined
PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public
respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top
by 5% does not violate any provision in the JVA between
NIDC and KAWASAKI.
50
2. PHILSECO is not a public utility and therefore not
governed by the constitutional restriction on foreign
ownership.
3. The petitioner is legally estopped from assailing the
validity of the proceedings of the public bidding as it
voluntarily submitted itself to the terms of the ASBR which
included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the
nominee of KAWASAKI and the fact that PHILYARDS
formed a consortium to raise the required amount to exercise
the right to top the highest bid by 5% does not violate the
JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement
for the acquisition of lands does not apply to PHILSECO
because as admitted by petitioner itself, PHILSECO no
longer owns real property.
6. Petitioner’s motion to elevate the case to the Court en
banc is baseless and would only delay the termination of this
case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit
countered the arguments of the public and private respondents in this
wise:
1. The award by the APT of 87.67% shares of PHILSECO to
PHILYARDS with losing bidders through the exercise of a
right to top, which is contrary to law and the constitution is
null and void for being violative of substantive due process
and the abuse of right provision in the Civil Code.
a. The bidders[’] right to top was actually exercised
by losing bidders.
b. The right to top or the right of first refusal cannot
co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were
unwarranted.
2. The landholding issue has been a legitimate issue since
the start of this case but is shamelessly ignored by the
respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions
of fact.
c. That PHILSECO owned land at the time that the
right of first refusal was agreed upon and at the
time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the
core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an
inexistent right of first refusal to the right to top.
a. The history behind the birth of the right to top
shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively
useless."
4. Petitioner is not legally estopped to challenge the right to
top in this case.
a. Estoppel is unavailing as it would stamp validity
to an act that is prohibited by law or against public
policy.
b. Deception was patent; the right to top was an
attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from
the right of first refusal is not new and we have already ruled on the
issue in our Resolution of September 24, 2003. We upheld the mutual
right of first refusal in the JVA.34 We also ruled that nothing in the JVA
prevents KAWASAKI from acquiring more than 40% of PHILSECO’s
total capitalization.35 Likewise, nothing in the JVA or ASBR bars the
conversion of the right of first refusal to the right to top. In sum, nothing
new and of significance in the petitioner’s pleading warrants a
reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of
first refusal nor the right to top can legally be exercised by the
consortium which is not the proper party granted such right under
either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of
Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has
joined PHILYARDS in the latter's effort to raise ₱2.131 billion
necessary in exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR that bars the
losing bidders from joining either the winning bidder (should the right to
top is not exercised) or KAWASAKI/PHI (should it exercise its right to
top as it did), to raise the purchase price. The petitioner did not allege,
nor was it shown by competent evidence, that the participation of the
losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by [PHILYARDS] of a
consortium is legitimate in a free enterprise system. The appellate
court is thus correct in holding the petitioner estopped from questioning
the validity of the transfer of the National Government's shares in
PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking
funding from parties who were losing bidders. This is a purely
commercial decision over which the State should not interfere absent
any legal infirmity. It is emphasized that the case at bar involves the
disposition of shares in a corporation which the government sought to
privatize. As such, the persons with whom PHILYARDS desired to
enter into business with in order to raise funds to purchase the shares
are basically its business. This is in contrast to a case involving a
contract for the operation of or construction of a government
infrastructure where the identity of the buyer/bidder or financier
constitutes an important consideration. In such cases, the government
would have to take utmost precaution to protect public interest by
ensuring that the parties with which it is contracting have the ability to
satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO
is a landholding company, KAWASAKI could exercise its right of first
refusal only up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by corporations with more than
40% foreign-owned equity. It further argues that since KAWASAKI
already held at least 40% equity in PHILSECO, the right of first refusal
was inutile and as such, could not subsequently be converted into the
right to top. 37 Petitioner also asserts that, at present, PHILSECO
continues to violate the constitutional provision on landholdings as its
shares are more than 40% foreign-owned.38 PHILYARDS admits that it
may have previously held land but had already divested such
landholdings.39 It contends, however, that even if PHILSECO owned
land, this would not affect the right of first refusal but only the exercise
thereof. If the land is retained, the right of first refusal, being a property
right, could be assigned to a qualified party. In the alternative, the land
could be divested before the exercise of the right of first refusal. In the
case at bar, respondents assert that since the right of first refusal was
validly converted into a right to top, which was exercised not by
KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e.,
60% of its shares are owned by Filipinos), then there is no violation of
the Constitution.40 At first, it would seem that questions of fact beyond
cognizance by this Court were involved in the issue. However, the
records show that PHILYARDS admits it had owned land up until
the time of the bidding.41 Hence, the only issue is whether
KAWASAKI had a valid right of first refusal over PHILSECO
shares under the JVA considering that PHILSECO owned land
until the time of the bidding and KAWASAKI already held 40% of
PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a
property right of PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to purchase the
shares of their co-shareholder before they are offered to a third
party. The agreement of co-shareholders to mutually grant this
right to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos
and Filipino corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the 60%-40%
ratio. This transfer, by itself, does not amount to a violation of the Anti-
Dummy Laws, absent proof of any fraudulent intent. The transfer could
be made either to a nominee or such other party which the holder of
the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not
the foreign stockholders’ ownership of the shares which is
adversely affected but the capacity of the corporation to own
land – that is, the corporation becomes disqualified to own land. This
finds support under the basic corporate law principle that the
corporation and its stockholders are separate juridical entities. In this
vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence,
the fact that PHILSECO owns land cannot deprive stockholders of their
right of first refusal. No law disqualifies a person from purchasing
51
shares in a landholding corporation even if the latter will exceed
the allowed foreign equity, what the law disqualifies is the
corporation from owning land. This is the clear import of the
following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be
for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may
be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. 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 of
the public domain.42(emphases supplied)
The petitioner further argues that "an option to buy land is void in itself
(Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The
right of first refusal granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void."43 Contrary to the contention of petitioner, the case
of Lui She did not that say "an option to buy land is void in itself," for
we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is
valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship. As
this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of
lands for residential purposes. Since their residence in the Philippines
is temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire
to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to
buy, a piece of land, by virtue of which the Filipino owner cannot
sell or otherwise dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only
of the right to enjoy the land (jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose of it (jus
disponendi) — rights the sum total of which make up ownership.
It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all
the rights of which ownership is made up are consolidated in an
alien. And yet this is just exactly what the parties in this case did within
this pace of one year, with the result that Justina Santos'[s] ownership
of her property was reduced to a hollow concept. If this can be done,
then the Constitutional ban against alien landholding in the Philippines,
as announced in Krivenko vs. Register of Deeds, is indeed in grave
peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a
virtual transfer of ownership as the owner could not sell or dispose of
his properties. The contract in Lui She prohibited the owner of the land
from selling, donating, mortgaging, or encumbering the property during
the 50-year period of the option to buy. This is not so in the case at bar
where the mutual right of first refusal in favor of NIDC and KAWASAKI
does not amount to a virtual transfer of land to a non-Filipino. In fact,
the case at bar involves a right of first refusal over shares of
stock while the Lui She case involves an option to buy the land
itself. As discussed earlier, there is a distinction between the
shareholder’s ownership of shares and the corporation’s ownership of
land arising from the separate juridical personalities of the corporation
and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges
that PHILSECO continues to violate the Constitution as its foreign
equity is above 40% and yet owns long-term leasehold rights which
are real rights.45It cites Article 415 of the Civil Code which includes in
the definition of immovable property, "contracts for public works, and
servitudes and other real rights over immovable property."46 Any
existing landholding, however, is denied by PHILYARDS citing its
recent financial statements.47 First, these are questions of fact, the
veracity of which would require introduction of evidence. The Court
needs to validate these factual allegations based on competent and
reliable evidence. As such, the Court cannot resolve the questions they
pose. Second, J.G. Summit misreads the provisions of the Constitution
cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private
respondent is not a 60%-40% corporation, and this violates the
Constitution x x x The violation continues to this day because under the
law, it continues to own real property…
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article
XIV of the 1973 Constitution (the JVA was signed in 1977), provided:
"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 of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987
Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or
hold lands of the public domain are corporations at least 60% of
which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141,
as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the
Constitution applies only to ownership of land.48 It does not extend to
immovable or real property as defined under Article 415 of the
Civil Code.Otherwise, we would have a strange situation where the
ownership of immovable property such as trees, plants and growing
fruit attached to the land49 would be limited to Filipinos and Filipino
corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioner’s Motion for
Reconsideration is DENIED WITH FINALITY and the decision
appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and Tinga,
JJ., concur.
FIRST DIVISION
[G.R. NO. 154953 : June 26, 2008]
REPUBLIC OF THE PHILIPPINES, Petitioner, v. T.A.N.
PROPERTIES, INC.,Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a Petition for Review 1 assailing the 21 August 2002
Decision2 of the Court of Appeals in CA-G.R. CV No. 66658. The Court
of Appeals affirmed in toto the 16 December 1999 Decision3 of the
Regional Trial Court of Tanauan, Batangas, Branch 6 (trial court) in
Land Registration Case No. T-635.
The Antecedent Facts
This case originated from an Application for Original Registration of
Title filed by T.A.N. Properties, Inc. covering Lot 10705-B of the
subdivision plan Csd-04-019741 which is a portion of the consolidated
Lot 10705, Cad-424, Sto. Tomas Cadastre. The land, with an area of
564,007 square meters, or 56.4007 hectares, is located at San
Bartolome, Sto. Tomas, Batangas.
On 31 August 1999, the trial court set the case for initial hearing at
9:30 a.m. on 11 November 1999. The Notice of Initial Hearing was
published in the Official Gazette, 20 September 1999 issue, Volume
95, No. 38, pages 6793 to 6794,4 and in the 18 October 1999 issue of
People's Journal Taliba,5 a newspaper of general circulation in the
Philippines. The Notice of Initial Hearing was also posted in a
conspicuous place on the bulletin board of the Municipal Building of
Sto. Tomas, Batangas, as well as in a conspicuous place on the
land.6 All adjoining owners and all government agencies and offices
concerned were notified of the initial hearing.7
52
On 11 November 1999, when the trial court called the case for initial
hearing, there was no oppositor other than the Opposition dated 7
October 1999 of the Republic of the Philippines represented by the
Director of Lands (petitioner). On 15 November 1999, the trial court
issued an Order8 of General Default against the whole world except as
against petitioner.
During the hearing on 19 November 1999, Ceferino Carandang
(Carandang) appeared as oppositor. The trial court gave Carandang
until 29 November 1999 within which to file his written
opposition.9 Carandang failed to file his written opposition and to
appear in the succeeding hearings. In an Order10 dated 13 December
1999, the trial court reinstated the Order of General Default.
During the hearings conducted on 13 and 14 December 1999,
respondent presented three witnesses: Anthony Dimayuga Torres
(Torres), respondent's Operations Manager and its authorized
representative in the case; Primitivo Evangelista (Evangelista), a 72-
year old resident of San Bartolome, Sto. Tomas, Batangas since birth;
and Regalado Marquez, Records Officer II of the Land Registration
Authority (LRA), Quezon City.
The testimonies of respondent's witnesses showed that Prospero
Dimayuga (Kabesang Puroy) had peaceful, adverse, open, and
continuous possession of the land in the concept of an owner since
1942. Upon his death, Kabesang Puroy was succeeded by his son
Antonio Dimayuga (Antonio). On 27 September 1960, Antonio
executed a Deed of Donation covering the land in favor of one of his
children, Fortunato Dimayuga (Fortunato). Later, however, Antonio
gave Fortunato another piece of land. Hence, on 26 April 1961,
Antonio executed a Partial Revocation of Donation, and the land was
adjudicated to one of Antonio's children, Prospero Dimayuga
(Porting).11 On 8 August 1997, Porting sold the land to Respondent.
The Ruling of the Trial Court
In its 16 December 1999 Decision, the trial court adjudicated the land
in favor of respondent.
The trial court ruled that a juridical person or a corporation could apply
for registration of land provided such entity and its predecessors-in-
interest have possessed the land for 30 years or more. The trial court
ruled that the facts showed that respondent's predecessors-in-interest
possessed the land in the concept of an owner prior to 12 June 1945,
which possession converted the land to private property.
The dispositive portion of the trial court's Decision reads:
WHEREFORE, and upon previous confirmation of the Order of
General Default, the Court hereby adjudicates and decrees Lot 10705-
B, identical to Lot 13637, Cad-424, Sto. Tomas Cadastre, on plan Csd-
04-019741, situated in Barangay of San Bartolome, Municipality of Sto.
Tomas, Province of Batangas, with an area of 564,007 square meters,
in favor of and in the name of T.A.N. Properties, Inc., a domestic
corporation duly organized and existing under Philippine laws with
principal office at 19th Floor, PDCP Bank Building, 8737 Paseo de
Roxas, Makati City.
Once this Decision shall have become final, let the corresponding
decree of registration be issued.
SO ORDERED.12
Petitioner appealed from the trial court's Decision. Petitioner alleged
that the trial court erred in granting the application for registration
absent clear evidence that the applicant and its predecessors-in-
interest have complied with the period of possession and occupation
as required by law. Petitioner alleged that the testimonies of
Evangelista and Torres are general in nature. Considering the area
involved, petitioner argued that additional witnesses should have been
presented to corroborate Evangelista's testimony.
The Ruling of the Court of Appeals
In its 21 August 2002 Decision, the Court of Appeals affirmed in
toto the trial court's Decision.
The Court of Appeals ruled that Evangelista's knowledge of the
possession and occupation of the land stemmed not only from the fact
that he worked there for three years but also because he and
Kabesang Puroy were practically neighbors. On Evangelista's failure to
mention the name of his uncle who continuously worked on the land,
the Court of Appeals ruled that Evangelista should not be faulted as he
was not asked to name his uncle when he testified. The Court of
Appeals also ruled that at the outset, Evangelista disclaimed
knowledge of Fortunato's relation to Kabesang Puroy, but this did not
affect Evangelista's statement that Fortunato took over the possession
and cultivation of the land after Kabesang Puroy's death. The Court of
Appeals further ruled that the events regarding the acquisition and
disposition of the land became public knowledge because San
Bartolome was a small community. On the matter of additional
witnesses, the Court of Appeals ruled that petitioner failed to cite any
law requiring the corroboration of the sole witness' testimony.
The Court of Appeals further ruled that Torres was a competent
witness since he was only testifying on the fact that he had caused the
filing of the application for registration and that respondent acquired the
land from Porting.
Petitioner comes to this Court assailing the Court of Appeals' Decision.
Petitioner raises the following grounds in its Memorandum:
The Court of Appeals erred on a question of law in allowing the grant of
title to applicant corporation despite the following:
1. Absence of showing that it or its predecessors-in-interest had open,
continuous, exclusive, and notorious possession and occupation in the
concept of an owner since 12 June 1945 or earlier; andcralawlibrary
2. Disqualification of applicant corporation to acquire the subject tract
of land.13
The Issues
The issues may be summarized as follows:
1. Whether the land is alienable and disposable;
2. Whether respondent or its predecessors-in-interest had open,
continuous, exclusive, and notorious possession and occupation of the
land in the concept of an owner since June 1945 or earlier;
andcralawlibrary
3. Whether respondent is qualified to apply for registration of the land
under the Public Land Act.
The Ruling of this Court
The petition has merit.
Respondent Failed to Prove
that the Land is Alienable and Disposable
Petitioner argues that anyone who applies for registration has the
burden of overcoming the presumption that the land forms part of the
public domain. Petitioner insists that respondent failed to prove that the
land is no longer part of the public domain.
The well-entrenched rule is that all lands not appearing to be clearly of
private dominion presumably belong to the State.14 The onus to
overturn, by incontrovertible evidence, the presumption that the land
subject of an application for registration is alienable and disposable
rests with the applicant.15
In this case, respondent submitted two certifications issued by the
Department of Environment and Natural Resources (DENR). The 3
June 1997 Certification by the Community Environment and Natural
Resources Offices (CENRO), Batangas City,16certified that "lot 10705,
Cad-424, Sto. Tomas Cadastre situated at Barangay San Bartolome,
Sto. Tomas, Batangas with an area of 596,116 square meters falls
within the ALIENABLE AND DISPOSABLE ZONE under Project No.
30, Land Classification Map No. 582 certified [on] 31 December 1925."
The second certification17 in the form of a memorandum to the trial
court, which was issued by the Regional Technical Director, Forest
Management Services of the DENR (FMS-DENR), stated "that the
subject area falls within an alienable and disposable land, Project No.
30 of Sto. Tomas, Batangas certified on Dec. 31, 1925 per LC No.
582."
The certifications are not sufficient. DENR Administrative Order (DAO)
No. 20,18 dated 30 May 1988, delineated the functions and authorities
of the offices within the DENR. Under DAO No. 20, series of 1988, the
CENRO issues certificates of land classification status for areas below
50 hectares. The Provincial Environment and Natural Resources
Offices (PENRO) issues certificate of land classification status for
lands covering over 50 hectares. DAO No. 38,19 dated 19 April 1990,
amended DAO No. 20, series of 1988. DAO No. 38, series of 1990
retained the authority of the CENRO to issue certificates of land
classification status for areas below 50 hectares, as well as the
authority of the PENRO to issue certificates of land classification status
for lands covering over 50 hectares.20 In this case, respondent applied
for registration of Lot 10705-B. The area covered by Lot 10705-B is
over 50 hectares (564,007 square meters). The CENRO certificate
covered the entire Lot 10705 with an area of 596,116 square meters
which, as per DAO No. 38, series of 1990, is beyond the authority of
the CENRO to certify as alienable and disposable.
The Regional Technical Director, FMS-DENR, has no authority under
DAO Nos. 20 and 38 to issue certificates of land classification. Under
DAO No. 20, the Regional Technical Director, FMS-DENR:
53
1. Issues original and renewal of ordinary minor products (OM) permits
except rattan;
2. Approves renewal of resaw/mini-sawmill permits;
3. Approves renewal of special use permits covering over five hectares
for public infrastructure projects; andcralawlibrary
4. Issues renewal of certificates of registration for logs, poles, piles,
and lumber dealers.
Under DAO No. 38, the Regional Technical Director, FMS-DENR:
1. Issues original and renewal of ordinary minor [products] (OM)
permits except rattan;
2. Issues renewal of certificate of registration for logs, poles, and piles
and lumber dealers;
3. Approves renewal of resaw/mini-sawmill permits;
4. Issues public gratuitous permits for 20 to 50 cubic meters within
calamity declared areas for public infrastructure projects;
andcralawlibrary
5. Approves original and renewal of special use permits covering over
five hectares for public infrastructure projects.
Hence, the certification issued by the Regional Technical Director,
FMS-DENR, in the form of a memorandum to the trial court, has no
probative value.
Further, it is not enough for the PENRO or CENRO to certify that a
land is alienable and disposable. The applicant for land registration
must prove that the DENR Secretary had approved the land
classification and released the land of the public domain as alienable
and disposable, and that the land subject of the application for
registration falls within the approved area per verification through
survey by the PENRO or CENRO. In addition, the applicant for land
registration must present a copy of the original classification approved
by the DENR Secretary and certified as a true copy by the legal
custodian of the official records. These facts must be established to
prove that the land is alienable and disposable. Respondent failed to
do so because the certifications presented by respondent do not, by
themselves, prove that the land is alienable and disposable.
Only Torres, respondent's Operations Manager, identified the
certifications submitted by respondent. The government officials who
issued the certifications were not presented before the trial court to
testify on their contents. The trial court should not have accepted the
contents of the certifications as proof of the facts stated therein. Even if
the certifications are presumed duly issued and admissible in evidence,
they have no probative value in establishing that the land is alienable
and disposable.
Public documents are defined under Section 19, Rule 132 of the
Revised Rules on Evidence as follows:
(a) The written official acts, or records of the official acts of the
sovereign authority, official bodies and tribunals, and public officers,
whether of the Philippines, or of a foreign country;
(b) Documents acknowledged before a notary public except last wills
and testaments; andcralawlibrary
(c) Public records, kept in the Philippines, of private documents
required by law to be entered therein.
Applying Section 24 of Rule 132, the record of public documents
referred to in Section 19(a), when admissible for any purpose, may be
evidenced by an official publication thereof or by a copy attested by
the officer having legal custody of the record, or by his deputy x x
x. The CENRO is not the official repository or legal custodian of the
issuances of the DENR Secretary declaring public lands as alienable
and disposable. The CENRO should have attached an official
publication21 of the DENR Secretary's issuance declaring the land
alienable and disposable.
Section 23, Rule 132 of the Revised Rules on Evidence provides:
Sec. 23. Public documents as evidence. Documents consisting of
entries in public records made in the performance of a duty by a public
officer are prima facieevidence of the facts stated therein. All other
public documents are evidence, even against a third person, of the fact
which gave rise to their execution and of the date of the latter.
The CENRO and Regional Technical Director, FMS-DENR,
certifications do not fall within the class of public documents
contemplated in the first sentence of Section 23 of Rule 132. The
certifications do not reflect "entries in public records made in the
performance of a duty by a public officer," such as entries made by the
Civil Registrar22 in the books of registries, or by a ship captain in the
ship's logbook.23 The certifications are not the certified copies or
authenticated reproductions of original official records in the legal
custody of a government office. The certifications are not even records
of public documents.24 The certifications are conclusions unsupported
by adequate proof, and thus have no probative value.25 Certainly, the
certifications cannot be considered prima facieevidence of the facts
stated therein.
The CENRO and Regional Technical Director, FMS-DENR,
certifications do not prove that Lot 10705-B falls within the alienable
and disposable land as proclaimed by the DENR Secretary. Such
government certifications do not, by their mere issuance, prove the
facts stated therein.26 Such government certifications may fall under
the class of documents contemplated in the second sentence of
Section 23 of Rule 132. As such, the certifications are prima
facie evidence of their due execution and date of issuance but they do
not constitute prima facie evidence of the facts stated therein.
The Court has also ruled that a document or writing admitted as part of
the testimony of a witness does not constitute proof of the facts stated
therein.27 Here, Torres, a private individual and respondent's
representative, identified the certifications but the government officials
who issued the certifications did not testify on the contents of the
certifications. As such, the certifications cannot be given probative
value.28 The contents of the certifications are hearsay because Torres
was incompetent to testify on the veracity of the contents of the
certifications.29 Torres did not prepare the certifications, he was not an
officer of CENRO or FMS-DENR, and he did not conduct any
verification survey whether the land falls within the area classified by
the DENR Secretary as alienable and disposable.
Petitioner also points out the discrepancy as to when the land allegedly
became alienable and disposable. The DENR Secretary certified that
based on Land Classification Map No. 582, the land became alienable
and disposable on 31 December 1925. However, the certificate on the
blue print plan states that it became alienable and disposable on 31
December 1985.
We agree with petitioner that while the certifications submitted by
respondent show that under the Land Classification Map No. 582, the
land became alienable and disposable on 31 December 1925, the blue
print plan states that it became alienable and disposable on 31
December 1985. Respondent alleged that "the blue print plan merely
serves to prove the precise location and the metes and bounds of the
land described therein x x x and does not in any way certify the nature
and classification of the land involved."30 It is true that the notation by a
surveyor-geodetic engineer on the survey plan that the land formed
part of the alienable and disposable land of the public domain is not
sufficient proof of the land's classification.31 However, respondent
should have at least presented proof that would explain the
discrepancy in the dates of classification. Marquez, LRA Records
Officer II, testified that the documents submitted to the court consisting
of the tracing cloth plan, the technical description of Lot 10705-B, the
approved subdivision plan, and the Geodetic Engineer's certification
were faithful reproductions of the original documents in the LRA office.
He did not explain the discrepancy in the dates. Neither was the
Geodetic Engineer presented to explain why the date of classification
on the blue print plan was different from the other certifications
submitted by Respondent.
There was No Open, Continuous, Exclusive, and Notorious
Possession and Occupation in the Concept of an Owner
Petitioner alleges that the trial court's reliance on the testimonies of
Evangelista and Torres was misplaced. Petitioner alleges that
Evangelista's statement that the possession of respondent's
predecessors-in-interest was open, public, continuous, peaceful, and
adverse to the whole world was a general conclusion of law rather than
factual evidence of possession of title. Petitioner alleges that
respondent failed to establish that its predecessors-in-interest had held
the land openly, continuously, and exclusively for at least 30 years
after it was declared alienable and disposable.
We agree with petitioner.
Evangelista testified that Kabesang Puroy had been in possession of
the land before 1945. Yet, Evangelista only worked on the land for
three years. Evangelista testified that his family owned a lot near
Kabesang Puroy's land. The Court of Appeals took note of this and
ruled that Evangelista's knowledge of Kabesang Puroy's possession of
the land stemmed "not only from the fact that he had worked thereat
but more so that they were practically neighbors."32 The Court of
Appeals observed:
In a small community such as that of San Bartolome, Sto. Tomas,
Batangas, it is not difficult to understand that people in the said
community knows each and everyone. And, because of such familiarity
with each other, news or events regarding the acquisition or disposition
for that matter, of a vast tract of land spreads like wildfire, thus, the
reason why such an event became of public knowledge to them.33
54
Evangelista testified that Kabesang Puroy was succeeded by
Fortunato. However, he admitted that he did not know the exact
relationship between Kabesang Puroy and Fortunato, which is rather
unusual for neighbors in a small community. He did not also know the
relationship between Fortunato and Porting. In fact, Evangelista's
testimony is contrary to the factual finding of the trial court that
Kabesang Puroy was succeeded by his son Antonio, not by Fortunato
who was one of Antonio's children. Antonio was not even mentioned in
Evangelista's testimony.
The Court of Appeals ruled that there is no law that requires that the
testimony of a single witness needs corroboration. However, in this
case, we find Evangelista's uncorroborated testimony insufficient to
prove that respondent's predecessors-in-interest had been in
possession of the land in the concept of an owner for more than 30
years. We cannot consider the testimony of Torres as sufficient
corroboration. Torres testified primarily on the fact of respondent's
acquisition of the land. While he claimed to be related to the
Dimayugas, his knowledge of their possession of the land was
hearsay. He did not even tell the trial court where he obtained his
information.
The tax declarations presented were only for the years starting 1955.
While tax declarations are not conclusive evidence of ownership, they
constitute proof of claim of ownership.34 Respondent did not present
any credible explanation why the realty taxes were only paid starting
1955 considering the claim that the Dimayugas were allegedly in
possession of the land before 1945. The payment of the realty taxes
starting 1955 gives rise to the presumption that the Dimayugas claimed
ownership or possession of the land only in that year.
Land Application by a Corporation
Petitioner asserts that respondent, a private corporation, cannot apply
for registration of the land of the public domain in this case.
We agree with petitioner.
Section 3, Article XII of the 1987 Constitution provides:
Sec. 3. Lands of the public domain are classified into agricultural,
forest or timber, mineral lands, and national parks. Agricultural lands of
the public domain may be further classified by law according to the
uses to which they may be devoted. Alienable lands of the public
domain shall be limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the public domain
except by lease, for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and not to exceed one
thousand hectares in area. Citizens of the Philippines may lease not
more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead or grant.
Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the
Congress shall determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or leased and the
conditions therefor.
The 1987 Constitution absolutely prohibits private corporations from
acquiring any kind of alienable land of the public domain. In Chavez v.
Public Estates Authority,35 the Court traced the law on disposition of
lands of the public domain. Under the 1935 Constitution, there was no
prohibition against private corporations from acquiring agricultural land.
The 1973 Constitution limited the alienation of lands of the public
domain to individuals who were citizens of the Philippines. Under the
1973 Constitution, private corporations, even if wholly owned by
Filipino citizens, were no longer allowed to acquire alienable lands of
the public domain. The present 1987 Constitution continues the
prohibition against private corporations from acquiring any kind of
alienable land of the public domain.36 The Court explained in Chavez:
The 1987 Constitution continues the State policy in the 1973
Constitution banning private corporations from acquiring any kind of
alienable land of the public domain. Like the 1973 Constitution, the
1987 Constitution allows private corporations to hold alienable lands of
the public domain only through lease. x x x x
[I]f the constitutional intent is to prevent huge landholdings, the
Constitution could have simply limited the size of alienable lands of the
public domain that corporations could acquire. The Constitution could
have followed the limitations on individuals, who could acquire not
more than 24 hectares of alienable lands of the public domain under
the 1973 Constitution, and not more than 12 hectares under the 1987
Constitution.
If the constitutional intent is to encourage economic family-size farms,
placing the land in the name of a corporation would be more effective
in preventing the break-up of farmlands. If the farmland is registered in
the name of a corporation, upon the death of the owner, his heirs
would inherit shares in the corporation instead of subdivided parcels of
the farmland. This would prevent the continuing break-up of farmlands
into smaller and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional
limitation on individuals from acquiring more than the allowed area of
alienable lands of the public domain. Without the constitutional ban,
individuals who already acquired the maximum area of alienable lands
of the public domain could easily set up corporations to acquire more
alienable public lands. An individual could own as many corporations
as his means would allow him. An individual could even hide his
ownership of a corporation by putting his nominees as stockholders of
the corporation. The corporation is a convenient vehicle to circumvent
the constitutional limitation on acquisition by individuals of alienable
lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to
transfer ownership of only a limited area of alienable land of the public
domain to a qualified individual. This constitutional intent is
safeguarded by the provision prohibiting corporations from acquiring
alienable lands of the public domain, since the vehicle to circumvent
the constitutional intent is removed. The available alienable public
lands are gradually decreasing in the face of an ever-growing
population. The most effective way to insure faithful adherence to this
constitutional intent is to grant or sell alienable lands of the public
domain only to individuals. This, it would seem, is the practical benefit
arising from the constitutional ban.37
In Director of Lands v. IAC,38 the Court allowed the land registration
proceeding filed by Acme Plywood & Veneer Co., Inc. (Acme) for five
parcels of land with an area of 481,390 square meters, or 48.139
hectares, which Acme acquired from members of the Dumagat tribe.
The issue in that case was whether the title could be confirmed in favor
of Acme when the proceeding was instituted after the effectivity of the
1973 Constitution which prohibited private corporations or associations
from holding alienable lands of the public domain except by lease not
to exceed 1,000 hectares. The Court ruled that the land was already
private land when Acme acquired it from its owners in 1962, and
thus Acme acquired a registrable title. Under the 1935 Constitution,
private corporations could acquire public agricultural lands not
exceeding 1,024 hectares while individuals could acquire not more
than 144 hectares.39
In Director of Lands, the Court further ruled that open, exclusive, and
undisputed possession of alienable land for the period prescribed by
law created 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. The
Court ruled:
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 that the possessor(s)
"x x x shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a
certificate of title x x x." 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 effected by operation of law from the moment the required
period of possession became complete.
x x x [A]lienable public land held by a possessor, personally or through
his predecessors-in-interest, openly, continuously and exclusively for
the prescribed statutory period of (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. x x x.40 (Emphasis supplied)cralawlibrary
Director of Lands is not applicable to the present case. In Director of
Lands, the "land x x x was already private property at the time it
was acquired x x x by Acme." In this case, respondent acquired the
land on 8 August 1997 from Porting, who, along with his predecessors-
in-interest, has not shown to have been, as of that date, in open,
continuous, and adverse possession of the land for 30 years since 12
June 1945. In short, when respondent acquired the land from Porting,
the land was not yet private property.
For Director of Lands to apply and enable a corporation to file for
registration of alienable and disposable land, the corporation must
have acquired the land when its transferor had already a vested right to
a judicial confirmation of title to the land by virtue of his open,
continuous and adverse possession of the land in the concept of an
owner for at least 30 years since 12 June 1945. Thus, in Natividad v.
Court of Appeals,41 the Court declared:
Under the facts of this case and pursuant to the above rulings, the
parcels of land in question had already been converted to private
ownership through acquisitive prescription by the predecessors-in-
interest of TCMC when the latter purchased them in 1979. All that was
55
needed was the confirmation of the titles of the previous owners or
predecessors-in-interest of TCMC.
Being already private land when TCMC bought them in 1979, the
prohibition in the 1973 Constitution against corporations acquiring
alienable lands of the public domain except through lease (Article XIV,
Section 11, 1973 Constitution) did not apply to them for they were no
longer alienable lands of the public domain but private property.
What is determinative for the doctrine in Director of Lands to apply is
for the corporate applicant for land registration to establish that when it
acquired the land, the same was already private land by operation of
law because the statutory acquisitive prescriptive period of 30 years
had already lapsed. The length of possession of the land by the
corporation cannot be tacked on to complete the statutory 30 years
acquisitive prescriptive period. Only an individual can avail of such
acquisitive prescription since both the 1973 and 1987 Constitutions
prohibit corporations from acquiring lands of the public domain.
Admittedly, a corporation can at present still apply for original
registration of land under the doctrine in Director of Lands. Republic
Act No. 917642 (RA 9176) further amended the Public Land Act43 and
extended the period for the filing of applications for judicial confirmation
of imperfect and incomplete titles to alienable and disposable lands of
the public domain until 31 December 2020. Thus:
Sec. 2. Section 47, Chapter VIII of the same Act, as amended, is
hereby further amended to read as follows:
Sec. 47. The persons specified in the next following section are hereby
granted time, not to extend beyond December 31, 2020 within which to
avail of the benefits of this Chapter: Provided, That this period shall
apply only where the area applied for does not exceed twelve (12)
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.
Sec. 3. All pending applications filed before the effectivity of this
amendatory Act shall be treated as having been filed in accordance
with the provisions of this Act.
Under RA 9176, the application for judicial confirmation is limited only
to 12 hectares, consistent with Section 3, Article XII of the 1987
Constitution that a private individual may only acquire not more than 12
hectares of alienable and disposable land. Hence, respondent, as
successor-in-interest of an individual owner of the land, cannot apply
for registration of land in excess of 12 hectares. Since respondent
applied for 56.4007 hectares, the application for the excess area of
44.4007 hectares is contrary to law, and thus void ab initio. In applying
for land registration, a private corporation cannot have any right higher
than its predecessor-in-interest from whom it derived its right. This
assumes, of course, that the corporation acquired the land, not
exceeding 12 hectares, when the land had already become private
land by operation of law. In the present case, respondent has failed to
prove that any portion of the land was already private land when
respondent acquired it from Porting in 1997.
WHEREFORE, we SET ASIDE the 21 August 2002 Decision of the
Court of Appeals in CA-G.R. CV No. 66658 and the 16 December 1999
Decision of the Regional Trial Court of Tanauan, Batangas, Branch 6 in
Land Registration Case No. T-635. We DENY the application for
registration filed by T.A.N. Properties, Inc.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 178158 December 4, 2009
STRATEGIC ALLIANCE DEVELOPMENT
CORPORATION, Petitioner,
vs.
RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION,Respondents.
ASIAVEST MERCHANT BANKERS BERHAD, Intervenor.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180428
LUIS SISON, Petitioner,
vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION and
RADSTOCK SECURITIES LIMITED,Respondents.
DECISION
CARPIO, J.:
Prologue
This case is an anatomy of a ₱6.185 billion1 pillage of the public coffers
that ranks among one of the most brazen and hideous in the history of
this country. This case answers the questions why our Government
perennially runs out of funds to provide basic services to our people,
why the great masses of the Filipino people wallow in poverty, and why
a very select few amass unimaginable wealth at the expense of the
Filipino people.
On 1 May 2007, the 30-year old franchise of Philippine National
Construction Corporation (PNCC) under Presidential Decree No. 1113
(PD 1113), as amended by Presidential Decree No. 1894 (PD 1894),
expired. During the 13th Congress, PNCC sought to extend its
franchise. PNCC won approval from the House of Representatives,
which passed House Bill No. 57492 renewing PNCC’s franchise for
another 25 years. However, PNCC failed to secure approval from the
Senate, dooming the extension of PNCC’s franchise. Led by Senator
Franklin M. Drilon, the Senate opposed PNCC’s plea for extension of
its franchise.3 Senator Drilon’s privilege speech4 explains why the
Senate chose not to renew PNCC’s franchise:
I repeat, Mr. President. PNCC has agreed in a compromise agreement
dated 17 August 2006 to transfer to Radstock Securities Limited
₱17,676,063,922, no small money, Mr. President, my dear colleagues,
₱17.6 billion.
What does it consist of? It consists of the following: 19 pieces of real
estate properties with an appraised value of ₱5,993,689,000. Do we
know what is the bulk of this? An almost 13-hectare property right here
in the Financial Center. As we leave the Senate, as we go out of this
Hall, as we drive thru past the GSIS, we will see on the right a vacant
lot, that is PNCC property. As we turn right on Diosdado Macapagal,
we see on our right new buildings, these are all PNCC properties. That
is 12.9 hectares of valuable asset right in this Financial Center that is
worth ₱5,993,689.000.
What else, Mr. President? The 20% of the outstanding capital stock of
PNCC with a par value of ₱2,300,000,000-- I repeat, 20% of the
outstanding capital stock of PNCC worth ₱2,300 billion-- was assigned
to Radstock.
In addition, Mr. President and my dear colleagues, please hold on to
your seats because part of the agreement is 50% of PNCC’s 6% share
in the gross toll revenue of the Manila North Tollways Corporation for
27 years, from 2008 to 2035, is being assigned to Radstock. How
much is this worth? It is worth ₱9,382,374,922. I repeat,
₱9,382,374,922.
xxxx
Mr. President, ₱17,676,000,000, however, was made to appear in the
agreement to be only worth ₱6,196,156,488. How was this achieved?
How was an aggregate amount of ₱17,676,000,000 made to appear to
be only ₱6,196,156,488? First, the 19 pieces of real estate worth
₱5,993,689,000 were only assigned a value of ₱4,195,000,000 or only
70% of their appraised value.
Second, the PNCC shares of stock with a par value of ₱2.3 billion were
marked to market and therefore were valued only at ₱713 million.
Third, the share of the toll revenue assigned was given a net present
value of only ₱1,287,000,000 because of a 15% discounted rate that
was applied.
In other words, Mr. President, the toll collection of ₱9,382,374,922 for
27 years was given a net present value of only ₱1,287,000,000 so that
it is made to appear that the compromise agreement is only worth
₱6,196,000,000.
Mr. President, my dear colleagues, this agreement will substantially
wipe out all the assets of PNCC. It will be left with nothing else except,
probably, the collection for the next 25 years or so from the North
Luzon Expressway. This agreement brought PNCC to the cleaners and
literally cleaned the PNCC of all its assets. They brought PNCC to the
cleaners and cleaned it to the tune of ₱17,676,000,000.
xxxx
Mr. President, are we not entitled, as members of the Committee, to
know who is Radstock Securities Limited?
56
Radstock Securities Limited was allegedly incorporated under the laws
of the British Virgin Islands. It has no known board of directors, except
for its recently appointed attorney-in-fact, Mr. Carlos Dominguez.
Mr. President, are the members of the Committee not entitled to know
why 20 years after the account to Marubeni Corporation, which gave
rise to the compromise agreement 20 years after the obligation was
allegedly incurred, PNCC suddenly recognized this obligation in its
books when in fact this obligation was not found in its books for 20
years?
In other words, Mr. President, for 20 years, the financial statements of
PNCC did not show any obligation to Marubeni, much less, to
Radstock. Why suddenly on October 20, 2000, ₱10 billion in obligation
was recognized? Why was it recognized?
During the hearing on December 18, Mr. President, we asked this
question to the Asset Privatization Trust (APT) trustee, Atty. Raymundo
Francisco, and he was asked: "What is the basis of your
recommendation to recognize this?" He said: "I based my
recommendation on a legal opinion of Feria and Feria." I asked him:
"Who knew of this opinion?" He said: "Only me and the chairman of
PNCC, Atty. Renato Valdecantos." I asked him: "Did you share this
opinion with the members of the board who recognized the obligation
of ₱10 billion?" He said: "No." "Can you produce this opinion now?" He
said: "I have no copy."
Mysteriously, Mr. President, an obligation of ₱10 billion based on a
legal opinion which, even Mr. Arthur Aguilar, the chairman of PNCC, is
not aware of, none of the members of the PNCC board on October 20,
2000 who recognized this obligation had seen this opinion. It is
mysterious.
Mr. President, are the members of our Committee not entitled to know
why Radstock Securities Limited is given preference over all other
creditors notwithstanding the fact that this is an unsecured obligation?
There is no mortgage to secure this obligation.
More importantly, Mr. President, equally recognized is the obligation of
PNCC to the Philippine government to the tune of ₱36 billion. PNCC
owes the Philippine government ₱36 billion recognized in its books,
apart from ₱3 billion in taxes. Why in the face of all of these is
Radstock given preference? Why is it that Radstock is given
preference to claim ₱17.676 billion of the assets of PNCC and give it
superior status over the claim of the Philippine government, of the
Filipino people to the extent of ₱36 billion and taxes in the amount of
P3 billion? Why, Mr. President? Why is Radstock given preference not
only over the Philippine government claims of ₱39 billion but also over
other creditors including a certain best merchant banker in Asia, which
has already a final and executory judgment against PNCC for about
₱300 million? Why, Mr. President? Are we not entitled to know why the
compromise agreement assigned ₱17.676 billion to Radstock? Why
was it executed?5 (Emphasis supplied)
Aside from Senator Drilon, Senator Sergio S. Osmeña III also saw
irregularities in the transactions involving the Marubeni loans, thus:
SEN. OSMEÑA. Ah okay. Good.
Now, I'd like to point out to the Committee that – it seems that this was
a politically driven deal like IMPSA. Because the acceptance of the 10
billion or 13 billion debt came in October 2000 and the Radstock
assignment was January 10, 2001. Now, why would Marubeni sell for
$2 million three months after there was a recognition that it was owed
₱10 billion. Can you explain that, Mr. Dominguez?
MR. DOMINGUEZ. Your Honor, I am not aware of the decision making
process of Marubeni. But my understanding was, the Japanese culture
is not a litigious one and they didn't want to get into a, you know, a
court situation here in the Philippines having a lot of other interest, et
cetera.
SEN. OSMEÑA. Well, but that is beside the point, Mr. Dominguez. All I
am asking is does it stand to reason that after you get an acceptance
by a debtor that he owes you 10 billion, you sell your note for 100
million.
Now, if that had happened a year before, maybe I would have
understood why he sold for such a low amount. But right after, it seems
that this was part of an orchestrated deal wherein with certain powerful
interest would be able to say, "Yes, we will push through. We'll fix the
courts. We'll fix the board. We'll fix the APT. And we will be able to do
it, just give us 55 percent of whatever is recovered," am I correct?
MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the
decision making process of Marubeni. But my understanding was, as I
said, they didn't want to get into a …
SEN. OSMEÑA. All right.
MR. DOMINGUEZ. ...litigious situation.6
xxxx
SEN. OSMEÑA. All of these financial things can be arranged. They
can hire a local bank, Filipino, to be trustee for the real estate. So ...
SEN. DRILON. Well, then, that’s a dummy relationship.
SEN. OSMEÑA. In any case, to me the main point here is that a third
party, Radstock, whoever owns it, bought Marubeni’s right for $2
million or ₱100 million. Then, they are able to go through all these legal
machinations and get awarded with the consent of PNCC of 6 billion.
That’s a 100 million to 6 billion. Now, Mr. Aguilar, you have been in the
business for such a long time. I mean, this hedge funds whether it’s
Radstock or New Bridge or Texas Pacific Group or Carlyle or Avenue
Capital, they look at their returns. So if Avenue Capital buys something
for $2 million and you give him $4 million in one year, it’s a 100 percent
return. They’ll walk away and dance to their stockholders. So here in
this particular case, if you know that Radstock only bought it for $2
million, I would have gotten board approval and say, "Okay, let’s settle
this for $4 million." And Radstock would have jumped up and down. So
what looks to me is that this was already a scheme. Marubeni wrote it
off already. Marubeni wrote everything off. They just got a $2 million
and they probably have no more residual rights or maybe there’s a
clause there, a secret clause, that says, "I want 20 percent of whatever
you’re able to eventually collect." So $2 million. But whatever it is,
Marubeni practically wrote it off. Radstock’s liability now or exposure is
only $2 million plus all the lawyer fees, under-the-table, etcetera. All
right. Okay. So it’s pretty obvious to me that if anybody were using his
brain, I would have gone up to Radstock and say, "Here’s $4 million.
Here’s P200 million. Okay." They would have walked away. But
evidently, the "ninongs" of Radstock – See, I don’t care who owns
Radstock. I want to know who is the ninong here who stands to make a
lot of money by being able to get to courts, the government agencies,
OGCC, or whoever else has been involved in this, to agree to 6 billion
or whatever it was. That’s a lot of money. And believe me, Radstock
will probably get one or two billion and four billion will go into
somebody else’s pocket. Or Radstock will turn around, sell that claim
for ₱4 billion and let the new guy just collect the payments over the
years.
x x x x7
SEN. OSMEÑA. x x x I just wanted to know is CDCP Mining a 100
percent subsidiary of PNCC?
MR. AGUILAR. Hindi ho. Ah, no.
SEN. OSMEÑA. If they’re not a 100 percent, why would they sign
jointly and severally? I just want to plug the loopholes.
MR. AGUILAR. I think it was – if I may just speculate. It was just
common ownership at that time.
SEN. OSMEÑA. Al right. Now – Also, the ...
MR. AGUILAR. Ah, 13 percent daw, Your Honor.
SEN. OSMEÑA. Huh?
MR. AGUILAR. Thirteen percent ho.
SEN. OSMEÑA. What’s 13 percent?
MR. AGUILAR. We owned ...
xxxx
SEN. OSMEÑA. x x x CDCP Mining, how many percent of the equity of
CDCP Mining was owned by PNCC, formerly CDCP?
MS. PASETES. Thirteen percent.
SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed to
sign jointly and severally?
MS. PASETES. Yes.
SEN. OSMEÑA. One-three? So poor PNCC and CDCP got taken to
the cleaners here. They sign for a 100 percent and they only own 13
percent.
x x x x8 (Emphasis supplied)
I.
The Case
57
Before this Court are the consolidated petitions for review9 filed by
Strategic Alliance Development Corporation (STRADEC) and Luis
Sison (Sison), with a motion for intervention filed by Asiavest Merchant
Bankers Berhad (Asiavest), challenging the validity of the Compromise
Agreement between PNCC and Radstock. The Court of Appeals
approved the Compromise Agreement in its Decision of 25 January
200710 in CA-G.R. CV No. 87971.
II.
The Antecedents
PNCC was incorporated in 1966 for a term of fifty years under the
Corporation Code with the name Construction Development
Corporation of the Philippines (CDCP).11 PD 1113, issued on 31 March
1977, granted CDCP a 30-year franchise to construct, operate and
maintain toll facilities in the North and South Luzon Tollways. PD 1894,
issued on 22 December 1983, amended PD 1113 to include in CDCP’s
franchise the Metro Manila Expressway, which would "serve as an
additional artery in the transportation of trade and commerce in the
Metro Manila area."
Sometime between 1978 and 1981, Basay Mining Corporation (Basay
Mining), an affiliate of CDCP, obtained loans from Marubeni
Corporation of Japan (Marubeni) amounting to 5,460,000,000 yen and
US$5 million. A CDCP official issued letters of guarantee for the loans,
committing CDCP to pay solidarily for the full amount of the
5,460,000,000 yen loan and to the extent of ₱20 million for the US$5
million loan. However, there was no CDCP Board Resolution
authorizing the issuance of the letters of guarantee. Later, Basay
Mining changed its name to CDCP Mining Corporation (CDCP Mining).
CDCP Mining secured the Marubeni loans when CDCP and CDCP
Mining were still privately owned and managed.
Subsequently in 1983, CDCP changed its corporate name to PNCC to
reflect the extent of the Government's equity investment in the
company, which arose when government financial institutions
converted their loans to PNCC into equity following PNCC’s inability to
pay the loans.12 Various government financial institutions held a total of
seventy-seven point forty-eight percent (77.48%) of PNCC’s voting
equity, most of which were later transferred to the Asset Privatization
Trust (APT) under Administrative Orders No. 14 and 64, series of 1987
and 1988, respectively.13 Also, the Presidential Commission on Good
Government holds some 13.82% of PNCC’s voting equity under a writ
of sequestration and through the voluntary surrender of certain PNCC
shares. In fine, the Government owns 90.3% of the equity of PNCC
and only 9.70% of PNCC’s voting equity is under private ownership.14
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On
20 October 2000, during the short-lived Estrada Administration, the
PNCC Board of Directors15 (PNCC Board) passed Board Resolution
No. BD-092-2000 admitting PNCC’s liability to Marubeni for
₱10,743,103,388 as of 30 September 1999. PNCC Board Resolution
No. BD-092-2000 reads as follows:
RESOLUTION NO. BD-092-2000
RESOLVED, That the Board recognizes, acknowledges and confirms
PNCC’s obligations as of September 30, 1999 with the following
entities, exclusive of the interests and other charges that may
subsequently accrue and still become due therein, to wit:
a). the Government of the Republic of the Philippines in the
amount of ₱36,023,784,751.00; and
b). Marubeni Corporation in the amount of
₱10,743,103,388.00. (Emphasis supplied)
This was the first PNCC Board Resolution admitting PNCC’s liability for
the Marubeni loans. Previously, for two decades the PNCC Board
consistently refused to admit any liability for the Marubeni loans.
Less than two months later, or on 22 November 2000, the PNCC
Board passed Board Resolution No. BD-099-2000 amending Board
Resolution No. BD-092-2000. PNCC Board Resolution No. BD-099-
2000 reads as follows:
RESOLUTION NO. BD-099-2000
RESOLVED, That the Board hereby amends its Resolution No. BD-
092-2000 dated October 20, 2000 so as to read as follows:
RESOLVED, That the Board recognizes, acknowledges and confirms
its obligations as of September 30, 1999 with the following entities,
exclusive of the interests and other charges that may subsequently
accrue and still due thereon, subject to the final determination by the
Commission on Audit (COA) of the amount of obligation involved, and
subject further to the declaration of the legality of said obligations by
the Office of the Government Corporate Counsel (OGCC), to wit:
a). the Government of the Republic of the Philippines in the
amount of ₱36,023,784,751.00; and
 b). Marubeni Corporation in the amount of
₱10,743,103,388.00. (Emphasis supplied)
In January 2001, barely three months after the PNCC Board first
admitted liability for the Marubeni loans, Marubeni assigned its entire
credit to Radstock for US$2 million or less than ₱100 million. In short,
Radstock paid Marubeni less than 10% of the ₱10.743 billion admitted
amount. Radstock immediately sent a notice and demand letter to
PNCC.
On 15 January 2001, Radstock filed an action for collection and
damages against PNCC before the Regional Trial Court of
Mandaluyong City, Branch 213 (trial court). In its order of 23 January
2001, the trial court issued a writ of preliminary attachment against
PNCC. The trial court ordered PNCC’s bank accounts garnished and
several of its real properties attached. On 14 February 2001, PNCC
moved to set aside the 23 January 2001 Order and to discharge the
writ of attachment. PNCC also filed a motion to dismiss the case. The
trial court denied both motions. PNCC filed motions for reconsideration,
which the trial court also denied. PNCC filed a petition for certiorari
before the Court of Appeals, docketed as CA-G.R. SP No. 66654,
assailing the denial of the motion to dismiss. On 30 August 2002, the
Court of Appeals denied PNCC’s petition. PNCC filed a motion for
reconsideration, which the Court of Appeals also denied in its 22
January 2003 Resolution. PNCC filed a petition for review before this
Court, docketed as G.R. No. 156887.
Meanwhile, on 19 June 2001, at the start of the Arroyo Administration,
the PNCC Board, under a new President and Chairman, revoked
Board Resolution No. BD-099-2000.
The trial court continued to hear the main case. On 10 December
2002, the trial court ruled in favor of Radstock, as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and the defendant is directed to pay the total
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred
Fifty Six thousand Five Hundred Twenty Eight Pesos
(₱13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (₱10,000,000.00) as attorney’s fees.
SO ORDERED.16
PNCC appealed the trial court’s decision to the Court of Appeals,
docketed as CA-G.R. CV No. 87971.
On 19 March 2003, this Court issued a temporary restraining order in
G.R. No. 156887 forbidding the trial court from implementing the writ of
preliminary attachment and ordering the suspension of the proceedings
before the trial court and the Court of Appeals. In its 3 October 2005
Decision, this Court ruled as follows:
WHEREFORE, the petition is partly GRANTED and insofar as the
Motion to Set Aside the Order and/or Discharge the Writ of Attachment
is concerned, the Decision of the Court of Appeals on August 30, 2002
and its Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are
REVERSED and SET ASIDE. The attachments over the properties by
the writ of preliminary attachment are hereby ordered LIFTED effective
upon the finality of this Decision. The Decision and Resolution of the
Court of Appeals are AFFIRMED in all other respects. The Temporary
Restraining Order is DISSOLVED immediately and the Court of
Appeals is directed to PROCEED forthwith with the appeal filed by
PNCC.
No costs.
SO ORDERED.17
On 17 August 2006, PNCC and Radstock entered into the
Compromise Agreement where they agreed to reduce PNCC’s liability
to Radstock, supposedly from ₱17,040,843,968, to ₱6,185,000,000.
PNCC and Radstock submitted the Compromise Agreement to this
Court for approval. In a Resolution dated 4 December 2006 in G.R. No.
156887, this Court referred the Compromise Agreement to the
Commission on Audit (COA) for comment. The COA recommended
approval of the Compromise Agreement. In a Resolution dated 22
November 2006, this Court noted the Compromise Agreement and
referred it to the Court of Appeals in CA-G.R. CV No. 87971. In its 25
January 2007 Decision, the Court of Appeals approved the
Compromise Agreement.
STRADEC moved for reconsideration of the 25 January 2007 Decision.
STRADEC alleged that it has a claim against PNCC as a bidder of the
National Government’s shares, receivables, securities and interests in
PNCC. The matter is subject of a complaint filed by STRADEC against
PNCC and the Privatization and Management Office (PMO) for the
issuance of a Notice of Award of Sale to Dong-A Consortium of which
STRADEC is a partner. The case, docketed as Civil Case No. 05-882,
is pending before the Regional Trial Court of Makati, Branch 146 (RTC
Branch 146).
58
The Court of Appeals treated STRADEC’s motion for reconsideration
as a motion for intervention and denied it in its 31 May 2007
Resolution. STRADEC filed a petition for review before this Court,
docketed as G.R. No. 178158.
Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President
and Board Chairman, filed an intervention before the Court of Appeals.
Cuenca alleged that PNCC had no obligation to pay Radstock. The
Court of Appeals also denied Cuenca’s motion for intervention in its
Resolution of 31 May 2007. Cuenca did not appeal the denial of his
motion.
On 2 July 2007, this Court issued an order directing PNCC and
Radstock, their officers, agents, representatives, and other persons
under their control, to maintain the status quo ante.
Meanwhile, on 20 February 2007, Sison, also a stockholder and former
PNCC President and Board Chairman, filed a Petition for Annulment of
Judgment Approving Compromise Agreement before the Court of
Appeals. The case was docketed as CA-G.R. SP No. 97982.
Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for
Leave to Intervene and to File the Attached Opposition and Motion-in-
Intervention before the Court of Appeals in CA-G.R. SP No. 97982.
In a Resolution dated 12 June 2007, the Court of Appeals dismissed
Sison’s petition on the ground that it had no jurisdiction to annul a final
and executory judgment also rendered by the Court of Appeals. In the
same resolution, the Court of Appeals also denied Asiavest’s urgent
motion.
Asiavest filed its Urgent Motion for Leave to Intervene and to File the
Attached Opposition and Motion-in-Intervention in G.R. No. 178158.18
Sison filed a motion for reconsideration. In its 5 November 2007
Resolution, the Court of Appeals denied Sison’s motion.
On 26 November 2007, Sison filed a petition for review before this
Court, docketed as G.R. No. 180428.
In a Resolution dated 18 February 2008, this Court consolidated G.R.
Nos. 178158 and 180428.
On 13 January 2009, the Court held oral arguments on the following
issues:
1. Does the Compromise Agreement violate public policy?
2. Does the subject matter involve an assumption by the
government of a private entity’s obligation in violation of the
law and/or the Constitution? Is the PNCC Board Resolution
of 20 October 2000 defective or illegal?
3. Is the Compromise Agreement viable in the light of the
non-renewal of PNCC’s franchise by Congress and its
inclusion of all or substantially all of PNCC’s assets?
4. Is the Decision of the Court of Appeals annullable even if
final and executory on grounds of fraud and violation of
public policy and the Constitution?
III.
Propriety of Actions
The Court of Appeals denied STRADEC’s motion for intervention on
the ground that the motion was filed only after the Court of Appeals
and the trial court had promulgated their respective decisions.
Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:
SECTION 2. Time to intervene.– The motion to intervene may be filed
at any time before rendition of judgment by the trial court. A copy of the
pleading-in-intervention shall be attached to the motion and served on
the original parties.
The rule is not absolute. The rule on intervention, like all other rules of
procedure, is intended to make the powers of the Court completely
available for justice.19 It is aimed to facilitate a comprehensive
adjudication of rival claims, overriding technicalities on the timeliness of
the filing of the claims.20 This Court has ruled:
[A]llowance or disallowance of a motion for intervention rests on the
sound discretion of the court after consideration of the appropriate
circumstances. Rule 19 of the Rules of Court is a rule of procedure
whose object is to make the powers of the court fully and completely
available for justice. Its purpose is not to hinder or delay but to facilitate
and promote the administration of justice. Thus, interventions have
been allowed even beyond the prescribed period in the Rule in the
higher interest of justice. Interventions have been granted to afford
indispensable parties, who have not been impleaded, the right to be
heard even after a decision has been rendered by the trial court, when
the petition for review of the judgment was already submitted for
decision before the Supreme Court, and even where the assailed order
has already become final and executory. In Lim v. Pacquing (310 Phil.
722 (1995)], the motion for intervention filed by the Republic of the
Philippines was allowed by this Court to avoid grave injustice and injury
and to settle once and for all the substantive issues raised by the
parties.21
In Collado v. Court of Appeals,22 this Court reiterated that exceptions to
Section 2, Rule 12 could be made in the interest of substantial justice.
Citing Mago v. Court of Appeals,23 the Court stated:
It is quite clear and patent that the motions for intervention filed by the
movants at this stage of the proceedings where trial had already been
concluded x x x and on appeal x x x the same affirmed by the Court of
Appeals and the instant petition for certiorari to review said judgments
is already submitted for decision by the Supreme Court, are obviously
and, manifestly late, beyond the period prescribed under x x x Section
2, Rule 12 of the Rules of Court.
But Rule 12 of the Rules of Court, like all other Rules therein
promulgated, is simply a rule of procedure, the whole purpose and
object of which is to make the powers of the Court fully and completely
available for justice. The purpose of procedure is not to thwart justice.
Its proper aim is to facilitate the application of justice to the rival claims
of contending parties. It was created not to hinder and delay but to
facilitate and promote the administration of justice. It does not
constitute the thing itself which courts are always striving to secure to
litigants. It is designed as the means best adopted to obtain that thing.
In other words, it is a means to an end.
Concededly, STRADEC has no legal interest in the subject matter of
the Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of
Civil Procedure states:
SECTION 1. Who may intervene. - A person who has a legal interest in
the matter in litigation, or in the success of either of the parties, or an
interest against both, or is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or
of an officer thereof may, with leave of court, be allowed to intervene in
the action. The Court shall consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original
parties, and whether or not the intervenor’s rights may be fully
protected in a separate proceeding.
STRADEC’s interest is dependent on the outcome of Civil Case No.
05-882. Unless STRADEC can show that RTC Branch 146 had already
decided in its favor, its legal interest is simply contingent and
expectant.
However, Asiavest has a direct and material interest in the approval or
disapproval of the Compromise Agreement. Asiavest is a judgment
creditor of PNCC in G.R. No. 110263 and a court has already issued a
writ of execution in its favor. Asiavest’s interest is actual and material,
direct and immediate characterized by either gain or loss from the
judgment that this Court may render.24 Considering that the
Compromise Agreement involves the disposition of all or substantially
all of the assets of PNCC, Asiavest, as PNCC’s judgment creditor, will
be greatly prejudiced if the Compromise Agreement is eventually
upheld.
Sison has legal standing to challenge the Compromise Agreement.
Although there was no allegation that Sison filed the case as a
derivative suit in the name of PNCC, it could be fairly deduced that
Sison was assailing the Compromise Agreement as a stockholder of
PNCC. In such a situation, a stockholder of PNCC can sue on behalf of
PNCC to annul the Compromise Agreement.
A derivative action is a suit by a stockholder to enforce a corporate
cause of action.25 Under the Corporation Code, where a corporation is
an injured party, its power to sue is lodged with its board of directors or
trustees.26 However, an individual stockholder may file a derivative suit
on behalf of the corporation to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones
to be sued, or hold control of the corporation.27 In such actions, the
corporation is the real party-in-interest while the suing stockholder, on
behalf of the corporation, is only a nominal party.28
In this case, the PNCC Board cannot conceivably be expected to
attack the validity of the Compromise Agreement since the PNCC
Board itself approved the Compromise Agreement. In fact, the PNCC
Board steadfastly defends the Compromise Agreement for allegedly
being advantageous to PNCC.
Besides, the circumstances in this case are peculiar. Sison, as former
PNCC President and Chairman of the PNCC Board, was responsible
for the approval of the Board Resolution issued on 19 June 2001
revoking the previous Board Resolution admitting PNCC’s liability for
the Marubeni loans.29 Such revocation, however, came after Radstock
had filed an action for collection and damages against PNCC on 15
59
January 2001. Then, when the trial court rendered its decision on 10
December 2002 in favor of Radstock, Sison was no longer the PNCC
President and Chairman, although he remains a stockholder of PNCC.
When the case was on appeal before the Court of Appeals, there was
no need for Sison to avail of any remedy, until PNCC and Radstock
entered into the Compromise Agreement, which disposed of all or
substantially all of PNCC’s assets. Sison came to know of the
Compromise Agreement only in December 2006. PNCC and Radstock
submitted the Compromise Agreement to the Court of Appeals for
approval on 10 January 2007. The Court of Appeals approved the
Compromise Agreement on 25 January 2007. To require Sison at this
stage to exhaust all the remedies within the corporation will render
such remedies useless as the Compromise Agreement had already
been approved by the Court of Appeals. PNCC’s assets are in danger
of being dissipated in favor of a private foreign corporation. Thus,
Sison had no recourse but to avail of an extraordinary remedy to
protect PNCC’s assets.
Besides, in the interest of substantial justice and for compelling
reasons, such as the nature and importance of the issues raised in this
case,30 this Court must take cognizance of Sison’s action. This Court
should exercise its prerogative to set aside technicalities in the Rules,
because after all, the power of this Court to suspend its own rules
whenever the interest of justice requires is well recognized.31 In
Solicitor General v. The Metropolitan Manila Authority,32 this Court
held:
Unquestionably, the Court has the power to suspend procedural rules
in the exercise of its inherent power, as expressly recognized in the
Constitution, to promulgate rules concerning ‘pleading, practice and
procedure in all courts.’ In proper cases, procedural rules may be
relaxed or suspended in the interest of substantial justice, which
otherwise may be miscarried because of a rigid and formalistic
adherence to such rules. x x x
We have made similar rulings in other cases, thus:
Be it remembered that rules of procedure are but mere tools designed
to facilitate the attainment of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate rather than
promote substantial justice, must always be avoided. x x x Time and
again, this Court has suspended its own rules and excepted a
particular case from their operation whenever the higher interests of
justice so require.
IV.
The PNCC Board Acted in Bad Faith and with Gross Negligence
in Directing the Affairs of PNCC
In this jurisdiction, the members of the board of directors have a three-
fold duty: duty of obedience, duty of diligence, and duty of
loyalty.33 Accordingly, the members of the board of directors (1) shall
direct the affairs of the corporation only in accordance with the
purposes for which it was organized;34 (2) shall not willfully and
knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or with gross negligence in
directing the affairs of the corporation;35 and (3) shall not acquire
any personal or pecuniary interest in conflict with their duty as such
directors or trustees.36
In the present case, the PNCC Board blatantly violated its duty of
diligence as it miserably failed to act in good faith in handling the affairs
of PNCC.
First. For almost two decades, the PNCC Board had consistently
refused to admit liability for the Marubeni loans because of the
absence of a PNCC Board resolution authorizing the issuance of the
letters of guarantee.
There is no dispute that between 1978 and 1980, Marubeni
Corporation extended two loans to Basay Mining (later renamed CDCP
Mining): (1) US$5 million to finance the purchase of copper
concentrates by Basay Mining; and (2) Y5.46 billion to finance the
completion of the expansion project of Basay Mining including working
capital.
There is also no dispute that it was only on 20 October 2000 when the
PNCC Board approved a resolution expressly admitting PNCC’s
liability for the Marubeni loans. This was the first Board Resolution
admitting liability for the Marubeni loans, for PNCC never admitted
liability for these debts in the past. Even Radstock admitted that
PNCC’s 1994 Financial Statements did not reflect the Marubeni
loans.37 Also, former PNCC Chairman Arthur Aguilar stated during the
Senate hearings that "the Marubeni claim was never in the balance
sheet x x x nor was it in a contingent account."38 Miriam M. Pasetes,
SVP Finance of PNCC, and Atty. Herman R. Cimafranca of the Office
of the Government Corporate Counsel, confirmed this fact, thus:
SEN. DRILON. x x x And so, PNCC itself did not recognize this as an
obligation but the board suddenly recognized it as an obligation. It was
on that basis that the case was filed, is that correct? In fact, the case
hinges on – they knew that this claim has prescribed but because of
that board resolution which recognized the obligation they filed their
complaint, is that correct?
MR. CIMAFRANCA. Apparently, it's like that, Senator, because the
filing of the case came after the acknowledgement.
SEN. DRILON. Yes. In fact, the filing of the case came three months
after the acknowledgement.
MR. CIMAFRANCA. Yes. And that made it difficult to handle on our
part.
SEN. DRILON. That is correct. So, that it was an obligation which
was not recognized in the financial statements of PNCC but
revived – in the financial statements because it has prescribed
but revived by the board effectively. That's the theory, at least, of
the plaintiff. Is that correct? Who can answer that?
Ms. Pasetes, yes.
MS. PASETES. It is not an obligation of PNCC that is why it is not
reflected in the financial statements.39 (Emphasis supplied)
In short, after two decades of consistently refuting its liability for the
Marubeni loans, the PNCC Board suddenly and inexplicably reversed
itself by admitting in October 2000 liability for the Marubeni loans. Just
three months after the PNCC Board recognized the Marubeni loans,
Radstock acquired Marubeni's receivable and filed the present
collection case.
Second. The PNCC Board admitted liability for the Marubeni loans
despite PNCC’s total liabilities far exceeding its assets. There is no
dispute that the Marubeni loans, once recognized, would wipe out the
assets of PNCC, "virtually emptying the coffers of the PNCC."40 While
PNCC insists that it remains financially viable, the figures in the COA
Audit Reports tell otherwise.41 For 2006 and 2005, "the Corporation
has incurred negative gross margin of ₱84.531 Million and
₱80.180 Million, respectively, and net losses that had
accumulated in a deficit of ₱14.823 Billion as of 31 December
2006."42 The COA even opined that "unless [PNCC] Management
addresses the issue on net losses in its financial rehabilitation
plan, x x x the Corporation may not be able to continue its
operations as a going concern."
Notably, during the oral arguments before this Court, the Government
Corporate Counsel admitted the PNCC’s huge negative net worth,
thus:
JUSTICE CARPIO
x x x what is the net worth now of PNCC? Negative what? Negative 6
Billion at least[?]
ATTY. AGRA
43
Yes, your Honor. (Emphasis supplied)
Clearly, the PNCC Board’s admission of liability for the Marubeni loans,
given PNCC’s huge negative net worth of at least ₱6 billion as
admitted by PNCC’s counsel, or ₱14.823 billion based on the 2006
COA Audit Report, would leave PNCC an empty shell, without any
assets to pay its biggest creditor, the National Government with an
admitted receivable of ₱36 billion from PNCC.
Third. In a debilitating self-inflicted injury, the PNCC Board revived
what appeared to have been a dead claim by abandoning one of
PNCC’s strong defenses, which is the prescription of the action to
collect the Marubeni loans.
Settled is the rule that actions prescribe by the mere lapse of time fixed
by law.44 Under Article 1144 of the Civil Code, an action upon a written
contract, such as a loan contract, must be brought within ten years
from the time the right of action accrues. The prescription of such an
action is interrupted when the action is filed before the court, when
there is a written extrajudicial demand by the creditor, or when there is
any written acknowledgment of the debt by the debtor. 45
In this case, Basay Mining obtained the Marubeni loans sometime
between 1978 and 1981. While Radstock claims that numerous
demand letters were sent to PNCC, based on the records, the
extrajudicial demands to pay the loans appear to have been made only
in 1984 and 1986. Meanwhile, the written acknowledgment of the debt,
in the form of Board Resolution No. BD-092-2000, was issued only on
20 October 2000.
Thus, more than ten years would have already lapsed between
Marubeni’s extrajudicial demands in 1984 and 1986 and the
60
acknowledgment by the PNCC Board of the Marubeni loans in 2000.
However, the PNCC Board suddenly passed Board Resolution No. BD-
092-2000 expressly admitting liability for the Marubeni loans. In short,
the PNCC Board admitted liability for the Marubeni loans despite the
fact that the same might no longer be judicially collectible. Although the
legal advantage was obviously on its side, the PNCC Board threw in
the towel even before the fight could begin. During the Senate
hearings, the matter of prescription was discussed, thus:
SEN. DRILON. ... the prescription period is 10 years and there were no
payments – the last demands were made, when? The last demands for
payment?
MS. OGAN. It was made January 2001 prior to the filing of the case.
SEN. DRILON. Yes, all right. Before that, when was the last demand
made? By the time they filed the complaint more than 10 years already
lapsed.
MS. OGAN. On record, Mr. Chairman, we have demands starting from
- - a series of demands which started from May 23, 1984, letter from
Marubeni to PNCC, demand payment. And we also have the letter of
September 3, 1986, letter of Marubeni to then PNCC Chair Mr. Jaime.
We have the June 24, 1986 letter from Marubeni to the PNCC
Chairman. Also the March 4, 1988 letter...
SEN. DRILON. The March 4, 1988 letter is not a demand letter.
MS. OGAN. It is exactly addressed to the Asset Privatization Trust.
SEN. DRILON. It is not a demand letter? Okay.
MS. OGAN. And we have also...
SEN. DRILON. Anyway...
THE CHAIRMAN. Please answer when you are asked, Ms. Ogan. We
want to put it on the record whether it is "yes" or "no".
MS. OGAN. Yes, sir.
SEN. DRILON. So, even assuming that all of those were demand
letters, the 10 years prescription set in and it should have prescribed in
1998, whatever is the date, or before the case was filed in 2001.
MR. CIMAFRANCA. The 10-year period for – if the contract is written,
it's 10 years and it should have prescribed in 10 years and we did raise
that in our answer, in our motion to dismiss.
SEN. DRILON. I know. You raised this in your motion to dismiss and
you raised this in your answer. Now, we are not saying that you were
negligent in not raising that. What we are just putting on the record that
indeed there is basis to argue that these claims have prescribed.
Now, the reason why there was a colorable basis on the complaint filed
in 2001 was that somehow the board of PNCC recognized the
obligation in a special board meeting on October 20, 2000. Hindi ba
ganoon 'yon?
MS. OGAN. Yes, that is correct.
SEN. DRILON. Why did the PNCC recognize this obligation in 2000
when it was very clear that at that point more than 10 years have
lapsed since the last demand letter?
MR. AGUILAR. May I volunteer an answer?
SEN. DRILON. Please.
MR. AGUILAR. I looked into that, Mr. Chairman, Your Honor. It was as
a result of and I go to the folder letter "N." In our own demand research
it was not period, Your Honor, that Punongbayan in the big folder, sir,
letter "N" it was the period where PMO was selling PNCC and
Punongbayan and Araullo Law Office came out with an investment
brochure that indicated liabilities both to national government and to
Marubeni/Radstock. So, PMO said, "For good order, can you PNCC
board confirm that by board resolution?" That's the tone of the letter.
SEN. DRILON. Confirm what? Confirm the liabilities that are contained
in the Punongbayan investment prospectus both to the national
government and to PNCC. That is the reason at least from the record,
Your Honor, how the PNCC board got to deliberate on the Marubeni.
THE CHAIRMAN. What paragraph? Second to the last paragraph?
MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong – that"s to our
recollection, in the records, that was the reason.
SEN. DRILON. Is that the only reason why ...
MR. AGUILAR. From just the records, Mr. Chairman, and then
interviews with people who are still around.
SEN. DRILON. You mean, you acknowledged a prescribed obligation
because of this paragraph?
MR. AGUILAR. I don’t know what legal advice we were following at
that time, Mr. Chairman.46 (Emphasis supplied)
Besides prescription, the Office of the Government Corporate Counsel
(OGCC) originally believed that PNCC had another formidable legal
weapon against Radstock, that is, the lack of authority of Alfredo
Asuncion, then Executive Vice-President of PNCC, to sign the letter of
guarantee on behalf of CDCP. During the Senate hearings, the
following exchange reveals the OGCC’s original opinion:
THE CHAIRMAN. What was the opinion of the Office of the
Government Corporate Counsel?
MS. OGAN. The opinion of the Office of the Government Corporate
Counsel is that PNCC should exhaust all means to resist the case
using all defenses available to a guarantee and a surety that there is a
valid ground for PNCC's refusal to honor or make good the alleged
guarantee obligation. It appearing that from the documents submitted
to the OGCC that there is no board authority in favor or authorizing Mr.
Asuncion, then EVP, to sign or execute the letter of guarantee in behalf
of CDCP and that said letter of guarantee is not legally binding upon or
enforceable against CDCP as principals, your Honors. 47
xxxx
SEN. DRILON. Now that we have read this, what was the opinion of
the Government Corporate Counsel, Mr. Cimafranca?
MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the
request of PNCC and our opinion was that there was no valid
obligation, no valid guarantee. And we incorporated that in our
pleadings in court.48 (Emphasis supplied)
Clearly, PNCC had strong defenses against the collection suit filed by
Radstock, as originally opined by the OGCC. It is quite puzzling,
therefore, that the PNCC Board, which had solid grounds to refute the
legitimacy of the Marubeni loans, admitted its liability and entered into
a Compromise Agreement that is manifestly and grossly prejudicial to
PNCC.
Fourth. The basis for the admission of liability for the Marubeni loans,
which was an opinion of the Feria Law Office, was not even shown to
the PNCC Board.
Atty. Raymundo Francisco, the APT trustee overseeing the proposed
privatization of PNCC at the time, was responsible for recommending
to the PNCC Board the admission of PNCC’s liability for the Marubeni
loans. Atty. Francisco based his recommendation solely on a mere
alleged opinion of the Feria Law Office. Atty. Francisco did not bother
to show this "Feria opinion" to the members of the PNCC Board,
except to Atty. Renato Valdecantos, who as the then PNCC Chairman
did not also show the "Feria opinion" to the other PNCC Board
members. During the Senate hearings, Atty. Francisco could not
produce a copy of the "Feria opinion." The Senators grilled Atty.
Francisco on his recommendation to recognize PNCC’s liability for the
Marubeni loans, thus:
THE CHAIRMAN. x x x You were the one who wrote this letter or
rather this memorandum dated 17 October 2000 to Atty. Valdecantos.
Can you tell us the background why you wrote the letter acknowledging
a debt which is non-existent?
MR. FRANCISCO. I was appointed as the trustee in charge of the
privatization of the PNCC at that time, sir. And I was tasked to do a
study and engage the services of financial advisors as well as legal
advisors to do a legal audit and financial study on the position of
PNCC. I bidded out these engagements, the financial advisership went
to Punongbayan and Araullo. The legal audit went to the Feria Law
Offices.
THE CHAIRMAN. Spell it. Boy Feria?
MR. FRANCISCO. Feria-- Feria.
THE CHAIRMAN. Lugto?
61
MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings of
the Feria Law Office – that the Marubeni account was a legal
obligation.
So, I presented this to our board. Based on the findings of the legal
audit conducted by the Ferial Law Offices, sir.
THE CHAIRMAN. Why did you not ask the government corporate
counsel? Why did you have to ask for the opinion of an outside
counsel?
MR. FRANCISCO. That was the – that was the mandate given to us,
sir, that we have to engage the ...
THE CHAIRMAN. Mandate given by whom?
MR. FRANCISCO. That is what we usually do, sir, in the APT.
THE CHAIRMAN. Ah, you get outside counsel?
MR. FRANCISCO. Yes, we...
THE CHAIRMAN. Not necessarily the government corporate counsel?
MR. FRANCISCO. No, sir.
THE CHAIRMAN. So, on the basis of the opinion of outside counsel,
private, you proceeded to, in effect, recognize an obligation which is
not even entered in the books of the PNCC? You probably resuscitated
a non-existing obligation anymore?
MR. FRANCISCO. Sir, I just based my recommendation on the
professional findings of the law office that we engaged, sir.
THE CHAIRMAN. Did you not ask for the opinion of the government
corporate counsel?
MR. FRANCISCO. No, sir.
THE CHAIRMAN. Why?
MR. FRANCISCO. I felt that the engagements of the law office was
sufficient, anyway we were going to raise it to the Committee on
Privatization for their approval or disapproval, sir.
THE CHAIRMAN. The COP?
MR. FRANCISCO. Yes, sir.
THE CHAIRMAN. That’s a cabinet level?
MR. FRANCISCO. Yes, sir. And we did that, sir.
THE CHAIRMAN. Now... So you sent your memo to Atty. Renato B.
Valdecantos, who unfortunately is not here but I think we have to get
his response to this. And as part of the minutes of special meeting with
the board of directors on October 20, 2000, the board resolved in its
Board Resolution No. 092-2000, the board resolved to recognize,
acknowledge and confirm PNCC’s obligations as of September 30,
1999, etcetera, etcetera. (A), or rather (B), Marubeni Corporation in the
amount of ₱10,740,000.
Now, we asked to be here because the franchise of PNCC is hanging
in a balance because of the – on the questions on this
acknowledgement. So we want to be educated.
Now, the paper trail starts with your letter. So, that’s it – that’s my
kuwan, Frank.
Yes, Senator Drilon.
SEN. DRILON. Thank you, Mr. Chairman.
Yes, Atty. Francisco, you have a copy of the minutes of October 20,
2000?
MR. FRANCISCO. I’m sorry, sir, we don’t have a copy.
SEN. DRILON. May we ask the corporate secretary of PNCC to
provide us with a copy?
Okay naman andiyan siya.
(Ms. Ogan handing the document to Mr. Francisco.) Anyway, just of record, the Punongbayan representatives here
yesterday said that they never made such representation.
You have familiarized yourselves with the minutes, Atty. Francisco?
In any case, now you’re saying it’s the Feria Law Office who rendered
that opinion? Can we – you know, yesterday we were asking for a copy
MR. FRANCISCO. Yes, sir.
of this opinion but we were never furnished one. The ... no less than
the Chairman of this Committee was asking for a copy.
SEN. DRILON. Now, mention is made of a memorandum here on line
8, page 3 of this board’s minutes. It says, "Director Francisco has
THE CHAIRMAN. Well, copy of the opinion...
prepared a memorandum requesting confirmation, acknowledgement,
and ratification of this indebtedness of PNCC to the national
government which was determined by Bureau of Treasury as of MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this
September 30, 1999 is 36,023,784,751. And with respect to PNCC’s opinion because it’s opinion rendered for the Asset Privatization Trust
obligation to Marubeni, this has been determined to be in the total which is its client, not the PNCC, Mr. Chairman.
amount of 10,743,103,388, also as of September 30, 1999; that there
is need to ratify this because there has already been a representation
THE CHAIRMAN. All right. The question is whether – but you see, this
made with respect to the review of the financial records of PNCC by
is a memorandum of Atty. Francisco to the Chairman of the Asset
Punongbayan and Araullo, which have been included as part of the
Privatization Trust. You say now that you were never furnished a copy
package of APT’s disposition to the national government’s interest in
because that’s supposed to be with the Asset ...
PNCC."

MS. OGAN. Yes, Mr. Chairman.

You recall having made this representation as found in the minutes, I
assume, Atty. Francisco?
THE CHAIRMAN. ... but yet the action of – or rather the opinion of the
Feria Law Offices was in effect adopted by the board of directors of
MR. FRANCISCO. Yes, sir. But I’d like to be refreshed on the
PNCC in its minutes of October 20, 2000 where you are the corporate
memorandum, sir, because I don’t have a copy.
secretary, Ms. Ogan.

SEN. DRILON. Yes, this memorandum was cited earlier by Senator

MS. OGAN. Yes, Mr. Chairman.
Arroyo, and maybe the secretary can give him a copy? Give him a
copy?
THE CHAIRMAN. So, what I am saying is that this opinion or rather the
opinion of the Feria Law Offices of which you don’t have a copy?
MS. OGAN. (Handing the document to Mr. Francisco.)

MS. OGAN. Yes, sir.

MR. FRANCISCO. Your Honor, I have here a memorandum to the
PNCC board through Atty. Valdecantos, which says that – in the last
paragraph, if I may read? "May we request therefore, that a board
resolution be adopted, acknowledging and confirming the
aforementioned PNCC obligations with the national government and
Marubeni as borne out by the due diligence audit."
SEN. DRILON. This is the memorandum referred to in these minutes.
This memorandum dated 17 October 2000 is the memorandum
referred to in the minutes.
MR. FRANCISCO. I would assume, Mr. Chairman.
SEN. DRILON. Right.
Now, the Punongbayan representative who was here yesterday, Mr...
THE CHAIRMAN. Navarro.
SEN. DRILON. ... Navarro denied that he made this recommendation.
THE CHAIRMAN. And the reason being that, it does not concern the
PNCC because that’s an opinion rendered for APT and not for the
PNCC.
MS. OGAN. Yes, Mr. Chairman, that was what we were told although
we made several requests to the APT, sir.
THE CHAIRMAN. All right. Now, since it was for the APT and not for
the PNCC, I ask the question why did PNCC adopt it? That was not for
the consumption of PNCC. It was for the consumption of the Asset
Privatization Trust. And that is what Atty. Francisco says and it’s
confirmed by you saying that this was a memo – you don’t have a copy
because this was sought for by APT and the Feria Law Offices just
provided an opinion – provided the APT with an opinion. So, as
corporate secretary, the board of directors of PNCC adopted it,
recognized the Marubeni Corporation.
You read the minutes of the October 20, 2000 meeting of the board of
directors on Item V. The resolution speaks of .. so, go ahead.

MS. OGAN. I gave my copies. Yes, sir.

THE CHAIRMAN. He asked for opinion, legal opinion.

THE CHAIRMAN. In effect the Feria Law Offices’ opinion was for the
SEN. DRILON. He said that they never made this representation and
consumption of the APT.
the transcript will bear us out. They said that they never made this
representation that the account of Marubeni should be recognized.
MS. OGAN. That was what we were told, Mr. Chairman.
MR. FRANCISCO. Mr. Chairman, in the memorandum, I only
mentioned here the acknowledgement and confirmation of the PNCC THE CHAIRMAN. And you were not even provided with a copy.
obligations. I was not asking for a ratification. I never mentioned
ratification in the memorandum. I just based my memo based on the
THE CHAIRMAN. Yet you adopted it.
due diligence audit of the Feria Law Offices.

MS. OGAN. Yes, sir.

SEN. DRILON. Can you say that again? You never asked for a
ratification...
SEN DRILON. Considering you were the corporate secretary.
MR. FRANCISCO. No. I never mentioned in my memorandum that I
was asking for a ratification. I was just – in my memo it says, THE CHAIRMAN. She was the corporate secretary.
"acknowledging and confirming the PNCC obligation." This was what ...
SEN. DRILON. She was just recording the minutes.
SEN. DRILON. Isn’t it the same as ratification? I mean, what’s the
difference?
THE CHAIRMAN. Yes, she was recording.

MR. FRANCISCO. I – well, my memorandum was meant really just to

confirm the findings of the legal audit as ... Now, we are asking you now why it was taken up?

SEN. DRILON. In your mind as a lawyer, Atty. Francisco, there’s a
difference between ratification and – what’s your term? --
acknowledgment and confirmation?
MR. FRANCISCO. Well, I guess there’s no difference, Mr. Chairman.
MS. OGAN. Yes, sir, Mr. Chairman, this was mentioned in the
memorandum of Atty. Francisco, memorandum to the board.
SEN. DRILON. Mr. Chairman, Mr. Francisco represented APT in the
board of PNCC. And is that correct, Mr. Francisco?

THE CHAIRMAN. You’re an ex-officio member.

SEN. DRILON. Right.

62
SEN. DRILON. Yes.
MR. FRANCISCO. Ex-officio member only, sir, as trustee in charge of
the privatization of PNCC.
SEN. DRILON. With the permission of Mr. Chair, may I ask a
question...
THE CHAIRMAN. Oh, yes, Senator Drilon.
SEN. DRILON. Atty. Francisco, you sat in the PNCC board as APT
representative, you are a lawyer, there was a legal opinion of Feria,
Feria, Lugto, Lao Law Offices which you cited in your memorandum.
Did you discuss – first, did you give a copy of this opinion to PNCC?
MR. FRANCISCO. I gave a copy of this opinion, sir, to our chairman
who was also a member of the board of PNCC, Mr. Valdecantos, sir.
SEN. DRILON. And because he was...
MR. FRANCISCO. Because he was my immediate boss in the APT.
SEN. DRILON. Apparently, [it] just ended up in the personal
possession of Mr. Valdecantos because the corporate secretary,
Glenda Ogan, who is supposed to be the custodian of the records of
the board never saw a copy of this.
MR. FRANCISCO. Well, sir, my – the copy that I gave was to Mr.
Valdecantos because he was the one sitting in the PNCC board, sir.
SEN. DRILON. No, you sit in the board.
MR. FRANCISCO. I was just an ex-officio member. And all my reports
were coursed through our Chairman, Mr. Valdecantos, sir.
SEN. DRILON. Now, did you ever tell the board that there is a legal
position taken or at least from the documents it is possible that the
claim has prescribed?
MR. FRANCISCO. I took this up in the board meeting of the PNCC at
that time and I told them about this matter, sir.
SEN. DRILON. No, you told them that the claim could have, under the
law, could have prescribed?
MR. FRANCISCO. No, sir.
SEN. DRILON. Why? You mean, you didn’t tell the board that it is
possible that this liability is no longer a valid liability because it has
prescribed?
MR. FRANCISCO. I did not dwell into the findings anymore, sir,
because I found the professional opinion of the Feria Law Office to be
sufficient.49 (Emphasis supplied)
Atty. Francisco’s act of recommending to the PNCC Board the
acknowledgment of the Marubeni loans based only on an opinion of a
private law firm, without consulting the OGCC and without showing this
opinion to the members of the PNCC Board except to Atty.
Valdecantos, reflects how shockingly little his concern was for PNCC,
contrary to his claim that "he only had the interest of PNCC at heart." In
fact, if what was involved was his own money, Atty. Francisco would
have preferred not just two, but at least three different opinions on how
to deal with the matter, and he would have maintained his non-liability.
SEN. OSMEÑA. x x x
All right. And lastly, just to clear our minds, there has always been this
finger-pointing, of course, whenever – this is typical Filipino. When
they're caught in a bind, they always point a finger, they pretend they
don't know. And it just amazes me that you have been appointed
trustees, meaning, representatives of the Filipino people, that's what
you were at APT, right? You were not Erap's representatives, you were
representative of the Filipino people and you were tasked to conserve
the assets that that had been confiscated from various cronies of the
previous administration. And here, you are asked to recognize the P10
billion debt and you point only to one law firm. If you have cancer, don't
you to a second opinion, a second doctor or a third doctor? This is just
a question. I am just asking you for your opinion if you would take the
advice of the first doctor who tells you that he's got to open you up.
MR. FRANCISCO. I would go to three or more doctors, sir.
SEN. OSMEÑA. Three or more. Yeah, that's right. And in this case the
APT did not do so.
63
MR. FRANCISCO. We relied on the findings of the …
SEN. OSMEÑA. If these were your money, would you have gone also
to obtain a second, third opinion from other law firms. Kung pera mo
itong 10 billion na ito. Siguro you're not gonna give it up that easily
ano, 'di ba?
MR. FRANCISCO. Yes, sir.
SEN. OSMEÑA. You'll probably keep it in court for the next 20 years.
x x x x50 (Emphasis supplied)
This is a clear admission by Atty. Francisco of bad faith in directing the
affairs of PNCC - that he would not have recognized the Marubeni
loans if his own funds were involved or if he were the owner of PNCC.
The PNCC Board admitted liability for the ₱10.743 billion Marubeni
loans without seeing, reading or discussing the "Feria opinion" which
was the sole basis for its admission of liability. Such act surely goes
against ordinary human nature, and amounts to gross negligence and
utter bad faith, even bordering on fraud, on the part of the PNCC Board
in directing the affairs of the corporation. Owing loyalty to PNCC and its
stockholders, the PNCC Board should have exercised utmost care and
diligence in admitting a gargantuan debt of ₱10.743 billion that would
certainly force PNCC into insolvency, a debt that previous PNCC
Boards in the last two decades consistently refused to admit.
Instead, the PNCC Board admitted PNCC’s liability for the Marubeni
loans relying solely on a mere opinion of a private law office, which
opinion the PNCC Board members never saw, except for Atty.
Valdecantos and Atty. Francisco. The PNCC Board knew that PNCC,
as a government owned and controlled corporation (GOCC), must rely
"exclusively" on the opinion of the OGCC. Section 1 of Memorandum
Circular No. 9 dated 27 August 1998 issued by the President states:
SECTION 1. All legal matters pertaining to government-owned or
controlled corporations, their subsidiaries, other corporate off-springs
and government acquired asset corporations (GOCCs) shall be
exclusively referred to and handled by the Office of the Government
Corporate Counsel (OGCC). (Emphasis supplied)
The PNCC Board acted in bad faith in relying on the opinion of a
private lawyer knowing that PNCC is required to rely "exclusively" on
the OGCC’s opinion. Worse, the PNCC Board, in admitting liability for
₱10.743 billion, relied on the recommendation of a private lawyer
whose opinion the PNCC Board members have not even seen.
During the oral arguments, Atty. Sison explained to the Court that the
intention of APT was for the PNCC Board merely to disclose the claim
of Marubeni as part of APT's full disclosure policy to prospective
buyers of PNCC. Atty. Sison stated that it was not the intention of APT
for the PNCC Board to admit liability for the Marubeni loans, thus:
x x x It was the Asset Privatization Trust A-P-T that was tasked to sell
the company. The A-P-T, for purposes of disclosure statements,
tasked the Feria Law Office to handle the documentation and the study
of all legal issues that had to be resolved or clarified for the information
of prospective bidders and or buyers. In the performance of its
assigned task the Feria Law Office came upon the Marubeni claim and
mentioned that the APTC and/or PNCC must disclose that there is a
claim by Marubeni against PNCC for purposes of satisfying the
requirements of full disclosure. This seemingly innocent statement or
requirement made by the Feria Law Office was then taken by two
officials of the Asset Privatization Trust and with malice aforethought
turned it into the basis for a multi-billion peso debt by the now
government owned and/or controlled PNCC. x x x.51 (Emphasis
supplied)
While the PNCC Board passed Board Resolution No. BD-099-2000
amending Board Resolution No. BD-092-2000, such amendment
merely added conditions for the recognition of the Marubeni loans,
namely, subjecting the recognition to a final determination by COA of
the amount involved and to the declaration by OGCC of the legality of
PNCC’s liability. However, the PNCC Board reiterated and stood firm
that it "recognizes, acknowledges and confirms its obligations" for the
Marubeni loans. Apparently, Board Resolution No. BD-099-2000 was a
futile attempt to "revoke" Board Resolution No. BD-092-2000. Atty.
Alfredo Laya, Jr., a former PNCC Director, spoke on his protests
against Board Resolution No. BD-092-2000 at the Senate hearings,
thus:
MR. LAYA. Mr. Chairman, if I can …
THE CHAIRMAN. Were you also at the board?
MR. LAYA. At that time, yes, sir.
THE CHAIRMAN. Okay, go ahead.
MR. LAYA. That's why if – maybe this can help clarify the sequence.
There was this meeting on October 20. This matter of the Marubeni
liability or account was also discussed. Mr. Macasaet, if I may try to
refresh. And there was some discussion, sir, and in fact, they were
saying even at that stage that there should be a COA or an OGCC
audit. Now, that was during the discussion of October 20. Later on, the
minutes came out. The practice, then, sir, was for the minutes to come
out at the start of the meeting of the subsequent. So the minutes of
October 20 came out on November 22 and then we were going over it.
And that is in the subsequent minutes of the meeting …
THE CHAIRMAN. May I interrupt. You were taking up in your
November 22 meeting the October 20 minutes?
MR. LAYA. Yes, sir.
THE CHAIRMAN. This minutes that we have?
MR. LAYA. Yes, sir.
THE CHAIRMAN. All right, go ahead.
MR. LAYA. Now, in the November 22 meeting, we noticed this
resolution already for confirmation of the board – proceedings of
October 20. So immediately we made – actually, protest would be a
better term for that – we protested the wording of the resolution and
that's why we came up with this resolution amending the October 20
resolution.
SEN. DRILON. So you are saying, Mr. Laya, that the minutes of
October 20 did not accurately reflect the decisions that you made on
October 20 because you were saying that this recognition should be
subject to OGCC and COA? You seem to imply and we want to make it
– and I want to get that for the record. You seem to imply that there
was no decision to recognize the obligation during that meeting
because you wanted it to subject it to COA and OGCC, is that correct?
MR. LAYA. Yes, your Honor.
SEN. DRILON. So how did...
MR. LAYA. That's my understanding of the proceedings at that time,
that's why in the subsequent November 22 meeting, we raised this
point about obtaining a COA and OGCC opinion.
SEN. DRILON. Yes. But you know, the November 22 meeting repeated
the wording of the resolution previously adopted only now you are
saying subject to final determination which is completely of different
import from what you are saying was your understanding of the
decision arrived at on October 20.
MR. LAYA. Yes, sir. Because our thinking then...
SEN. DRILON. What do you mean, yes, sir?
MR. LAYA. It's just a claim under discussion but then the way it is
translated, as the minutes of October 20 were not really verbatim.
SEN. DRILON. So, you never intended to recognize the obligation.
MR. LAYA. I think so, sir. That was our – personally, that was my
position.
SEN. DRILON. How did it happen, Corporate Secretary Ogan, that the
minutes did not reflect what the board …
THE CHAIRMAN. Ms. Pasetes …
MS. PASETES. Yes, Mr. Chairman.
THE CHAIRMAN. … you are the chief financial officer of PNCC.
MS. PASETES. Your Honor, before that November 22 board meeting,
management headed by Mr. Rolando Macasaet, myself and Atty. Ogan
had a discussion about the recognition of the obligations of 10 billion of
Marubeni and 36 billion of the national government on whether to
recognize this as an obligation in our books or recognize it as an
obligation in the pro forma financial statement to be used for the
privatization of PNCC because recognizing both obligations in the
books of PNCC would defeat our going concern status and that is
where the position of the president then, Mr. Macasaet, stemmed from
and he went back to the board and moved to reconsider the position of
October 20, 2000, Mr. Chair.52 (Emphasis supplied)
In other words, despite Atty. Laya’s objections to PNCC’s admitting
liability for the Marubeni loans, the PNCC Board still admitted the same
64
and merely imposed additional conditions to temper somehow the
devastating effects of Board Resolution No. BD-092-2000.
The act of the PNCC Board in issuing Board Resolution No. BD-092-
2000 expressly admitting liability for the Marubeni loans demonstrates
the PNCC Board’s gross and willful disregard of the requisite care and
diligence in managing the affairs of PNCC, amounting to bad faith and
resulting in grave and irreparable injury to PNCC and its stockholders.
This reckless and treacherous move on the part of the PNCC Board
clearly constitutes a serious breach of its fiduciary duty to PNCC and
its stockholders, rendering the members of the PNCC Board liable
under Section 31 of the Corporation Code, which provides:
SEC. 31. Liability of directors, trustees or officers. -- Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect
of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and must account for the
profits which otherwise would have accrued to the corporation.
Soon after the short-lived Estrada Administration, the PNCC Board
revoked its previous admission of liability for the Marubeni loans.
During the oral arguments, Atty. Sison narrated to the Court:
x x x After President Estrada was ousted, I was appointed as President
and Chairman of PNCC in April of 2001, this particular board resolution
was brought to my attention and I immediately put the matter before
the board. I had no problem in convincing them to reverse the
recognition as it was illegal and had no basis in fact. The vote to
overturn that resolution was unanimous. Strange to say that some who
voted to overturn the recognition were part of the old board that
approved it. Stranger still, Renato Valdecantos who was still a member
of the Board voted in favor of reversing the resolution he himself
instigated and pushed. Some of the board members who voted to
recognize the obligation of Marubeni even came to me privately and
said "pinilit lang kami." x x x.53 (Emphasis supplied)
In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099-
2000, the PNCC Board caused undue injury to the Government and
gave unwarranted benefits to Radstock, through manifest partiality,
evident bad faith or gross inexcusable negligence of the PNCC Board.
Such acts are declared under Section 3(e) of RA 3019 or the Anti-Graft
and Corrupt Practices Act, as "corrupt practices xxx and xxx unlawful."
Being unlawful and criminal acts, these PNCC Board Resolutions are
void ab initio and cannot be implemented or in any way given effect by
the Executive or Judicial branch of the Government.
Not content with forcing PNCC to commit corporate suicide with the
admission of liability for the Marubeni loans under Board Resolution
Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove the last
nail on PNCC’s coffin when the PNCC Board entered into the
manifestly and grossly disadvantageous Compromise Agreement with
Radstock. This time, the OGCC, headed by Agnes DST Devanadera,
reversed itself and recommended approval of the Compromise
Agreement to the PNCC Board. As Atty. Sison explained to the Court
during the oral arguments:
x x x While the case was pending in the Court of Appeals, Radstock in
a rare display of extreme generosity, conveniently convinced the Board
of PNCC to enter into a compromise agreement for ½ the amount of
the judgment rendered by the RTC or ₱6.5 Billion Pesos. This time the
OGCC, under the leadership of now Solicitor General Agnes
Devanadera, approved the compromise agreement abandoning the
previous OGCC position that PNCC had a meritorious case and would
be hard press to lose the case. What is strange is that although the
compromise agreement we seek to stop ostensibly is for ₱6.5 Billion
only, truth and in fact, the agreement agrees to convey to Radstock all
or substantially all of the assets of PNCC worth ₱18 Billion Pesos.
There are three items that are undervalued here, the real estate that
was turned over as a result of the controversial agreement, the toll
revenues that were being assigned and the value of the new shares of
PNCC the difference is about ₱12 Billion Pesos. x x x (Emphasis
supplied)
V.
The Compromise Agreement is Void
for Being Contrary to the Constitution,
Existing Laws, and Public Policy
For a better understanding of the present case, the pertinent terms and
conditions of the Compromise Agreement between PNCC and
Radstock are quoted below:
COMPROMISE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement made and entered into this 17th day of August 2006,
in Mandaluyong City, Metro Manila, Philippines, by and between:
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a
government acquired asset corporation, created and existing under the
laws of the Republic of the Philippines, with principal office address at
EDSA corner Reliance Street, Mandaluyong City, Philippines, duly
represented herein by its Chairman ARTHUR N. AGUILAR, pursuant
to a Board Resolution attached herewith as Annex "A" and made an
integral part hereof, hereinafter referred to as PNCC;
- and -
RADSTOCK SECURITIES LIMITED, a private corporation
incorporated in the British Virgin Islands, with office address at Suite
1402 1 Duddell Street, Central Hongkong duly-represented herein by
its Director, CARLOS G. DOMINGUEZ, pursuant to a Board Resolution
attached herewith as Annex "B" and made an integral part hereof,
hereinafter referred to as RADSTOCK.
WITNESSETH:
(1) PNCC’s rights over that parcel of land located in Pasay
City with a total area of One Hundred Twenty-Nine
Thousand Five Hundred Forty-Eight (129,548) square
meters, more or less, and which is covered by and more
particularly described in Transfer Certificate of Title No. T-
34997 of the Registry of Deeds for Pasay City. The transfer
value is ₱3,817,779,000.00.
PNCC’s rights and interests in Transfer Certificate of Title
No. T-34997 of the Registry of Deeds for Pasay City is
defined and delineated by Administrative Order No. 397,
Series of 1998, and RADSTOCK is fully aware and
recognizes that PNCC has an undertaking to cede at least 2
hectares of this property to its creditor, the Philippine
National Bank; and that furthermore, the Government
Service Insurance System has also a current and existing
claim in the nature of boundary conflicts, which undertaking
and claim will not result in the diminution of area or value of
the property. Radstock recognizes and acknowledges the
rights and interests of GSIS over the said property.
(2) T-452587 (T-23646) - Parañaque (5,123 sq. m.) subject
to the clarification of the Privatization and Management
Office (PMO) claims thereon. The transfer value is
₱45,000,900.00.

WHEREAS, on January 15, 2001, RADSTOCK, as assignee of (3) T-49499 (529715 including T-68146-G (S-29716)
Marubeni Corporation, filed a complaint for sum of money and (1,9747-A)-Parañaque (107 sq. m.) (54 sq. m.) subject to the
damages with application for a writ of preliminary attachment with the
clarification of the Privatization and Management Office
Regional Trial Court (RTC), Mandaluyong City, docketed as Civil Case (PMO) claims thereon. The transfer value is ₱1,409,100.00.
No. MC-01-1398, to collect on PNCC’s guarantees on the unpaid loan
obligations of CDCP Mining Corporation as provided under an
Advance Payment Agreement and Loan Agreement; (4) 5-29716-Parañaque (27,762 sq. m.) subject to the
clarification of the Privatization and Management Office
(PMO) claims thereon. The transfer value is
WHEREAS, on December 10, 2002, the RTC of Mandaluyong ₱242,917,500.00.
rendered a decision in favor of plaintiff RADSTOCK directing PNCC to
pay the total amount of Thirteen Billion One Hundred Fifty One Million
Nine Hundred Fifty-Six Thousand Five Hundred Twenty-Eight Pesos (5) P-169 - Tagaytay (49,107 sq. m.). The transfer value is
(₱13,151,956,528.00) with interest from October 15, 2001 plus Ten ₱13,749,400.00.
Million Pesos (₱10,000,000.00) as attorney's fees.
(6) P-170 - Tagaytay (49,100 sq. m.). The transfer value is
WHEREAS, PNCC had elevated the case to the Court of Appeals (CA- ₱13,749,400.00.
G.R. SP No. 66654) on Certiorari and thereafter, to the Supreme Court
(G.R. No. 156887) which Courts have consistently ruled that the RTC
(7) N-3320 - Town and Country Estate, Antipolo (10,000 sq.
did not commit grave abuse of discretion when it denied PNCC’s
m.). The transfer value is ₱16,800,000.00.
Motion to Dismiss which sets forth similar or substantially the same
grounds or defenses as those raised in PNCC's Answer;
(8) N-7424 - Antipolo (840 sq. m.). The transfer value is
₱940,800.00.
WHEREAS, the case has remained pending for almost six (6) years
even after the main action was appealed to the Court of Appeals;
(9) N-7425 - Antipolo (850 sq. m.). The transfer value is
₱952,000.00.
WHEREAS, on the basis of the RTC Decision dated December 10,
2002, the current value of the judgment debt against PNCC stands at
₱17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt"); (10) N-7426 - Antipolo (958 sq. m.). The transfer value is
₱1,073,100.00.
WHEREAS, RADSTOCK is willing to settle the case at the reduced
Compromise Amount of Six Billion One Hundred Ninety-Six Million (11) T-485276 - Antipolo (741 sq. m.). The transfer value is
Pesos (₱6,196,000,000.00) which may be paid by PNCC, either in ₱830,200.00.
cash or in kind to avoid the trouble and inconvenience of further
litigation as a gesture of goodwill and cooperation;
(12) T-485277 - Antipolo (680 sq. m.). The transfer value is
₱761,600.00.
WHEREAS, it is an established legal policy or principle that litigants in
civil cases should be encouraged to compromise or amicably settle
(13) T-485278 - Antipolo (701 sq. m.). The transfer value is
their claims not only to avoid litigation but also to put an end to one
₱785,400.00.
already commenced (Articles 2028 and 2029, Civil Code);

(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945 sq,

WHEREAS, this Compromise Agreement has been approved by the
m.). The transfer value is ₱6,475,000.00.
respective Board of Directors of both PNCC and RADSTOCK, subject
to the approval of the Honorable Court;
(15) T-131501 - Bulacan (678 sq. m.). The transfer value is
₱887,600.00.
NOW, THEREFORE, for and in consideration of the foregoing
premises, and the mutual covenants, stipulations and agreements
herein contained, PNCC and RADSTOCK have agreed to amicably (16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.). The
settle the above captioned Radstock case under the following terms transfer value is ₱3,779,300.00.
and conditions:
(17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.). The
1. RADSTOCK agrees to receive and accept from PNCC in transfer value is ₱974,400.00.
full and complete settlement of the Judgment Debt, the
reduced amount of Six Billion, One Hundred Ninety-Six
Million Pesos (₱6,196,000,000.00) (the "Compromise (18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). The
transfer value is ₱1,517,600.00.
Amount").

2. This Compromise Amount shall be paid by PNCC to (19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan
(20,000 sq. m.). The transfer value is ₱25,200,000.00.
RADSTOCK in the following manner:

a. PNCC shall assign to a third party assignee to be designated by
RADSTOCK all its rights and interests to the following real properties
provided the assignee shall be duly qualified to own real properties in
the Philippines;
The transfer values of the foregoing properties are based on 70% of
the appraised value of the respective properties.
b. PNCC shall issue to RADSTOCK or its assignee common shares of
the capital stock of PNCC issued at par value which shall comprise
20% of the outstanding capital stock of PNCC after the conversion to

65
equity of the debt exposure of the Privatization Management Office
(PMO) and the National Development Company (NDC) and other
government agencies and creditors such that the total government
holdings shall not fall below 70% voting equity subject to the approval
of the Securities and Exchange Commission (SEC) and ratification of
PNCC’s stockholders, if necessary. The assigned value of the shares
issued to RADSTOCK is ₱713 Million based on the approximate last
trading price of PNCC shares in the Philippine Stock Exchange as the
date of this agreement, based further on current generally accepted
accounting standards which stipulates the valuation of shares to be
based on the lower of cost or market value.
Subject to the procurement of any and all necessary approvals from
the relevant governmental authorities, PNCC shall deliver to
RADSTOCK an instrument evidencing an undertaking of the
Privatization and Management Office (PMO) to give RADSTOCK or its
assignee the right to match any offer to buy the shares of the capital
stock and debts of PNCC held by PMO, in the event the same shares
and debt are offered for privatization.
c. PNCC shall assign to RADSTOCK or its assignee 50% of the
PNCC's 6% share in the gross toll revenue of the Manila North
Tollways Corporation (MNTC), with a Net Present Value of ₱1.287
Billion computed in the manner outlined in Annex "C" herein attached
as an integral part hereof, that shall be due and owing to PNCC
pursuant to the Joint Venture Agreement between PNCC and First
Philippine Infrastructure Development Corp. dated August 29, 1995
and other related existing agreements, commencing in 2008. It shall be
understood that as a result of this assignment, PNCC shall charge and
withhold the amounts, if any, pertaining to taxes due on the amounts
assigned.
Under the Compromise Agreement, PNCC shall pay Radstock the
reduced amount of ₱6,185,000,000.00 in full settlement of PNCC’s
guarantee of CDCP Mining’s debt allegedly totaling
₱17,040,843,968.00 as of 31 July 2006. To satisfy its reduced
obligation, PNCC undertakes to (1) "assign to a third party assignee to
be designated by Radstock all its rights and interests" to the listed real
properties therein; (2) issue to Radstock or its assignee common
shares of the capital stock of PNCC issued at par value which shall
comprise 20% of the outstanding capital stock of PNCC; and (3) assign
to Radstock or its assignee 50% of PNCC’s 6% share, for the next 27
years (2008-2035), in the gross toll revenues of the Manila North
Tollways Corporation.
A. The PNCC Board has no power to compromise
the ₱6.185 billion amount.
Does the PNCC Board have the power to compromise the ₱6.185
billion "reduced" amount? The answer is in the negative.1avvphi1
The Dissenting Opinion asserts that PNCC has the power, citing
Section 36(2) of Presidential Decree No. 1445 (PD 1445), otherwise
known as the Government Auditing Code of the Philippines, enacted in
1978. Section 36 states:
SECTION 36. Power to Compromise Claims. — (1) When the interest
of the government so requires, the Commission may compromise or
release in whole or in part, any claim or settled liability to any
government agency not exceeding ten thousand pesos and with the
written approval of the Prime Minister, it may likewise compromise or
release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted,
through the Commission and the Prime Minister, with their
recommendations, to the National Assembly.
(2) The respective governing bodies of government-owned or
controlled corporations, and self-governing boards, commissions or
agencies of the government shall have the exclusive power to
compromise or release any similar claim or liability when expressly
authorized by their charters and if in their judgment, the interest of their
respective corporations or agencies so requires. When the charters do
not so provide, the power to compromise shall be exercised by the
Commission in accordance with the preceding paragraph. (Emphasis
supplied)
The Dissenting Opinion asserts that since PNCC is incorporated under
the Corporation Code, the PNCC Board has all the powers granted to
the governing boards of corporations incorporated under the
Corporation Code, which includes the power to compromise claims or
liabilities.
Section 36 of PD 1445, enacted on 11 June 1978, has been
superseded by a later law -- Section 20(1), Chapter IV, Subtitle B, Title
I, Book V of Executive Order No. 292 or the Administrative Code of
1987, which provides:
Section 20. Power to Compromise Claims. - (1) When the interest of
the Government so requires, the Commission may compromise or
release in whole or in part, any settled claim or liability to any
government agency not exceeding ten thousand pesos arising out of
any matter or case before it or within its jurisdiction, and with the
written approval of the President, it may likewise compromise or
66
release any similar claim or liability not exceeding one hundred
thousand pesos. In case the claim or liability exceeds one hundred
thousand pesos, the application for relief therefrom shall be submitted,
through the Commission and the President, with their
recommendations, to the Congress[.] x x x (Emphasis supplied)
Under this provision,54 the authority to compromise a settled claim or
liability exceeding ₱100,000.00 involving a government agency, as in
this case where the liability amounts to ₱6.185 billion, is vested not in
COA but exclusively in Congress. Congress alone has the power to
compromise the ₱6.185 billion purported liability of PNCC. Without
congressional approval, the Compromise Agreement between PNCC
and Radstock involving ₱6.185 billion is void for being contrary to
Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987.
PNCC is a "government agency" because Section 2 on Introductory
Provisions of the Revised Administrative Code of 1987 provides that –
Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or
a distinct unit therein. (Boldfacing supplied)
Thus, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987 applies to PNCC, which indisputably is a
government owned or controlled corporation.
In the same vein, the COA’s stamp of approval on the Compromise
Agreement is void for violating Section 20(1), Chapter IV, Subtitle B,
Title I, Book V of the Administrative Code of 1987. Clearly, the
Dissenting Opinion’s reliance on the COA’s finding that the terms and
conditions of the Compromise Agreement are "fair and above board" is
patently erroneous.
Citing Benedicto v. Board of Administrators of Television Stations RPN,
BBC and IBC,55 the Dissenting Opinion views that congressional
approval is not required for the validity of the Compromise Agreement
because the liability of PNCC is not yet "settled."
In Benedicto, the PCGG filed in the Sandiganbayan a civil case to
recover from the defendants (including Roberto S. Benedicto) their ill-
gotten wealth consisting of funds and other properties. The PCGG
executed a compromise agreement with Roberto S. Benedicto ceding
to the latter a substantial part of his ill-gotten assets and the State
granting him immunity from further prosecution. The Court held that
prior congressional approval is not required for the PCGG to enter into
a compromise agreement with persons against whom it has filed
actions for recovery of ill-gotten wealth.
In Benedicto, the Court found that the government’s claim against
Benedicto was not yet settled unlike here where the PNCC Board
expressly admitted the liability of PNCC for the Marubeni loans. In
Benedicto, the ownership of the alleged ill-gotten assets was still being
litigated in the Sandiganbayan and no party ever admitted any liability,
unlike here where the PNCC Board had already admitted through a
formal Board Resolution PNCC’s liability for the Marubeni loans.
PNCC’s express admission of liability for the Marubeni loans is
essentially the premise of the execution of the Compromise
Agreement. In short, Radstock’s claim against PNCC is settled by
virtue of PNCC’s express admission of liability for the Marubeni loans.
The Compromise Agreement merely reduced this settled liability from
₱17 billion to ₱6.185 billion.
The provision of the Revised Administrative Code on the power to
settle claims or liabilities was precisely enacted to prevent government
agencies from admitting liabilities against the government, then
compromising such "settled" liabilities. The present case is exactly
what the law seeks to prevent, a compromise agreement on a
creditor’s claim settled through admission by a government agency
without the approval of Congress for amounts exceeding ₱100,000.00.
What makes the application of the law even more necessary is that the
PNCC Board’s twin moves are manifestly and grossly disadvantageous
to the Government. First, the PNCC admitted solidary liability for a
staggering ₱10.743 billion private debt incurred by a private
corporation which PNCC does not even control. Second, the PNCC
Board agreed to pay Radstock ₱6.185 billion as a compromise
settlement ahead of all other creditors, including the Government which
is the biggest creditor.
The Dissenting Opinion further argues that since the PNCC is
incorporated under the Corporation Code, it has the power, through its
Board of Directors, to compromise just like any other private
corporation organized under the Corporation Code. Thus, the
Dissenting Opinion states:
Not being a government corporation created by special law, PNCC
does not owe its creation to some charter or special law, but to the
Corporation Code. Its powers are enumerated in the Corporation Code
and its articles of incorporation. As an autonomous entity, it
undoubtedly has the power to compromise, and to enter into a
settlement through its Board of Directors, just like any other private
corporation organized under the Corporation Code. To maintain
otherwise is to ignore the character of PNCC as a corporate entity
organized under the Corporation Code, by which it was vested with a
personality and identity distinct and separate from those of its
stockholders or members. (Boldfacing and underlining supplied)
The Dissenting Opinion is woefully wide off the mark. The PNCC is not
"just like any other private corporation" precisely because it is not a
private corporation but indisputably a government owned corporation.
Neither is PNCC "an autonomous entity" considering that PNCC is
under the Department of Trade and Industry, over which the President
exercises control. To claim that PNCC is an "autonomous entity" is to
say that it is a lost command in the Executive branch, a concept that
violates the President's constitutional power of control over the entire
Executive branch of government.56
The government nominees in the PNCC Board, who practically
compose the entire PNCC Board, are public officers subject to the Anti-
Graft and Corrupt Practices Act, accountable to the Government and
the Filipino people. To hold that a corporation incorporated under the
Corporation Code, despite its being 90.3% owned by the Government,
is "an autonomous entity" that could solely through its Board of
Directors compromise, and transfer ownership of, substantially all its
assets to a private third party without the approval required under the
Administrative Code of 1987,57 is to invite the plunder of all such
government owned corporations.
The Dissenting Opinion’s claim that PNCC is an autonomous entity just
like any other private corporation is inconsistent with its assertion that
Section 36(2) of the Government Auditing Code is the governing law in
determining PNCC's power to compromise. Section 36(2) of the
Government Auditing Code expressly states that it applies to the
governing bodies of "government-owned or controlled
corporations." The phrase "government-owned or controlled
corporations" refers to both those created by special charter as well as
those incorporated under the Corporation Code. Section 2, Article IX-D
of the Constitution provides:
SECTION 2. (1) The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settle all accounts pertaining
to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies, or instrumentalities, including
government-owned or controlled corporations with original charters,
and on a post-audit basis: (a) constitutional bodies, commissions and
offices that have been granted fiscal autonomy under this Constitution;
(b) autonomous state colleges and universities; (c) other government-
owned or controlled corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the Government, which are required by law
or the granting institution to submit to such audit as a condition of
subsidy or equity. However, where the internal control system of the
audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary
and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government and, for such period as may be provided
by law, preserve the vouchers and other supporting papers pertaining
thereto.
(2) The Commission shall have exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and
examination, establish the techniques and methods required therefor,
and promulgate accounting and auditing rules and regulations,
including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures,
or uses of government funds and properties. (Emphasis supplied)
In explaining the extent of the jurisdiction of COA over government
owned or controlled corporations, this Court declared in Feliciano v.
Commission on Audit:58
The COA's audit jurisdiction extends not only to government "agencies
or instrumentalities," but also to "government-owned and controlled
corporations with original charters" as well as "other government-
owned or controlled corporations" without original charters.
xxxx
Petitioner forgets that the constitutional criterion on the exercise of
COA's audit jurisdiction depends on the government's ownership or
control of a corporation. The nature of the corporation, whether it is
private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over "government-
owned and controlled corporations with original charters," as well as
"government-owned or controlled corporations" without original
charters. GOCCs with original charters are subject to COA pre-audit,
while GOCCs without original charters are subject to COA post-audit.
GOCCs without original charters refer to corporations created under
the Corporation Code but are owned or controlled by the government.
The nature or purpose of the corporation is not material in determining
COA's audit jurisdiction. Neither is the manner of creation of a
corporation, whether under a general or special law.
67
Clearly, the COA’s audit jurisdiction extends to government owned or
controlled corporations incorporated under the Corporation Code.
Thus, the COA must apply the Government Auditing Code in the audit
and examination of the accounts of such government owned or
controlled corporations even though incorporated under the
Corporation Code. This means that Section 20(1), Chapter IV, Subtitle
B, Title I, Book V of the Administrative Code of 1987 on the power to
compromise, which superseded Section 36 of the Government Auditing
Code, applies to the present case in determining PNCC’s power to
compromise. In fact, the COA has been regularly auditing PNCC on a
post-audit basis in accordance with Section 2, Article IX-D of the
Constitution, the Government Auditing Code, and COA rules and
regulations.
B. PNCC’s toll fees are public funds.
PD 1113 granted PNCC a 30-year franchise to construct, operate and
maintain toll facilities in the North and South Luzon Expressways.
Section 1 of PD 111359 provides:
Section 1. Any provision of law to the contrary notwithstanding, there is
hereby granted to the Construction and Development Corporation of
the Philippines (CDCP), a corporation duly organized and registered
under the laws of the Philippines, hereinafter called the GRANTEE, for
a period of thirty (30) years from May 1, 1977 the right, privilege and
authority to construct, operate and maintain toll facilities covering the
expressways from Balintawak (Station 9 + 563) to Carmen, Rosales,
Pangasinan and from Nichols, Pasay City (Station 10 + 540) to
Lucena, Quezon, hereinafter referred to collectively as North Luzon
Expressway, respectively.
The franchise herein granted shall include the right to collect toll fees at
such rates as may be fixed and/or authorized by the Toll Regulatory
Board hereinafter referred to as the Board created under Presidential
Decree No. 1112 for the use of the expressways above-mentioned.
(Emphasis supplied)
Section 2 of PD 1894,60 which amended PD 1113 to include in PNCC’s
franchise the Metro Manila expressway, also provides:
Section 2. The term of the franchise provided under Presidential
Decree No. 1113 for the North Luzon Expressway and the South
Luzon Expressway which is thirty (30) years from 1 May 1977 shall
remain the same; provided that, the franchise granted for the Metro
Manila Expressway and all extensions linkages, stretches and
diversions that may be constructed after the date of approval of this
decree shall likewise have a term of thirty (30) years commencing from
the date of completion of the project. (Emphasis supplied)
Based on these provisions, the franchise of the PNCC expired on 1
May 2007 or thirty years from 1 May 1977.
PNCC, however, claims that under PD 1894, the North Luzon
Expressway (NLEX) shall have a term of 30 years from the date of its
completion in 2005. PNCC argues that the proviso in Section 2 of PD
1894 gave "toll road projects completed within the franchise period and
after the approval of PD No. 1894 on 12 December 1983 their own
thirty-year term commencing from the date of the completion of the
said project, notwithstanding the expiry of the said franchise."
This contention is untenable.
The proviso in Section 2 of PD 1894 refers to the franchise granted for
the Metro Manila Expressway and all extensions linkages, stretches
and diversions constructed after the approval of PD 1894. It does not
pertain to the NLEX because the term of the NLEX franchise, "which is
30 years from 1 May 1977, shall remain the same," as expressly
provided in the first sentence of the same Section 2 of PD 1894. To
construe that the NLEX franchise had a new term of 30 years starting
from 2005 glaringly conflicts with the plain, clear and unequivocal
language of the first sentence of Section 2 of PD 1894. That would be
clearly absurd.
There is no dispute that Congress did not renew PNCC’s franchise
after its expiry on 1 May 2007. However, PNCC asserts that it "remains
a viable corporate entity even after the expiration of its franchise under
Presidential Decree No. 1113." PNCC points out that the Toll
Regulatory Board (TRB) granted PNCC a "Tollway Operation
Certificate" (TOC) which conferred on PNCC the authority to operate
and maintain toll facilities, which includes the power to collect toll fees.
PNCC further posits that the toll fees are private funds because they
represent "the consideration given to tollway operators in exchange for
costs they incurred or will incur in constructing, operating and
maintaining the tollways."
This contention is devoid of merit.
With the expiration of PNCC’s franchise, the assets and facilities of
PNCC were automatically turned over, by operation of law, to the
government at no cost. Sections 2(e) and 9 of PD 1113 and Section 5
of PD 1894 provide:
Section 2 [of PD 1113]. In consideration of this franchise, the
GRANTEE shall:
(e) Turn over the toll facilities and all equipment directly related thereto
to the government upon expiration of the franchise period without cost.
ASSOCIATE JUSTICE CARPIO:
So, it’s the government [that] decides whether it goes to the general
fund or another fund. [W]hat is that other fund? Is there another fund
where revenues of the government go?

Section 9 [of PD 1113]. For the purposes of this franchise, the DEAN AGABIN:
Government, shall turn over to the GRANTEE (PNCC) not later than
April 30, 1977 all physical assets and facilities including all equipment
It’s the same fund, Your Honor, except that (interrupted)
and appurtenances directly related to the operations of the North and
South Toll Expressways: Provided, That, the extensions of such
Expressways shall also be turned over to GRANTEE upon completion ASSOCIATE JUSTICE CARPIO:
of their construction or of functional sections thereof: Provided,
However, That upon termination of the franchise period, said physical
assets and facilities including improvements thereon, together with So it goes to the general fund?
equipment and appurtenances directly related to their operations, shall
be turned over to the Government without any cost or obligation on the DEAN AGABIN:
part of the latter. (Emphasis supplied)
Except that it can be categorized as a private fund in a commercial
Section 5 [of PD No. 1894]. In consideration of this franchise, the sense, and it can be categorized as a public fund in a Public Law
GRANTEE shall: sense.

(a) Construct, operate and maintain at its own expense the ASSOCIATE JUSTICE CARPIO:
Expressways; and
Okay. So we agree that, okay, it goes to the general fund. I agree with
(b) Turn over, without cost, the toll facilities and all you, but you are saying it is categorized still as a private funds?
equipment, directly related thereto to the Government upon
expiration of the franchise period. (Emphasis supplied)
DEAN AGABIN:

The TRB does not have the power to give back to PNCC the toll assets
and facilities which were automatically turned over to the Government, Yes, Your Honor.
by operation of law, upon the expiration of the franchise of the PNCC
on 1 May 2007. Whatever power the TRB may have to grant authority ASSOCIATE JUSTICE CARPIO:
to operate a toll facility or to issue a "Tollway Operation Certificate,"
such power does not obviously include the authority to transfer back to
PNCC ownership of National Government assets, like the toll assets But it’s part of the general fund. Now, if it is part of the general fund,
and facilities, which have become National Government property upon who has the authority to spend that money?
the expiry of PNCC’s franchise. Such act by the TRB would repeal
Section 5 of PD 1894 which automatically vested in the National DEAN AGABIN:
Government ownership of PNCC’s toll assets and facilities upon the
expiry of PNCC’s franchise. The TRB obviously has no power to repeal
a law. Further, PD 1113, as amended by PD 1894, granting the Well, the National Government itself.
franchise to PNCC, is a later law that must necessarily prevail over PD
1112 creating the TRB. Hence, the provisions of PD 1113, as amended ASSOCIATE JUSTICE CARPIO:
by PD 1894, are controlling.

Who in the National Government, the Executive, Judiciary or

The government’s ownership of PNCC's toll assets and facilities Legislative?
inevitably results in the government’s ownership of the toll fees and the
net income derived from these toll assets and facilities. Thus, the toll
fees form part of the National Government’s General Fund, which DEAN AGABIN:
includes public moneys of every sort and other resources pertaining to
any agency of the government.61 Even Radstock’s counsel admits Well, the funds are usually appropriated by the Congress.
that the toll fees are public funds, to wit:

ASSOCIATE JUSTICE CARPIO:

ASSOCIATE JUSTICE CARPIO:

Okay. Now, when the franchise of PNCC expired on May 7, 2007,
under the terms of the franchise under PD 1896, all the assets, toll way
assets, equipment, etcetera of PNCC became owned by government
at no cost, correct, under the franchise?
DEAN AGABIN:
Yes, Your Honor.
x x x you mean to say there are exceptions that money from the
general fund can be spent by the Executive without going t[hrough]
Congress, or xxx is [that] the absolute rule?
DEAN AGABIN:
Well, in so far as the general fund is concerned, that is the absolute
rule set aside by the National Government.

ASSOCIATE JUSTICE CARPIO:

ASSOCIATE JUSTICE CARPIO:

x x x you are saying this is general fund money - the collection from the
Okay. So this is now owned by the national government. [A]ny income assets[?]
from these assets of the national government is national government
income, correct?
DEAN AGABIN:
DEAN AGABIN:
Yes.64 (Emphasis supplied)
Yes, Your Honor.62
Forming part of the General Fund, the toll fees can only be disposed of
in accordance with the fundamental principles governing financial
xxxx transactions and operations of any government agency, to wit: (1) no
money shall be paid out of the Treasury except in pursuance of an
ASSOCIATE JUSTICE CARPIO: appropriation made by law, as expressly mandated by Section 29(1),
Article VI of the Constitution; and (2) government funds or property
shall be spent or used solely for public purposes, as expressly
x x x My question is very simple x x x Is the income from these assets mandated by Section 4(2) of PD 1445 or the Government Auditing
of the national government (interrupted) Code.65

DEAN AGABIN: Section 29(1), Article VI of the Constitution provides:

Yes, Your Honor.63 Section 29(1). No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.
xxxx

68
The power to appropriate money from the General Funds of the
Government belongs exclusively to the Legislature. Any act in violation
of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD
1445 require that before a government agency can enter into a
contract involving the expenditure of government funds, there must be
an appropriation law for such expenditure, thus:
Verily, the contract, as expressly declared by law, is inexistent and void
ab initio. This is to say that the proposed contract is without force and
effect from the very beginning or from its incipiency, as if it had never
been entered into, and hence, cannot be validated either by lapse of
time or ratification. (Emphasis supplied)
Significantly, Radstock’s counsel admits that an appropriation law is
needed before PNCC can use toll fees to pay Radstock, thus:

Section 84. Disbursement of government funds. ASSOCIATE JUSTICE CARPIO:

1. Revenue funds shall not be paid out of any public treasury or Okay, I agree with you. Now, you are saying that money can be paid
depository except in pursuance of an appropriation law or other out of the general fund only through an appropriation by Congress,
specific statutory authority. correct? That’s what you are saying.

xxxx DEAN AGABIN:

Section 85. Appropriation before entering into contract. Yes, Your Honor.

1. No contract involving the expenditure of public funds shall be ASSOCIATE JUSTICE CARPIO:
entered into unless there is an appropriation therefor, the unexpended
balance of which, free of other obligations, is sufficient to cover the
I agree with you also. Okay, now, can PNCC xxx use this money to pay
proposed expenditure.
Radstock without Congressional approval?

xxxx
DEAN AGABIN:

Section 86 of PD 1445, on the other hand, requires that the proper

Well, I believe that that may not be necessary. Your Honor, because
accounting official must certify that funds have been appropriated for
earlier, the government had already decreed that PNCC should be
the purpose.66 Section 87 of PD 1445 provides that any contract
properly paid for the reclamation works which it had done. And so
entered into contrary to the requirements of Sections 85 and 86
(interrupted)
shall be void, thus:

ASSOCIATE JUSTICE CARPIO:

Section 87. Void contract and liability of officer. Any contract entered
into contrary to the requirements of the two immediately preceding
sections shall be void, and the officer or officers entering into the No. I am talking of the funds.
contract shall be liable to the government or other contracting party for
any consequent damage to the same extent as if the transaction had
been wholly between private parties. (Emphasis supplied) DEAN AGABIN:

Applying Section 29(1), Article VI of the Constitution, as implanted in
Sections 84 and 85 of the Government Auditing Code, a law must first
be enacted by Congress appropriating ₱6.185 billion as compromise
money before payment to Radstock can be made.67 Otherwise, such
payment violates a prohibitory law and thus void under Article 5 of the
Civil Code which states that "[a]cts executed against the provisions
of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity."
And so it is like a foreign obligation.
ASSOCIATE JUSTICE CARPIO:
Counsel, I'm talking of the general funds, collection from the toll fees.
Okay. You said, they go to the general fund. You also said, money
from the general fund can be spent only if there is an appropriation law
by Congress.

Indisputably, without an appropriation law, PNCC cannot lawfully pay

₱6.185 billion to Radstock. Any contract allowing such payment, like DEAN AGABIN:
the Compromise Agreement, "shall be void" as provided in Section 87
of the Government Auditing Code. In Comelec v. Quijano-Padilla,68 this Yes, Your Honor.
Court ruled:
There is no law.
Petitioners are justified in refusing to formalize the contract with
PHOTOKINA. Prudence dictated them not to enter into a contract not
backed up by sufficient appropriation and available funds. Definitely, to DEAN AGABIN:
act otherwise would be a futile exercise for the contract would
inevitably suffer the vice of nullity. In Osmeña vs. Commission on Yes, except that, Your Honor, this fund has not yet gone to the general
Audit, this Court held: fund.

The Auditing Code of the Philippines (P.D. 1445) further provides that ASSOCIATE JUSTICE CARPIO:
no contract involving the expenditure of public funds shall be entered
into unless there is an appropriation therefor and the proper accounting
official of the agency concerned shall have certified to the officer No. It’s being collected everyday. As of May 7, 2007, national
entering into the obligation that funds have been duly appropriated for government owned those assets already. All those x x x collections
the purpose and the amount necessary to cover the proposed contract that would have gone to PNCC are now national government owned. It
for the current fiscal year is available for expenditure on account goes to the general fund. And any body who uses that without
thereof. Any contract entered into contrary to the foregoing appropriation from Congress commits malversation, I tell you.
requirements shall be VOID.
DEAN AGABIN:
Clearly then, the contract entered into by the former Mayor Duterte was
void from the very beginning since the agreed cost for the project That is correct, Your Honor, as long as it has already gone into the
(₱,368,920.00) was way beyond the appropriated amount general fund.
(₱,419,180.00) as certified by the City Treasurer. Hence, the contract
was properly declared void and unenforceable in COA's 2nd
Indorsement, dated September 4, 1986. The COA declared and we ASSOCIATE JUSTICE CARPIO:
agree, that:
Oh, you mean to say that it’s still being held now by the agent, PNCC.
The prohibition contained in Sec. 85 of PD 1445 (Government Auditing It has not been remitted to the National Government?
Code) is explicit and mandatory. Fund availability is, as it has always
been, an indispensable prerequisite to the execution of any DEAN AGABIN:
government contract involving the expenditure of public funds by all
government agencies at all levels. Such contracts are not to be
considered as final or binding unless such a certification as to funds Well, if PNCC (interrupted)
availability is issued (Letter of Instruction No. 767, s. 1978). Antecedent
of advance appropriation is thus essential to government liability on ASSOCIATE JUSTICE CARPIO:
contracts (Zobel vs. City of Manila, 47 Phil. 169). This contract being
violative of the legal requirements aforequoted, the same contravenes
Sec. 85 of PD 1445 and is null and void by virtue of Sec. 87. But if (interrupted)

69
DEAN AGABIN: ASSOCIATE JUSTICE CARPIO:

If this is the share that properly belongs to PNCC as a private entity Oh, you mean to say that it’s still being held now by the agent, PNCC.
(interrupted) It has not been remitted to the National Government?

ASSOCIATE JUSTICE CARPIO: DEAN AGABIN:

No, no. I am saying that – You just agreed that all those collections Well, if PNCC (interrupted)
now will go to the National Government forming part of the general
fund. If, somehow, PNCC is holding this money in the meantime, it
ASSOCIATE JUSTICE CARPIO:
holds xxx it in trust, correct? Because you said, it goes to the general
fund, National Government. So it must be holding this in trust for the
National Government. But if (interrupted)

DEAN AGABIN: DEAN AGABIN:

Yes, Your Honor. If this is the share that properly belongs to PNCC as a private entity
(interrupted)
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
Okay. Can the person holding in trust use it to pay his private debt?
No, no. I am saying that – You just agreed that all those collections
now will go to the National Government forming part of the general
DEAN AGABIN:
fund. If, somehow, PNCC is holding this money in the meantime, it
holds x x x it in trust, correct? Because you said, it goes to the general
No, Your Honor. fund, National Government. So it must be holding this in trust for the
National Government.
ASSOCIATE JUSTICE CARPIO:
DEAN AGABIN:
Cannot be.
Yes, Your Honor.70 (Emphasis supplied)
DEAN AGABIN:
Indisputably, funds held in trust by PNCC for the National
Government cannot be used by PNCC to pay a private debt of
But I assume that there must be some portion of the collections which
CDCP Mining to Radstock, otherwise the PNCC Board will be
properly pertain to PNCC.
liable for malversation of public funds.

ASSOCIATE JUSTICE CARPIO:

In addition, to pay Radstock ₱6.185 billion violates the fundamental
public policy, expressly articulated in Section 4(2) of the Government
If there is some portion that xxx may be [for] operating expenses of Auditing Code,71 that government funds or property shall be spent or
PNCC. But that is not used solely for pubic purposes, thus:

DEAN AGABIN: Section 4. Fundamental Principles. x x x (2) Government funds or

property shall be spent or used solely for public purposes. (Emphasis
supplied)
Even profit, Your Honor.

There is no question that the subject of the Compromise Agreement is

ASSOCIATE JUSTICE CARPIO:
Yeah, but that is not the six percent. Out of the six percent, that goes
now to PNCC, that’s entirely national government. But the National
Government and the PNCC can agree on service fees for collecting, to
pay toll collectors.
CDCP Mining’s private debt to Marubeni, which Marubeni
subsequently assigned to Radstock. Counsel for Radstock admits that
Radstock holds a private debt of CDCP Mining, thus:
ASSOCIATE JUSTICE CARPIO:

So your client is holding a private debt of CDCP Mining, correct?

DEAN AGABIN:

DEAN AGABIN:
Yes, Your Honor.

Correct, Your Honor.72 (Emphasis supplied)

ASSOCIATE JUSTICE CARPIO:

But those are expenses. We are talking of the net income. It goes to
the general fund. And it’s only Congress that can authorize that
expenditure. Not even the Court of Appeals can give its stamp of
approval that it goes to Radstock, correct?
DEAN AGABIN:
Yes, Your Honor.69 (Emphasis supplied)
CDCP Mining obtained the Marubeni loans when CDCP Mining and
PNCC (then CDCP) were still privately owned and managed
corporations. The Government became the majority stockholder of
PNCC only because government financial institutions converted their
loans to PNCC into equity when PNCC failed to pay the loans.
However, CDCP Mining have always remained a majority privately
owned corporation with PNCC owning only 13% of its equity as
admitted by former PNCC Chairman Arthur N. Aguilar and PNCC SVP
Finance Miriam M. Pasetes during the Senate hearings, thus:

SEN. OSMEÑA. x x x – I just wanted to know is CDCP Mining a 100

Without an appropriation law, the use of the toll fees to pay Radstock percent subsidiary of PNCC?
would constitute malversation of public funds. Even counsel for
Radstock expressly admits that the use of the toll fees to pay Radstock
constitutes malversation of public funds, thus: MR. AGUILAR. Hindi ho. Ah, no.

ASSOCIATE JUSTICE CARPIO:
x x x As of May 7, 2007, [the] national government owned those assets
already. All those x x x collections that would have gone to PNCC are
now national government owned. It goes to the general fund. And any
body who uses that without appropriation from Congress commits
malversation, I tell you.
SEN. OSMEÑA. If they’re not a 100 percent, why would they sign
jointly and severally? I just want to plug the loopholes.
MR. AGUILAR. I think it was – if I may just speculate. It was just
common ownership at that time.
SEN. OSMEÑA. Al right. Now – Also, the ...

DEAN AGABIN:
MR. AGUILAR. Ah, 13 percent daw, your Honor.

That is correct, Your Honor, as long as it has already gone into the SEN. OSMEÑA. Huh?
general fund.
70
MR. AGUILAR. Thirteen percent ho. The OGCC admits that Radstock cannot own lands in the Philippines.
However, the OGCC claims that Radstock can own the rights to
ownership of lands in the Philippines, thus:
SEN. OSMEÑA. What’s 13 percent?

ASSOCIATE JUSTICE CARPIO:

MR. AGUILAR. We owned ...

Under the law, a foreigner cannot own land, correct?

MS. PASETES. Thirteen percent of ...

ATTY. AGRA:
SEN. OSMEÑA. PNCC owned ...

Yes, Your Honor.

MS. PASETES. (Mike off) CDCP ...

ASSOCIATE JUSTICE CARPIO:

SEN. DRILON. Use the microphone, please.

Can a foreigner who xxx cannot own land assign the right of ownership
MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP
to the land?
Basay Mining ...

ATTY. AGRA:
SEN. OSMEÑA. No, no, the ownership of CDCP. CDCP Mining, how
many percent of the equity of CDCP Mining was owned by PNCC,
formerly CDCP? Again, Your Honor, at that particular time, it will be PNCC, not through
Radstock, that chain of events should be, there’s a qualified nominee
(interrupted)
MS. PASETES. Thirteen percent.

ASSOCIATE JUSTICE CARPIO:

SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed to
sign jointly and severally?
Yes, xxx you said, Radstock will assign the right of ownership to the
qualified assignee[.] So my question is, can a foreigner own the right to
MS. PASETES. Yes.
ownership of a land when it cannot own the land itself?

SEN. OSMEÑA. One-three?

ATTY. AGRA:

So poor PNCC and CDCP got taken to the cleaners here. They sign for
The foreigner cannot own the land, Your Honor.
a 100 percent and they only own 13 percent.

ASSOCIATE JUSTICE CARPIO:

x x x x73 (Emphasis supplied)

But you are saying it can own the right of ownership to the land,
PNCC cannot use public funds, like toll fees that indisputably form part
because you are saying, the right of ownership will be assigned by
of the General Fund, to pay a private debt of CDCP Mining to
Radstock.
Radstock. Such payment cannot qualify as expenditure for a public
purpose. The toll fees are merely held in trust by PNCC for the
National Government, which is the owner of the toll fees. ATTY. AGRA:

Considering that there is no appropriation law passed by Congress for The rights over the properties, Your Honors, if there’s a valid
the ₱6.185 billion compromise amount, the Compromise Agreement is assignment made to a qualified party, then the assignment will be
void for being contrary to law, specifically Section 29(1), Article VI of made.
the Constitution and Section 87 of PD 1445. And since the payment of
the ₱6.185 billion pertains to CDCP Mining’s private debt to Radstock,
ASSOCIATE JUSTICE CARPIO:
the Compromise Agreement is also void for being contrary to the
fundamental public policy that government funds or property shall be
spent or used solely for public purposes, as provided in Section 4(2) of Who makes the assignment?
the Government Auditing Code.
ATTY. AGRA:
C. Radstock is not qualified to own land in the Philippines.
It will be Radstock, Your Honor.
Radstock is a private corporation incorporated in the British Virgin
Islands. Its office address is at Suite 14021 Duddell Street, Central
Hongkong. As a foreign corporation, with unknown owners whose ASSOCIATE JUSTICE CARPIO:
nationalities are also unknown, Radstock is not qualified to own land in
the Philippines pursuant to Section 7, in relation to Section 3, Article XII So, if Radstock makes the assignment, it must own its rights,
of the Constitution. These provisions state: otherwise, it cannot assign it, correct?

Section. 3. Lands of the public domain are classified into agricultural, ATTY. AGRA:
forest or timber, mineral lands, and national parks. Agricultural lands of
the public domain may be further classified by law according to the
uses to which they may be devoted. Alienable lands of the public Pursuant to the compromise agreement, once approved, yes, Your
domain shall be limited to agricultural lands. Private corporations or Honors.
associations may not hold such lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not ASSOCIATE JUSTICE CARPIO:
more than twenty-five years, and not to exceed one hundred thousand
hectares in area. Citizens of the Philippines may lease not more than
five hundred hectares, or acquire not more than twelve hectares So, you are saying that Radstock can own the rights to ownership of
thereof by purchase, homestead, or grant. the land?

Taking into account the requirements of conservation, ecology, and ATTY. AGRA:
development, and subject to the requirements of agrarian reform, the
Congress shall determine, by law, the size of lands of the public Yes, Your Honors.
domain which may be acquired, developed, held, or leased and the
conditions therefor.
ASSOCIATE JUSTICE CARPIO:

xxxx
Yes?

Section 7. Save in cases of hereditary succession, no private lands

shall be transferred or conveyed except to individuals, corporations, or ATTY. AGRA:
associations qualified to acquire or hold lands of the public domain.
The premise, Your Honor, you mentioned a while ago was, if this Court
approves said compromise (interrupted)

71
ASSOCIATE JUSTICE CARPIO: Yeah. Unfortunately, it says, to a qualified assignee.

No, no. Whether there is such a compromise agreement - - It’s an ATTY. AGRA:
academic question I am asking you, can a foreigner assign rights to
ownership of a land in the Philippines?
Yes, Your Honor.

ATTY. AGRA:
ASSOCIATE JUSTICE CARPIO:

Under the Compromise Agreement, Your Honors, these rights should

And at this point, when it is signed and execut[ed] and approved,
be respected.
PNCC has no dominion over that land anymore. Who has dominion
over it?
ASSOCIATE JUSTICE CARPIO:
ATTY. AGRA:
So, it can?
Pending the assignment to a qualified party, Your Honor, PNCC will
ATTY. AGRA: hold on to the property.

It can. Your Honor. But again, this right must, cannot be perfected or ASSOCIATE JUSTICE CARPIO:
cannot be, could not take effect.
Hold on, but who x x x can exercise acts of dominion, to sell it, to lease
ASSOCIATE JUSTICE CARPIO: it?

But if it cannot - - It’s not perfected, how can it assign? ATTY. AGRA:

ATTY. AGRA: Again, Your Honor, without the valid assignment to a qualified
nominee, the compromise agreement in so far as the transfer of these
properties will not become effective. It is subject to such condition.
Not directly, Your Honors. Again, there must be a qualified nominee
Your Honor.74 (Emphasis supplied)
assigned by Radstock.

There is no dispute that Radstock is disqualified to own lands in the

ASSOCIATE JUSTICE CARPIO:
Philippines. Consequently, Radstock is also disqualified to own the
rights to ownership of lands in the Philippines. Contrary to the OGCC’s
It’s very clear, it’s an indirect way of selling property that is prohibited claim, Radstock cannot own the rights to ownership of any land in the
by law, is it not? Philippines because Radstock cannot lawfully own the land itself.
Otherwise, there will be a blatant circumvention of the Constitution,
which prohibits a foreign private corporation from owning land in the
ATTY. AGRA: Philippines. In addition, Radstock cannot transfer the rights to
ownership of land in the Philippines if it cannot own the land itself. It is
Again, Your Honor, know, believe this is a Compromise Agreement. basic that an assignor or seller cannot assign or sell something he
This is a dacion en pago. does not own at the time the ownership, or the rights to the ownership,
are to be transferred to the assignee or buyer.75
ASSOCIATE JUSTICE CARPIO:
The third party assignee under the Compromise Agreement who will be
designated by Radstock can only acquire rights duplicating those
So, dacion en pago is an exception to the constitutional prohibition. which its assignor (Radstock) is entitled by law to exercise. 76 Thus, the
assignee can acquire ownership of the land only if its assignor,
ATTY. AGRA: Radstock, owns the land. Clearly, the assignment by PNCC of the real
properties to a nominee to be designated by Radstock is a
circumvention of the Constitutional prohibition against a private foreign
No, Your Honor. PNCC, will still hold on to the property, absent a valid corporation owning lands in the Philippines. Such circumvention
assignment of properties. renders the Compromise Agreement void.

ASSOCIATE JUSTICE CARPIO: D. Public bidding is required for

But what rights will PNCC have over that land when it has already
signed the compromise? It is just waiting for instruction xxx from
Radstock what to do with it? So, it’s a trustee of somebody, because it
does not, it cannot, [it] has no dominion over it anymore? It’s just
holding it for Radstock. So, PNCC becomes a dummy, at that point, of
Radstock, correct?
ATTY. AGRA:
the disposal of government properties.
Under Section 79 of the Government Auditing Code,77 the disposition
of government lands to private parties requires public bidding.78 COA
Circular No. 89-926, issued on 27 January 1989, sets forth the
guidelines on the disposal of property and other assets of the
government. Part V of the COA Circular provides:

V. MODE OF DISPOSAL/DIVESTMENT: -
No, Your Honor, I believe it (interrupted)

This Commission recognizes the following modes of

ASSOCIATE JUSTICE CARPIO: disposal/divestment of assets and property of national government
agencies, local government units and government-owned or controlled
Yeah, but it does not own the land, but it still holding the land in favor corporations and their subsidiaries, aside from other such modes as
of the other party to the Compromise Agreement may be provided for by law.

ATTY. AGRA: 1. Public Auction

Pursuant to the compromise agreement, that will happen. Conformably to existing state policy, the divestment or disposal of
government property as contemplated herein shall be undertaken
primarily thru public auction. Such mode of divestment or disposal shall
ASSOCIATE JUSTICE CARPIO: observe and adhere to established mechanics and procedures in
public bidding, viz:
Okay. May I (interrupted)
a. adequate publicity and notification so as to attract the
ATTY. AGRA: greatest number of interested parties; (vide, Sec. 79, P.D.
1445)
Again, Your Honor, if the compromise agreement ended with a
statement that Radstock will be the owner of the property (interrupted) b. sufficient time frame between publication and date of
auction;
ASSOCIATE JUSTICE CARPIO:
c. opportunity afforded to interested parties to inspect the
property or assets to be disposed of;
72
 d. confidentiality of sealed proposals;
e. bond and other prequalification requirements to guarantee
performance; and
f. fair evaluation of tenders and proper notification of award.
It is understood that the Government reserves the right to reject any or
all of the tenders. (Emphasis supplied)
Under the Compromise Agreement, PNCC shall dispose of substantial
parcels of land, by way of dacion en pago, in favor of Radstock. Citing
Uy v. Sandiganbayan,79 PNCC argues that a dacion en pago is an
exception to the requirement of a public bidding.
PNCC’s reliance on Uy is misplaced. There is nothing in Uy declaring
that public bidding is dispensed with in a dacion en pago transaction.
The Court explained the transaction in Uy as follows:
We do not see any infirmity in either the MOA or the SSA executed
between PIEDRAS and respondent banks. By virtue of its
shareholdings in OPMC, PIEDRAS was entitled to subscribe to
3,749,906,250 class "A" and 2,499,937,500 class "B" OPMC shares.
Admittedly, it was financially sound for PIEDRAS to exercise its pre-
emptive rights as an existing shareholder of OPMC lest its
proportionate shareholdings be diluted to its detriment. However,
PIEDRAS lacked the necessary funds to pay for the additional
subscription. Thus, it resorted to contract loans from respondent banks
to finance the payment of its additional subscription. The mode of
payment agreed upon by the parties was that the payment would be
made in the form of part of the shares subscribed to by PIEDRAS. The
OPMC shares therefore were agreed upon by the parties to be
equivalent payment for the amount advanced by respondent banks.
We see the wisdom in the conditions of the loan transaction. In order to
save PIEDRAS and/or the government from the trouble of selling the
shares in order to raise funds to pay off the loans, an easier and more
direct way was devised in the form of the dacion en pago agreements.
Moreover, we agree with the Sandiganbayan that neither PIEDRAS nor
the government sustained any loss in these transactions. In fact, after
deducting the shares to be given to respondent banks as payment for
the shares, PIEDRAS stood to gain about 1,540,781,554 class "A" and
710,550,000 class "B" OPMC shares virtually for free. Indeed, the
question that must be asked is whether or not PIEDRAS, in the
exercise of its pre-emptive rights, would have been able to acquire any
of these shares at all if it did not enter into the financing agreements
with the respondent banks.80
Suffice it to state that in Uy, neither PIEDRAS81 nor the government
suffered any loss in the dacion en pagotransactions, unlike here where
the government stands to lose at least ₱6.185 billion worth of assets.
Besides, a dacion en pago is in essence a form of sale, which basically
involves a disposition of a property. In Filinvest Credit Corp. v.
Philippine Acetylene, Co., Inc.,82 the Court defined dacion en pago in
this wise:
Dacion en pago, according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation. In dacion en pago, as a
special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is,
the creditor is really buying the thing or property of the debtor, payment
for which is to be charged against the debtor's debt.As such, the
essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern
concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an essential
prerequisite, be it sale or innovation to have the effect of totally
extinguishing the debt or obligation.83 (Emphasis supplied)
E. PNCC must follow rules on preference of credit.
Radstock is only one of the creditors of PNCC. Asiavest is PNCC’s
judgment creditor. In its Board Resolution No. BD-092-2000, PNCC
admitted not only its debt to Marubeni but also its debt to the National
Government84 in the amount of ₱36 billion.85 During the Senate
hearings, PNCC admitted that it owed the Government ₱36 billion,
thus:
SEN. OSMEÑA. All right. Now, second question is, the management of
PNCC also recognize the obligation to the national government of 36
billion. It is part of the board resolution.
MS. OGAN. Yes, sir, it is part of the October 20 board resolution.
73
SEN. OSMEÑA. All right. So if you owe the national government 36
billion and you owe Marubeni 10 billion, you know, I would just declare
bankruptcy and let an orderly disposition of assets be done. What
happened in this case to the claim, the 36 billion claim of the national
government? How was that disposed of by the PNCC? Mas malaki ang
utang ninyo sa national government, 36 billion. Ang gagawin ninyo,
babayaran lahat ang utang ninyo sa Marubeni without any assets left
to satisfy your obligations to the national government. There should
have been, at least, a pari passu payment of all your obligations, 'di
ba?
MS. PASETES. Mr. Chairman...
SEN. OSMEÑA. Yes.
MS. PASETES. PNCC still carries in its books an equity account called
equity adjustments arising from transfer of obligations to national
government - - 5.4 billion - - in addition to shares held by government
amounting to 1.2 billion.
SEN. OSMEÑA. What is the 36 billion?
THE CHAIRMAN. Ms. Pasetes...
SEN. OSMEÑA. Wait, wait, wait.
THE CHAIRMAN. Baka ampaw yun eh.
SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the
resolution of the board in September 2000 (sic)? This is the same
resolution that recognizes, acknowledges and confirms PNCC's
obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And then
(b) Marubeni Corporation in the amount of 10,743,000,000. So,
therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle the 10
billion and did not protect the national government's 36 billion? And
then, number two, why is it now in your books, the 36 billion is now
down to five? If you use that ratio, then Marubeni should be down to
one.
MS. PASETES. Sir, the amount of 36 billion is principal plus interest
and penalties.
SEN. OSMEÑA. And what about Marubeni? Is that just principal only?
MS. PASETES. Principal and interest.
SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten point
seven billion is principal plus penalties plus interest, hindi ba?
MS. PASETES. Yes, sir. Yes, Your Honor.
SEN. OSMEÑA. All right. So now, what you are saying is that you
gonna pay Marubeni 6 billion and change and the national government
is only recognizing 5 billion. I don't think that's protecting the interest of
the national government at all.86
In giving priority and preference to Radstock, the Compromise
Agreement is certainly in fraud of PNCC’s other creditors, including the
National Government, and violates the provisions of the Civil Code on
concurrence and preference of credits.
This Court has held that while the Corporation Code allows the transfer
of all or substantially all of the assets of a corporation, the transfer
should not prejudice the creditors of the assignor
corporation.87 Assuming that PNCC may transfer all or substantially all
its assets, to allow PNCC to do so without the consent of its creditors
or without requiring Radstock to assume PNCC’s debts will defraud the
other PNCC creditors88 since the assignment will place PNCC’s assets
beyond the reach of its other creditors.89 As this Court held in Caltex
(Phil.), Inc. v. PNOC Shipping and Transport Corporation:90
While the Corporation Code allows the transfer of all or substantially all
the properties and assets of a corporation, the transfer should not
prejudice the creditors of the assignor. The only way the transfer can
proceed without prejudice to the creditors is to hold the assignee liable
for the obligations of the assignor. The acquisition by the assignee of
all or substantially all of the assets of the assignor necessarily includes
the assumption of the assignor's liabilities, unless the creditors who did
not consent to the transfer choose to rescind the transfer on the ground
of fraud. To allow an assignor to transfer all its business, properties
and assets without the consent of its creditors and without requiring the
assignee to assume the assignor's obligations will defraud the
creditors. The assignment will place the assignor's assets beyond the
reach of its creditors. (Emphasis supplied)
Also, the law, specifically Article 138791 of the Civil Code, presumes
that there is fraud of creditors when property is alienated by the debtor
after judgment has been rendered against him, thus:
Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not have
been obtained by the party seeking rescission. (Emphasis supplied)
As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No.
110263 and a court has already issued a writ of execution in its favor.
Thus, when PNCC entered into the Compromise Agreement conveying
several prime lots in favor of Radstock, by way of dacion en pago,
there is a legal presumption that such conveyance is fraudulent under
Article 1387 of the Civil Code.92 This presumption is strengthened by
the fact that the conveyance has virtually left PNCC’s other creditors,
including the biggest creditor – the National Government - with no
other asset to garnish or levy.
Notably, the presumption of fraud or intention to defraud creditors is
not just limited to the two instances set forth in the first and second
paragraphs of Article 1387 of the Civil Code. Under the third paragraph
of the same article, "the design to defraud creditors may be proved in
any other manner recognized by the law of evidence." In Oria v.
Mcmicking,93 this Court considered the following instances as badges
of fraud:
1. The fact that the consideration of the conveyance is
fictitious or is inadequate.
2. A transfer made by a debtor after suit has begun and
while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly
embarrassed financially.
6. The fact that the transfer is made between father and son,
when there are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of
all the property. (Emphasis supplied)
Among the circumstances indicating fraud is a transfer of all or nearly
all of the debtor’s assets, especially when the debtor is greatly
embarrassed financially. Accordingly, neither a declaration of
insolvency nor the institution of insolvency proceedings is a condition
sine qua non for a transfer of all or nearly all of a debtor’s assets to be
regarded in fraud of creditors. It is sufficient that a debtor is greatly
embarrassed financially.
In this case, PNCC’s huge negative net worth - at least ₱6 billion as
expressly admitted by PNCC’s counsel during the oral arguments, or
₱14 billion based on the 2006 COA Audit Report - necessarily
translates to an extremely embarrassing financial situation. With its
huge negative net worth arising from unpaid billions of pesos in debt,
PNCC cannot claim that it is financially stable. As a consequence, the
Compromise Agreement stipulating a transfer in favor of Radstock of
substantially all of PNCC’s assets constitutes fraud. To legitimize the
Compromise Agreement just because there is still no judicial
declaration of PNCC’s insolvency will work fraud on PNCC’s other
creditors, the biggest creditor of which is the National Government. To
insist that PNCC is very much liquid, given its admitted huge negative
net worth, is nothing but denial of the truth. The toll fees that PNCC
collects belong to the National Government. Obviously, PNCC cannot
claim it is liquid based on its collection of such toll fees, because PNCC
merely holds such toll fees in trust for the National Government. PNCC
does not own the toll fees, and such toll fees do not form part of
PNCC’s assets.
PNCC owes the National Government ₱36 billion, a substantial part of
which constitutes taxes and fees, thus:
SEN. ROXAS. Thank you, Mr. Chairman.
Mr. PNCC Chairman, could you describe for us the composition of your
debt of about five billion – there are in thousands, so this looks like five
and half billion. Current portion of long-term debt, about five billion.
What is this made of?
MS. PASETES. The five billion is composed of what is owed the
Bureau of Treasury and the Toll Regulatory Board for concession
fees that’s almost three billion and another 2.4 billion owed
Philippine National Bank.
74
SEN. ROXAS. So, how much is the Bureau of Treasury?
MS. PASETES. Three billion.
SEN. ROXAS. Three – Why do you owe the Bureau of Treasury three
billion?
MS. PASETES. That represents the concession fees due Toll
Regulatory Board principal plus interest, Your Honor.
x x x x94 (Emphasis supplied)
In addition, PNCC’s 2006 Audit Report by COA states as follows:
TAX MATTERS
The Company was assessed by the Bureau of Internal Revenue (BIR)
of its deficiencies in various taxes. However, no provision for any
liability has been made yet in the Company’s financial statements.
• 1980 deficiency income tax, deficiency contractor’s tax and deficiency
documentary stamp tax assessments by the BIR totaling ₱212.523
Million.
xxxx
• Deficiency business tax of ₱64 Million due the Belgian Consortium,
PNCC’s partner in its LRT Project.
• 1992 deficiency income tax, deficiency value-added tax and
deficiency expanded withholding tax of ₱1.04 Billion which was
reduced to ₱709 Million after the Company’s written protest.
xxxx
• 2002 deficiency internal revenue taxes totaling ₱72.916 Million.
x x x x.95 (Emphasis supplied)
Clearly, PNCC owes the National Government substantial taxes and
fees amounting to billions of pesos.
The ₱36 billion debt to the National Government was acknowledged by
the PNCC Board in the same board resolution that recognized the
Marubeni loans. Since PNCC is clearly insolvent with a huge negative
net worth, the government enjoys preference over Radstock in the
satisfaction of PNCC’s liability arising from taxes and duties, pursuant
to the provisions of the Civil Code on concurrence and preference of
credits. Articles 2241,96 224297 and 224398 of the Civil Code expressly
mandate that taxes and fees due the National Government "shall be
preferred" and "shall first be satisfied" over claims like those arising
from the Marubeni loans which "shall enjoy no preference" under
Article 2244.99
However, in flagrant violation of the Civil Code, the PNCC Board
favored Radstock over the National Government in the order of credits.
This would strip PNCC of its assets leaving virtually nothing for the
National Government. This action of the PNCC Board is manifestly and
grossly disadvantageous to the National Government and amounts to
fraud.
During the Senate hearings, Senator Osmeña pointed out that in the
Board Resolution of 20 October 2000, PNCC acknowledged its
obligations to the National Government amounting to ₱36,023,784,000
and to Marubeni amounting to ₱10,743,000,000. Yet, Senator Osmeña
noted that in the PNCC books at the time of the hearing, the ₱36 billion
obligation to the National Government was reduced to ₱5 billion.
PNCC’s Miriam M. Pasetes could not properly explain this discrepancy,
except by stating that the ₱36 billion includes the principal plus interest
and penalties, thus:
SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the
resolution of the board in September 2000 (sic)? This is the same
resolution that recognizes, acknowledges and confirms PNCC's
obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And then
(b) Marubeni Corporation in the amount of 10,743,000,000. So,
therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle the 10
billion and did not protect the national government's 36 billion? And
then, number two, why is it now in your books, the 36 billion is now
down to five? If you use that ratio, then Marubeni should be down to
one.
MS. PASETES. Sir, the amount of 36 billion is principal plus interest
and penalties.
SEN. OSMEÑA. And what about Marubeni? Is that just principal only? ATTY. AGRA:

MS. PASETES. Principal and interest. Yes, Your Honors.

SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten point ASSOCIATE JUSTICE CARPIO:
seven billion is principal plus penalties plus interest, hindi ba?
Yes?
MS. PASETES. Yes, sir. Yes, Your Honor.
ATTY. AGRA:
SEN. OSMEÑA. All right. So now, what you are saying is that you
gonna pay Marubeni 6 billion and change and the national government
The premise, Your Honor, you mentioned a while ago was, if this Court
is only recognizing 5 billion. I don't think that's protecting the interest of
approves said compromise (interrupted).102(Emphasis supplied)
the national government at all.100

This Court is not, and should never be, a rubber stamp for litigants
PNCC failed to explain satisfactorily why in its books the obligation to
hankering to pocket public funds for their selfish private gain. This
the National Government was reduced when no payment to the
Court is the ultimate guardian of the public interest, the last bulwark
National Government appeared to have been made. PNCC failed to
against those who seek to plunder the public coffers. This Court
justify why it made it appear that the obligation to the National
cannot, and must never, bring itself down to the level of legitimizer of
Government was less than the obligation to Marubeni. It is another
violations of the Constitution, existing laws or public policy.
obvious ploy to justify the preferential treatment given to Radstock to
the great prejudice of the National Government.
Conclusion
VI.
Supreme Court is Not Legitimizer of Violations of Laws In sum, the acts of the PNCC Board in (1) issuing Board Resolution
Nos. BD-092-2000 and BD-099-2000 expressly admitting liability for
the Marubeni loans, and (2) entering into the Compromise Agreement,
During the oral arguments, counsels for Radstock and PNCC admitted
constitute evident bad faith and gross inexcusable negligence,
that the Compromise Agreement violates the Constitution and existing
amounting to fraud, in the management of PNCC’s affairs. Being public
laws. However, they rely on this Court to approve the Compromise
officers, the government nominees in the PNCC Board must answer
Agreement to shield their clients from possible criminal acts arising
not only to PNCC and its stockholders, but also to the Filipino people
from violation of the Constitution and existing laws. In their view, once
for grossly mishandling PNCC’s finances.
this Court approves the Compromise Agreement, their clients are
home free from prosecution, and can enjoy the ₱6.185 billion loot. The
following exchanges during the oral arguments reveal this view: Under Article 1409 of the Civil Code, the Compromise Agreement is
"inexistent and void from the beginning," and "cannot be ratified," thus:
ASSOCIATE JUSTICE CARPIO:
Art. 1409. The following contracts are inexistent and void from the
beginning:
If there is no agreement, they better remit all of that to the National
Government. They cannot just hold that. They are holding that [in]
trust, as you said, x x x you agree, for the National Government. (1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
DEAN AGABIN:
xxx
Yes, that’s why, they are asking the Honorable Court to approve the
compromise agreement. (7) Those expressly prohibited or declared void by law.

ASSOCIATE JUSTICE CARPIO: These contracts cannot be ratified. x x x. (Emphasis supplied)

We cannot approve that if the power to authorize the expenditure
[belongs] to Congress. How can we usurp x x x the power of
Congress to authorize that expenditure[?] It’s only Congress that
can authorize the expenditure of funds from the general funds.
DEAN AGABIN:
But, Your Honor, if the Honorable Court would approve of this
compromise agreement, I believe that this would be binding on
Congress.
ASSOCIATE JUSTICE CARPIO:
Ignore the Constitutional provision that money shall be paid out
of the National Treasury only pursuant to an appropriation by law.
You want us to ignore that[?]
DEAN AGABIN:
Not really, Your Honor, but I suppose that Congress would have no
choice, because this is a final judgment of the Honorable Court. 101
The Compromise Agreement is indisputably contrary to the
Constitution, existing laws and public policy. Under Article 1409, the
Compromise Agreement is expressly declared void and "cannot be
ratified." No court, not even this Court, can ratify or approve the
Compromise Agreement. This Court must perform its duty to defend
and uphold the Constitution, existing laws, and fundamental public
policy. This Court must not shirk in declaring the Compromise
Agreement inexistent and void ab initio.
WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET
ASIDE the Decision dated 25 January 2007 and the Resolutions dated
12 June 2007 and 5 November 2007 of the Court of Appeals. We
DECLARE (1) PNCC Board Resolution Nos. BD-092-2000 and BD-
099-2000 admitting liability for the Marubeni loans VOID AB INITIO for
causing undue injury to the Government and giving unwarranted
benefits to a private party, constituting a corrupt practice and unlawful
act under Section 3(e) of the Anti-Graft and Corrupt Practices Act, and
(2) the Compromise Agreement between the Philippine National
Construction Corporation and Radstock Securities Limited
INEXISTENT AND VOID AB INITIO for being contrary to Section 29(1),
Article VI and Sections 3 and 7, Article XII of the Constitution; Section
20(1), Chapter IV, Subtitle B, Title I, Book V of the Administrative Code
of 1987; Sections 4(2), 79, 84(1), and 85 of the Government Auditing
Code; and Articles 2241, 2242, 2243 and 2244 of the Civil Code.

xxxx We GRANT the intervention of Asiavest Merchant Bankers Berhad in

G.R. No. 178158 but DECLARE that Strategic Alliance Development
ASSOCIATE JUSTICE CARPIO: Corporation has no legal standing to sue.

So, if Radstock makes the assignment, it must own its rights, SO ORDERED.
otherwise, it cannot assign it, correct?

ATTY. AGRA:

Pursuant to the compromise agreement, once approved, yes, Your

Honors.

ASSOCIATE JUSTICE CARPIO:

So, you are saying that Radstock can own the rights to ownership of
the land?
75