Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 180027 July 18, 2012

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
MICHAEL C. SANTOS, VANNESSA C. SANTOS, MICHELLE C. SANTOS and DELFIN SANTOS, all
represented by DELFIN C. SANTOS, Attorney-in-Fact, Respondents.

DECISION

PEREZ, J.:

For review1 is the Decision2 dated 9 October 2007 of the Court of Appeals in CA-G.R. CV No. 86300. In the said
decision, the Court of Appeals affirmed in toto the 14 February 2005 ruling3 of the Regional Trial Court (RTC),
Branch 15, of Naic, Cavite in LRC Case No. NC-2002-1292. The dispositive portion of the Court of Appeals’
decision accordingly reads:

WHEREFORE, the instant appeal is hereby DENIED. The assailed decision dated February 14, 2005 of the Regional
Trial Court (Branch 15) in Naic, Cavite, in LRC Case No. NC-2002-1292 is AFFIRMED in toto. No costs.4

The aforementioned ruling of the RTC granted the respondents’ Application for Original Registration of a parcel of
land under Presidential Decree No. 1529.

The antecedents are as follows:

Prelude

In October 1997, the respondents purchased three (3) parcels of unregistered land situated in Barangay Carasuchi,
Indang, Cavite.5 The 3 parcels of land were previously owned by one Generosa Asuncion (Generosa), one Teresita
Sernal (Teresita) and by the spouses Jimmy and Imelda Antona, respectively.6

Sometime after the said purchase, the respondents caused the survey and consolidation of the parcels of land. Hence,
per the consolidation/subdivision plan Ccs-04-003949-D, the 3 parcels were consolidated into a single lot—"Lot 3"—
with a determined total area of nine thousand five hundred seventy-seven (9,577) square meters.7

The Application for Land Registration

On 12 March 2002, the respondents filed with the RTC an Application8 for Original Registration of Lot 3. Their
application was docketed as LRC Case No. NC-2002-1292.

On the same day, the RTC issued an Order9 setting the application for initial hearing and directing the satisfaction of
jurisdictional requirements pursuant to Section 23 of Presidential Decree No. 1529. The same Order, however, also
required the Department of Environment and Natural Resources (DENR) to submit a report on the status of Lot 3. 10

On 13 March 2002, the DENR Calabarzon Office submitted its Report11 to the RTC. The Report relates that the area
covered by Lot 3 "falls within the Alienable and Disposable Land, Project No. 13 of Indang, Cavite per LC12 3013

Page 1
certified on March 15, 1982." Later, the respondents submitted a Certification13 from the DENR-Community
Environment and Natural Resources Office (CENRO) attesting that, indeed, Lot 3 was classified as an "Alienable or
Disposable Land" as of 15 March 1982.

After fulfillment of the jurisdictional requirements, the government, through the Office of the Solicitor General, filed
the lone opposition14 to the respondents’ application on 13 May 2003.

The Claim, Evidence and Opposition

The respondents allege that their predecessors-in-interest i.e., the previous owners of the parcels of land making up
Lot 3, have been in "continuous, uninterrupted, open, public and adverse" possession of the said parcels "since time
immemorial."15 It is by virtue of such lengthy possession, tacked with their own, that respondents now hinge their
claim of title over Lot 3.

During trial on the merits, the respondents presented, among others, the testimonies of Generosa16 and the
representatives of their two (2) other predecessors-in-interest.17 The said witnesses testified that they have been in
possession of their respective parcels of land for over thirty (30) years prior to the purchase thereof by the respondents
in 1997.18 The witnesses also confirmed that neither they nor the interest they represent, have any objection to the
registration of Lot 3 in favor of the respondents.19

In addition, Generosa affirmed in open court a Joint Affidavit20 she executed with Teresita.21 In it, Generosa revealed
that the portions of Lot 3 previously pertaining to her and Teresita were once owned by her father, Mr. Valentin
Sernal (Valentin) and that the latter had "continuously, openly and peacefully occupied and tilled as absolute owner"
such lands even "before the outbreak of World War 2."22

To substantiate the above testimonies, the respondents also presented various Tax Declarations23 covering certain
areas of Lot 3—the earliest of which dates back to 1948 and covers the portions of the subject lot previously
belonging to Generosa and Teresita.24

On the other hand, the government insists that Lot 3 still forms part of the public domain and, hence, not subject to
private acquisition and registration. The government, however, presented no further evidence to controvert the claim
of the respondents.25

The Decision of the RTC and the Court of Appeals

On 14 February 2005, the RTC rendered a ruling granting the respondents’ Application for Original Registration of
Lot 3. The RTC thus decreed:

WHEREFORE, in view of the foregoing, this Court confirming its previous Order of general default, decrees and
adjudges Lot 3 (Lot 1755) Ccs-04-003949-D of Indang, Cadastre, with a total area of NINE THOUSAND FIVE
HUNDRED FIFTY SEVEN (9,577) square meters and its technical description as above-described and situated in
Brgy. [Carasuchi], Indang, Cavite, pursuant to the provisions of Act 496 as amended by P.D. No. 1529, it is hereby
decreed and adjudged to be confirmed and registered in the name of herein applicants MICHAEL C. SANTOS,
VANESSA C. SANTOS, MICHELLE C. SANTOS, and DELFIN C. SANTOS, all residing at No. 60 Rockville
Subdivision, Novaliches, Quezon City.

Once this decision has become final, let the corresponding decree of registration be issued by the Administrator, Land
Registration Authority.26

The government promptly appealed the ruling of the RTC to the Court of Appeals.27 As already mentioned earlier, the
Court of Appeals affirmed the RTC’s decision on appeal.

Page 2
Hence, this petition.28

The sole issue in this appeal is whether the Court of Appeals erred in affirming the RTC ruling granting original
registration of Lot 3 in favor of the respondents.

The government would have Us answer in the affirmative. It argues that the respondents have failed to offer evidence
sufficient to establish its title over Lot 3 and, therefore, were unable to rebut the Regalian presumption in favor of the
State.29

The government urges this Court to consider the DENR Calabarzon Office Report as well as the DENR-CENRO
Certification, both of which clearly state that Lot 3 only became "Alienable or

Disposable Land" on 15 March 1982.30 The government posits that since Lot 3 was only classified as alienable and
disposable on 15 March 1982, the period of prescription against the State should also commence to run only from
such date.31 Thus, the respondents’ 12 March 2002 application—filed nearly twenty (20) years after the said
classification—is still premature, as it does not meet the statutory period required in order for extraordinary
prescription to set in.32

OUR RULING

We grant the petition.

Jura Regalia and the Property Registration Decree

We start our analysis by applying the principle of Jura Regalia or the Regalian Doctrine.33 Jura Regalia simply means
that the State is the original proprietor of all lands and, as such, is the general source of all private titles. 34Thus,
pursuant to this principle, all claims of private title to land, save those acquired from native title, 35 must be traced from
some grant, whether express or implied, from the State.36 Absent a clear showing that land had been let into private
ownership through the State’s imprimatur, such land is presumed to belong to the State.37

Being an unregistered land, Lot 3 is therefore presumed as land belonging to the State. It is basic that those who seek
the entry of such land into the Torrens system of registration must first establish that it has acquired valid title thereto
as against the State, in accordance with law.

In this connection, original registration of title to land is allowed by Section 14 of Presidential Decree No. 1529, or
otherwise known as the Property Registration Decree. The said section provides:

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

(1) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of alienable and disposable lands of the public domain
under a bona fide claim of ownership since June 12, 1945, or earlier.

(2) Those who have acquired ownership of private lands by prescription under the provisions of existing laws.

(3) Those who have acquired ownership of private lands or abandoned river beds by right of accession or
accretion under the existing laws.

(4) Those who have acquired ownership of land in any other manner provided for by law. (Emphasis
supplied)

Page 3
Basing from the allegations of the respondents in their application for land registration and subsequent pleadings, it
appears that they seek the registration of Lot 3 under either the first or the second paragraph of the quoted section.

However, after perusing the records of this case, as well as the laws and jurisprudence relevant thereto, We find that
neither justifies registration in favor of the respondents.

Section 14(1) of Presidential Decree No. 1529

Section 14(1) of Presidential Decree No. 1529 refers to the original registration of "imperfect" titles to public land
acquired under Section 11(4) in relation to Section 48(b) of Commonwealth Act No. 141, or the Public Land Act, as
amended.38 Section 14(1) of Presidential Decree No. 1529 and Section 48(b) of Commonwealth Act No. 141 specify
identical requirements for the judicial confirmation of "imperfect" titles, to wit: 39

1. That the subject land forms part of the alienable and disposable lands of the public domain;.

2. That the applicants, by themselves or through their predecessors-in-interest, have been in open, continuous,
exclusive and notorious possession and occupation of the subject land under a bona fide claim of ownership,
and;

3. That such possession and occupation must be since June 12, 1945 or earlier.

In this case, the respondents were not able to satisfy the third requisite, i.e., that the respondents failed to establish that
they or their predecessors-in-interest, have been in possession and occupation of Lot 3 "since June 12, 1945 or
earlier." An examination of the evidence on record reveals so:

First. The testimonies of respondents’ predecessors-in-interest and/or their representatives were patently deficient on
this point.

None of them testified about possession and occupation of the subject parcels of land dating back to 12 June 1945 or
earlier. Rather, the said witnesses merely related that they have been in possession of their lands "for over thirty
years" prior to the purchase thereof by respondents in 1997.40

Neither can the affirmation of Generosa of the Joint Affidavit be considered as sufficient to prove compliance with the
third requisite. The said Joint Affidavit merely contains a general claim that Valentin had "continuously, openly and
peacefully occupied and tilled as absolute owner" the parcels of Generosa and Teresita even "before the outbreak of
World War 2" — which lacks specificity and is unsupported by any other evidence. In Republic v. East Silverlane
Realty Development Corporation,41 this Court dismissed a similar unsubstantiated claim of possession as a "mere
conclusion of law" that is "unavailing and cannot suffice:"

Moreover, Vicente Oco did not testify as to what specific acts of dominion or ownership were performed by the
respondent’s predecessors-in-interest and if indeed they did. He merely made a general claim that they came into
possession before World War II, which is a mere conclusion of law and not factual proof of possession, and therefore
unavailing and cannot suffice.42 Evidence of this nature should have been received with suspicion, if not dismissed as
tenuous and unreliable.

Second. The supporting tax declarations presented by the respondents also fall short of proving possession since 12
June 1945 or earlier. The earliest declaration submitted by the respondents i.e., Tax Declaration No. 9412,43 was
issued only in 1948 and merely covers the portion of Lot 3 previously pertaining to Generosa and Teresita. Much
worse, Tax Declaration No. 9412 shows no declared improvements on such portion of Lot 3 as of 1948—posing an
apparent contradiction to the claims of Generosa and Teresita in their Joint Affidavit.

Page 4
Indeed, the evidence presented by the respondents does not qualify as the "well-nigh incontrovertible" kind that is
required to prove title thru possession and occupation of public land since 12 June 1945 or earlier.44 Clearly,
respondents are not entitled to registration under Section 14(1) of Presidential Decree No. 1529.

Section 14(2) of Presidential Decree No. 1529

The respondents, however, make an alternative plea for registration, this time, under Section 14(2) of Presidential
Decree No. 1529. Notwithstanding their inability to comply with Section 14(1) of Presidential Decree No. 1529, the
respondents claim that they were at least able to establish possession and occupation of Lot 3 for a sufficient number
of years so as to acquire title over the same via prescription.45

As earlier intimated, the government counters the respondents’ alternative plea by arguing that the statutory period
required in order for extraordinary prescription to set in was not met in this case.46 The government cites the DENR
Calabarzon Office Report as well as the DENR-CENRO Certification, both of which state that Lot 3 only became
"Alienable or Disposable Land" on 15 March 1982.47 It posits that the period of prescription against the State should
also commence to run only from such date.48 Hence, the government concludes, the respondents’ 12 March 2002
application is still premature.49

We find the contention of the government inaccurate but nevertheless deny registration of Lot 3 under Section 14(2)
of Presidential Decree No. 1529.

Section 14(2) of Presidential Decree No. 1529 sanctions the original registration of lands acquired by prescription
"under the provisions of existing law." In the seminal case of Heirs of Mario Malabanan v. Republic,50 this Court
clarified that the "existing law" mentioned in the subject provision refers to no other than Republic Act No. 386, or
the Civil Code of the Philippines.

Malabanan acknowledged that only lands of the public domain that are "patrimonial in character" are "susceptible to
acquisitive presecription" and, hence, eligible for registration under Section 14(2) of Presidential Decree No.
1529.51Applying the pertinent provisions of the Civil Code,52 Malabanan further elucidated that in order for public
land to be considered as patrimonial "there must be an express declaration by the State that the public dominion
property is no longer intended for public service or the development of the national wealth or that the property has
been converted into patrimonial."53 Until then, the period of acquisitive prescription against the State will not
commence to run.54

The requirement of an "express declaration" contemplated by Malabanan is separate and distinct from the mere
classification of public land as alienable and disposable.55 On this point, Malabanan was reiterated by the recent case
of Republic v. Rizalvo, Jr.56

In this case, the respondents were not able to present any "express declaration" from the State, attesting to the
patrimonial character of Lot 3. To put it bluntly, the respondents were not able to prove that acquisitive prescription
has begun to run against the State, much less that they have acquired title to Lot 3 by virtue thereof. As jurisprudence
tells us, a mere certification or report classifying the subject land as alienable and disposable is not sufficient.57 We
are, therefore, left with the unfortunate but necessary verdict that the respondent are not entitled to the registration
under Section 14(2) of Presidential Decree No. 1529.

There being no compliance with either the first or second paragraph of Section 14 of Presidential Decree No. 1529,
the Regalian presumption stands and must be enforced in this case. We accordingly overturn the decisions of the RTC
and the Court of Appeals for not being supported by the evidence at hand.

WHEREFORE, the instant petition is GRANTED. The 9 October 2007 Decision of the Court of Appeals in CA-G.R.
CV No. 86300 affirming the 14 February 2005 Decision of the Regional Trial Court, Branch 15, of Naic, Cavite in

Page 5
LRC Case No. NC-2002-1292 is hereby REVERSED and SET ASIDE. The respondents’ application for registration
is, accordingly, DENIED.

Costs against respondents.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate justice

WE CONCUR:

ANTONIO T. CARPIO
Senior Associate Justice
Chairperson

ARTURO D. BRION MARIA LOURDES P.A. SERENO

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate justice

CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)

NO CASE DIGEST

Page 6
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-630 November 15, 1947

ALEXANDER A. KRIVENKO, petitioner-appellant,

vs.
THE REGISTER OF DEEDS, CITY OF MANILA, respondent and appellee.

Gibbs, Gibbs, Chuidian and Quasha of petitioner-appellant.

First Assistant Solicitor General Reyes and Solicitor Carreon for respondent-appellee.
Marcelino Lontok appeared as amicus curies.

MORAN, C.J.:

Alenxander A. Kriventor alien, bought a residential lot from the Magdalena Estate, Inc., in December of 1941, the
registration of which was interrupted by the war. In May, 1945, he sought to accomplish said registration but was
denied by the register of deeds of Manila on the ground that, being an alien, he cannot acquire land in this jurisdiction.
Krivenko then brought the case to the fourth branch of the Court of First Instance of Manila by means of
a consulta, and that court rendered judgment sustaining the refusal of the register of deeds, from which Krivenko
appealed to this Court.

There is no dispute as to these facts. The real point in issue is whether or not an alien under our Constitution may
acquire residential land.

It is said that the decision of the case on the merits is unnecessary, there being a motion to withdraw the appeal which
should have been granted outright, and reference is made to the ruling laid down by this Court in another case to the
effect that a court should not pass upon a constitutional question if its judgment may be made to rest upon other
grounds. There is, we believe, a confusion of ideas in this reasoning. It cannot be denied that the constitutional
question is unavoidable if we choose to decide this case upon the merits. Our judgment cannot to be made to rest upon
other grounds if we have to render any judgment at all. And we cannot avoid our judgment simply because we have to
avoid a constitutional question. We cannot, for instance, grant the motion withdrawing the appeal only because we
wish to evade the constitutional; issue. Whether the motion should be, or should not be, granted, is a question
involving different considerations now to be stated.

According to Rule 52, section 4, of the Rules of Court, it is discretionary upon this Court to grant a withdrawal of
appeal after the briefs have been presented. At the time the motion for withdrawal was filed in this case, not only had
the briefs been prensented, but the case had already been voted and the majority decision was being prepared. The
motion for withdrawal stated no reason whatsoever, and the Solicitor General was agreeable to it. While the motion
was pending in this Court, came the new circular of the Department of Justice, instructing all register of deeds to
accept for registration all transfers of residential lots to aliens. The herein respondent-appellee was naturally one of
the registers of deeds to obey the new circular, as against his own stand in this case which had been maintained by the
trial court and firmly defended in this Court by the Solicitor General. If we grant the withdrawal, the the result would
be that petitioner-appellant Alexander A. Krivenko wins his case, not by a decision of this Court, but by the decision
or circular of the Department of Justice, issued while this case was pending before this Court. Whether or not this is
the reason why appellant seeks the withdrawal of his appeal and why the Solicitor General readily agrees to that
withdrawal, is now immaterial. What is material and indeed very important, is whether or not we should allow
interference with the regular and complete exercise by this Court of its constitutional functions, and whether or not
after having held long deliberations and after having reached a clear and positive conviction as to what the

Page 7
constitutional mandate is, we may still allow our conviction to be silenced, and the constitutional mandate to be
ignored or misconceived, with all the harmful consequences that might be brought upon the national patromony. For it
is but natural that the new circular be taken full advantage of by many, with the circumstance that perhaps the
constitutional question may never come up again before this court, because both vendors and vendees will have no
interest but to uphold the validity of their transactions, and very unlikely will the register of deeds venture to disobey
the orders of their superior. Thus, the possibility for this court to voice its conviction in a future case may be remote,
with the result that our indifference of today might signify a permanent offense to the Constitution.

All thse circumstances were thoroughly considered and weighted by this Court for a number of days and the legal
result of the last vote was a denial of the motion withdrawing the appeal. We are thus confronted, at this stage of the
proceedings, with our duty, the constitutional question becomes unavoidable. We shall then proceed to decide that
question.

Article XIII, section 1, of the Constitutional is as follows:

Article XIII. — Conservation and utilization of natural resources.

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 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 inaguration of the
Government established uunder this Constitution. Natural resources, with the exception of public agricultural
land, shall not be alienated, and no licence, concession, or lease for the exploitation, development, or
utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable
for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water "power" in which cases beneficial use may be the measure and the limit
of the grant.

The scope of this constitutional provision, according to its heading and its language, embraces all lands of any kind of
the public domain, its purpose being to establish a permanent and fundamental policy for the conservation and
utilization of all natural resources of the Nation. When, therefore, this provision, with reference to lands of the public
domain, makes mention of only agricultural, timber and mineral lands, it means that all lands of the public domain are
classified into said three groups, namely, agricultural, timber and mineral. And this classification finds corroboration
in the circumstance that at the time of the adoption of the Constitution, that was the basic classification existing in the
public laws and judicial decisions in the Philippines, and the term "public agricultural lands" under said classification
had then acquired a technical meaning that was well-known to the members of the Constitutional Convention who
were mostly members of the legal profession.

As early as 1908, in the case of Mapa vs. Insular Government (10 Phil., 175, 182), this Court said that the phrase
"agricultural public lands" as defined in the Act of Congress of July 1, 1902, which phrase is also to be found in
several sections of the Public Land Act (No. 926), means "those public lands acquired from Spain which are neither
mineral for timber lands." This definition has been followed in long line of decisions of this Court.
(See Montano vs.Insular Government, 12 Phil., 593; Ibañez de Aldecoa vs. Insular Government, 13 Phil., 159;
Ramos vs. Director of Lands, 39 Phil., 175; Jocson vs. Director of Forestry, 39 Phil., 560; Ankron vs. Government of
the Philippines, 40 Phil., 10.) And with respect to residential lands, it has been held that since they are neither mineral
nor timber lands, of necessity they must be classified as agricultural. In Ibañez de Aldecoa vs. Insular Government (13
Phil., 159, 163), this Court said:

Hence, any parcel of land or building lot is susceptible of cultivation, and may be converted into a field, and
planted with all kinds of vegetation; for this reason, where land is not mining or forestal in its nature, it must
necessarily be included within the classification of agricultural land, not because it is actually used for the

Page 8
 purposes of agriculture, but because it was originally agricultural and may again become so under other
circumstances; besides, the Act of Congress contains only three classification, and makes no special provision
with respect to building lots or urban lands that have ceased to be agricultural land.

In other words, the Court ruled that in determining whether a parcel of land is agricultural, the test is not only whether
it is actually agricultural, but also its susceptibility to cultivation for agricultural purposes. But whatever the test might
be, the fact remains that at the time the Constitution was adopted, lands of the public domain were classified in our
laws and jurisprudence into agricultural, mineral, and timber, and that the term "public agricultural lands" was
construed as referring to those lands that were not timber or mineral, and as including residential lands. It may safely
be presumed, therefore, that what the members of the Constitutional Convention had in mind when they drafted the
Constitution was this well-known classification and its technical meaning then prevailing.

Certain expressions which appear in Constitutions, . . . are obviously technical; and where such words have
been in use prior to the adoption of a Constitution, it is presumed that its framers and the people who ratified
it have used such expressions in accordance with their technical meaning. (11 Am. Jur., sec. 66, p.
683.) AlsoCalder vs. Bull, 3 Dall. [U.S.], 386; 1 Law. ed., 648; Bronson vs. Syverson, 88 Wash., 264; 152 P.,
1039.)

It is a fundamental rule that, in construing constitutions, terms employed therein shall be given the meaning
which had been put upon them, and which they possessed, at the time of the framing and adoption of the
instrument. If a word has acquired a fixed, technical meaning in legal and constitutional history, it will be
presumed to have been employed in that sense in a written Constitution. (McKinney vs. Barker, 180 Ky., 526;
203 S.W., 303; L.R.A., 1918 E, 581.)

Where words have been long used in a technical sense and have been judicially construed to have a certain
meaning, and have been adopted by the legislature as having a certain meaning prior to a particular statute in
which they are used, the rule of construction requires that the words used in such statute should be construed
according to the sense in which they have been so previously used, although the sense may vary from strict
literal meaning of the words. (II Sutherland, Statutory Construction, p. 758.)

Therefore, the phrase "public agricultural lands" appearing in section 1 of Article XIII of the Constitution must be
construed as including residential lands, and this is in conformity with a legislative interpretation given after the
adoption of the Constitution. Well known is the rule that "where the Legislature has revised a statute after a
Constitution has been adopted, such a revision is to be regarded as a legislative construction that the statute so revised
conforms to the Constitution." (59 C.J., 1102.) Soon after the Constitution was adopted, the National Assembly
revised the Public Land Law and passed Commonwealth Act No. 141, and sections 58, 59 and 60 thereof permit the
sale of residential lots to Filipino citizens or to associations or corporations controlled by such citizens, which is
equivalent to a solemn declaration that residential lots are considered as agricultural lands, for, under the Constitution,
only agricultural lands may be alienated.

It is true that in section 9 of said Commonwealth Act No. 141, "alienable or disposable public lands" which are the
same "public agriculture lands" under the Constitution, are classified into agricultural, residential, commercial,
industrial and for other puposes. This simply means that the term "public agricultural lands" has both a broad and a
particular meaning. Under its broad or general meaning, as used in the Constitution, it embraces all lands that are
neither timber nor mineral. This broad meaning is particularized in section 9 of Commonwealth Act No. 141 which
classifies "public agricultural lands" for purposes of alienation or disposition, into lands that are stricly agricultural or
actually devoted to cultivation for agricultural puposes; lands that are residential; commercial; industrial; or lands for
other purposes. The fact that these lands are made alienable or disposable under Commonwealth Act No. 141, in favor
of Filipino citizens, is a conclusive indication of their character as public agricultural lands under said statute and
under the Constitution.

Page 9
It must be observed, in this connection that prior to the Constitution, under section 24 of Public Land Act No. 2874,
aliens could acquire public agricultural lands used for industrial or residential puposes, but after the Constitution and
under section 23 of Commonwealth Act No. 141, the right of aliens to acquire such kind of lands is completely
stricken out, undoubtedly in pursuance of the constitutional limitation. And, again, prior to the Constitution, under
section 57 of Public Land Act No. 2874, land of the public domain suitable for residence or industrial purposes could
be sold or leased to aliens, but after the Constitution and under section 60 of Commonwealth Act No. 141, such land
may only be leased, but not sold, to aliens, and the lease granted shall only be valid while the land is used for the
purposes referred to. The exclusion of sale in the new Act is undoubtedly in pursuance of the constitutional limitation,
and this again is another legislative construction that the term "public agricultural land" includes land for residence
purposes.

Such legislative interpretation is also in harmony with the interpretation given by the Executive Department of the
Government. Way back in 1939, Secretary of Justice Jose Abad Santos, in answer to a query as to "whether or not the
phrase 'public agricultural lands' in section 1 of Article XII (now XIII) of the Constitution may be interpreted to
include residential, commercial, and industrial lands for purposes of their disposition," rendered the following short,
sharp and crystal-clear opinion:

Section 1, Article XII (now XIII) of the Constitution classifies lands of the public domain in the Philippines
into agricultural, timber and mineral. This is the basic classification adopted since the enactment of the Act of
Congress of July 1, 1902, known as the Philippine Bill. At the time of the adoption of the Constitution of the
Philippines, the term 'agricultural public lands' and, therefore, acquired a technical meaning in our public
laws. The Supreme Court of the Philippines in the leading case of Mapa vs. Insular Government, 10 Phil.,
175, held that the phrase 'agricultural public lands' means those public lands acquired from Spain which are
neither timber nor mineral lands. This definition has been followed by our Supreme Court in many
subsequent case. . . .

Residential commercial, or industrial lots forming part of the public domain must have to be included in one
or more of these classes. Clearly, they are neither timber nor mineral, of necessity, therefore, they must be
classified as agricultural.

Viewed from another angle, it has been held that in determining whether lands are agricultural or not, the
character of the land is the test (Odell vs. Durant, 62 N.W., 524; Lorch vs. Missoula Brick and Tile Co., 123
p.25). In other words, it is the susceptibility of the land to cultivation for agricultural purposes by ordinary
farming methods which determines whether it is agricultural or not (State vs. Stewart, 190 p. 129).

Furthermore, as said by the Director of Lands, no reason is seen why a piece of land, which may be sold to a
person if he is to devote it to agricultural, cannot be sold to him if he intends to use it as a site for his home.

This opinion is important not alone because it comes from a Secratary of Justice who later became the Chief Justice of
this Court, but also because it was rendered by a member of the cabinet of the late President Quezon who actively
participated in the drafting of the constitutional provision under consideration. (2 Aruego, Framing of the Philippine
Constitution, p. 598.) And the opinion of the Quezon administration was reiterated by the Secretary of Justice under
the Osmeña administration, and it was firmly maintained in this Court by the Solicitor General of both
administrations.

It is thus clear that the three great departments of the Government — judicial, legislative and executive — have
always maintained that lands of the public domain are classified into agricultural, mineral and timber, and that
agricultural lands include residential lots.

Under section 1 of Article XIII of the Constitution, "natural resources, with the exception of public agricultural land,
shall not be aliented," 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

Page 10
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.
Undoubtedly, as above indicated, section 5 is intended to insure the policy of nationalization contained in section 1.
Both sections must, therefore, be read together for they have the same purpose and the same subject matter. It must be
noticed that the persons against whom the prohibition is directed in section 5 are the very same persons who under
section 1 are disqualified "to acquire or hold lands of the public domain in the Philippines." And the subject matter of
both sections is the same, namely, the non-transferability of "agricultural land" to aliens. Since "agricultural land"
under section 1 includes residential lots, the same technical meaning should be attached to "agricultural land under
section 5. It is a rule of statutory construction that "a word or phrase repeated in a statute will bear the same meaning
throughout the statute, unless a different intention appears." (II Sutherland, Statutory Construction, p. 758.) The only
difference between "agricultural land" under section 5, is that the former is public and the latter private. But such
difference refers to ownership and not to the class of land. The lands are the same in both sections, and, for the
conservation of the national patrimony, what is important is the nature or class of the property regardless of whether it
is owned by the State or by its citizens.

Reference is made to an opinion rendered on September 19, 1941, by the Hon. Teofilo Sison, then Secretary of
Justice, to the effect that residential lands of the public domain may be considered as agricultural lands, whereas
residential lands of private ownership cannot be so considered. No reason whatsoever is given in the opinion for such
a distinction, and no valid reason can be adduced for such a discriminatory view, particularly having in mind that the
purpose of the constitutional provision is the conservation of the national patrimony, and private residential lands are
as much an integral part of the national patrimony as the residential lands of the public domain. Specially is this so
where, as indicated above, the prohibition as to the alienable of public residential lots would become superflous if the
same prohibition is not equally applied to private residential lots. Indeed, the prohibition as to private residential lands
will eventually become more important, for time will come when, in view of the constant disposition of public lands
in favor of private individuals, almost all, if not all, the residential lands of the public domain shall have become
private residential lands.

It is maintained that in the first draft of section 5, the words "no land of private ownership" were used and later
changed into "no agricultural land of private ownership," and lastly into "no private agricultural land" and from these
changes it is argued that the word "agricultural" introduced in the second and final drafts was intended to limit the
meaning of the word "land" to land actually used for agricultural purposes. The implication is not accurate. The
wording of the first draft was amended for no other purpose than to clarify concepts and avoid uncertainties. The
words "no land" of the first draft, unqualified by the word "agricultural," may be mistaken to include timber and
mineral lands, and since under section 1, this kind of lands can never be private, the prohibition to transfer the same
would be superfluous. Upon the other hand, section 5 had to be drafted in harmony with section 1 to which it is
supplementary, as above indicated. Inasmuch as under section 1, timber and mineral lands can never be private, and
the only lands that may become private are agricultural lands, the words "no land of private ownership" of the first
draft can have no other meaning than "private agricultural land." And thus the change in the final draft is merely one
of words in order to make its subject matter more specific with a view to avoiding the possible confusion of ideas that
could have arisen from the first draft.

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

Page 11
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.

One of the fundamental principles underlying the provision of Article XIII of the Constitution and which was
embodied in the report of the Committee on Nationalization and Preservation of Lands and other Natural Resources of
the Constitutional Convention, is "that lands, minerals, forests, and other natural resources constitute the exclusive
heritage of the Filipino nation. They should, therefore, be preserved for those under the sovereign authority of that
nation and for their posterity." (2 Aruego, Framing of the Filipino Constitution, p. 595.) Delegate Ledesma, Chairman
of the Committee on Agricultural Development of the Constitutional Convention, in a speech delivered in connection
with the national policy on agricultural lands, said: "The exclusion of aliens from the privilege of acquiring public
agricultural lands and of owning real estate is a necessary part of the Public Land Laws of the Philippines to keep
pace with the idea of preserving the Philippines for the Filipinos." (Emphasis ours.) And, of the same tenor was the
speech of Delegate Montilla who said: "With the complete nationalization of our lands and natural resources it is to
be understood that our God-given birthright should be one hundred per cent in Filipino hands . . .. Lands and natural
resources are immovables and as such can be compared to the vital organs of a person's body, the lack of possession
of which may cause instant death or the shortening of life. If we do not completely antionalize these two of our most
important belongings, I am afraid that the time will come when we shall be sorry for the time we were born. Our
independence will be just a mockery, for what kind of independence are we going to have if a part of our country is
not in our hands but in those of foreigners?" (Emphasis ours.) Professor Aruego says that since the opening days of
the Constitutional Convention one of its fixed and dominating objectives was the conservation and nationalization of
the natural resources of the country. (2 Aruego, Framing of the Philippine Constitution, p 592.) This is ratified by the
members of the Constitutional Convention who are now members of this Court, namely, Mr. Justice Perfecto, Mr.
Justice Briones, and Mr. Justice Hontiveros. And, indeed, if under Article XIV, section 8, of the Constitution, an alien
may not even operate a small jitney for hire, it is certainly not hard to understand that neither is he allowed to own a
pieace of land.

This constitutional intent is made more patent and is strongly implemented by an act of the National Assembly passed
soon after the Constitution was approved. We are referring again to Commonwealth Act No. 141. Prior to the
Constitution, there were in the Public Land Act No. 2874 sections 120 and 121 which granted aliens the right to
acquire private only by way of reciprocity. Said section reads as follows:

SEC. 120. No land originally acquired in any manner under the provisions of this Act, nor any permanent
improvement on such land, shall be encumbered, alienated, or transferred, except to persons, corporations,
associations, or partnerships who may acquire lands of the public domain under this Act; to corporations
organized in the Philippine Islands authorized therefor by their charters, and, upon express authorization by
the Philippine Legislature, to citizens of countries the laws of which grant to citizens of the Philippine Islands
the same right to acquire, hold, lease, encumber, dispose of, or alienate land, or permanent improvements
thereon, or any interest therein, as to their own citizens, only in the manner and to the extent specified in such
laws, and while the same are in force but not thereafter.

SEC. 121. No land originally acquired in any manner under the provisions of the former Public Land Act or
of any other Act, ordinance, royal order, royal decree, or any other provision of law formerly in force in the
Philippine Islands with regard to public lands, terrenos baldios y realengos, or lands of any other
denomination that were actually or presumptively of the public domain or by royal grant or in any other form,
nor any permanent improvement on such land, shall be encumbered, alienated, or conveyed, except to
persons, corporations, or associations who may acquire land of the public domain under this Act; to corporate
bodies organized in the Philippine Islands whose charters may authorize them to do so, and, upon express
authorization by the Philippine Legislature, to citizens of the countries the laws of which grant to citizens of
the Philippine Islands the same right to acquire, hold, lease, encumber, dispose of, or alienate land or
pemanent improvements thereon or any interest therein, as to their own citizens, and only in the manner and

Page 12
 to the extent specified in such laws, and while the same are in force, but not thereafter: Provided, however,
That this prohibition shall not be applicable to the conveyance or acquisition by reason of hereditary
succession duly acknowledged and legalized by competent courts, nor to lands and improvements acquired or
held for industrial or residence purposes, while used for such purposes: Provided, further, That in the event of
the ownership of the lands and improvements mentioned in this section and in the last preceding section being
transferred by judicial decree to persons,corporations or associations not legally capacitated to acquire the
same under the provisions of this Act, such persons, corporations, or associations shall be obliged to alienate
said lands or improvements to others so capacitated within the precise period of five years, under the penalty
of such property reverting to the Government in the contrary case." (Public Land Act, No. 2874.)

It is to be observed that the pharase "no land" used in these section refers to all private lands, whether strictly
agricultural, residential or otherwise, there being practically no private land which had not been acquired by any of the
means provided in said two sections. Therefore, the prohibition contained in these two provisions was, in effect, that
no private land could be transferred to aliens except "upon express authorization by the Philippine Legislature, to
citizens of Philippine Islands the same right to acquire, hold, lease, encumber, dispose of, or alienate land." In other
words, aliens were granted the right to acquire private land merely by way of reciprocity. Then came the Constitution
and Commonwealth Act No. 141 was passed, sections 122 and 123 of which read as follows:

SEC. 122. No land originally acquired in any manner under the provisions of this Act, nor any permanent
improvement on such land, shall be encumbered, alienated, or transferred, except to persons, corporations,
associations, or partnerships who may acquire lands of the public domain under this Act or to corporations
organized in the Philippines authorized thereof by their charters.

SEC. 123. No land originally acquired in any manner under the provisions of any previous Act, ordinance,
royal order, royal decree, or any other provision of law formerly in force in the Philippines with regard to
public lands terrenos baldios y realengos, or lands of any other denomination that were actually or
presumptively of the public domain, or by royal grant or in any other form, nor any permanent improvement
on such land, shall be encumbered, alienated, or conveyed, except to persons, corporations or associations
who may acquire land of the public domain under this Act or to corporate bodies organized in the Philippines
whose charters authorize them to do so: Provided, however, That this prohibition shall not be applicable to the
conveyance or acquisition by reason of hereditary succession duly acknowledged and legalized by competent
courts: Provided, further, That in the event of the ownership of the lands and improvements mentioned in this
section and in the last preceding section being transferred by judicial decree to persons, corporations or
associations not legally capacitated to acquire the same under the provisions of this Act, such persons,
corporations, or associations shall be obliged to alienate said lands or improvements to others so capacitated
within the precise period of five years; otherwise, such property shall revert to the Government.

These two sections are almost literally the same as sections 120 and 121 of Act No. 2874, the only difference being
that in the new provisions, the right to reciprocity granted to aliens is completely stricken out. This, undoubtedly, is to
conform to the absolute policy contained in section 5 of Article XIII of the Constitution which, in prohibiting the
alienation of private agricultural lands to aliens, grants them no right of reciprocity. This legislative construction
carries exceptional weight, for prominent members of the National Assembly who approved the new Act had been
members of the Constitutional Convention.

It is said that the lot question does not come within the purview of sections 122 and 123 of Commonwealth Act No.
141, there being no proof that the same had been acquired by one of the means provided in said provisions. We are
not, however, diciding the instant case under the provisions of the Public Land Act, which have to refer to land that
had been formerly of the public domain, otherwise their constitutionality may be doubtful. 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 alien of any private agricultural land including residential land whatever its origin
might have been.

Page 13
And, finally, on June 14, 1947, the Congress approved Republic Act No. 133 which allows mortgage of "private real
property" of any kind in favor of aliens but with a qualification consisting of expressly prohibiting aliens to bid or take
part in any sale of such real property as a consequence of the mortgage. This prohibition makes no distinction
between private lands that are strictly agricultural and private lands that are residental 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. Had the Congress been of opinion that private residential
lands may be sold to aliens under the Constitution, no legislative measure would have been found necessary to
authorize mortgage which would have been deemed also permissible under the Constitution. But clearly it was the
opinion of the Congress that such sale is forbidden by the Constitution and it was such opinion that prompted the
legislative measure intended to clarify that mortgage is not within 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. 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 share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.

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.

Feria, Pablo, Perfecto, Hilado, and Briones, JJ., concur.

Separate Opinion

PERFECTO, J., concurring:

Today, which is the day set for the promulgation of this Court's decision might be remembered by future generations
always with joy, with gratitude, with pride. The failure of the highest tribunal of the land to do its duty in this case
would have amounted to a national disaster. We would have refused to share the responsibility of causing it by,
wittingly or unwittingly, allowing ourselves to act as tools in a conspiracy to sabotage the most important safeguard of
the age-long patrimony of our people, the land which destiny of Providence has set aside to be the permanent abode of
our race for unending generations. We who have children and grandchildren, and who expect to leave long and
ramifying dendriform lines of descendants, could not bear the thought of the curse they may fling at us should the day
arrive when our people will be foreigners in their fatherland, because in the crucial moment of our history , when the
vision of judicial statemanship demanded on us the resolution and boldness to affirm and withhold the letter and spirit
of the Constitution, we faltered. We would have prefered heroic defeat to inglorious desertion. Rather than abandon
the sacred folds of the banner of our convictions for truth, for justice, for racial survival. We are happy to record that
this Supreme Court turned an impending failure to a glorious success, saving our people from a looming catastrophe.

On July 3, 1946, the case of Oh Cho vs. Director of Lands, (43 Off. Gaz., 866), was submitted for our decision. The
case was initiated in the Court of First Instance of Tayabas on January 17, 1940, when an alien, Oh Cho, a citizen of
China, applied for title and registration of a parcel of land located in the residential district of Guinayangan, Tayabas,
with a house thereon. The Director of Lands opposed the application, one of the main grounds being that "the
applicant, being a Chinese, is not qualified to acquire public or private agricultural lands under the provisions of the
Constitution."

Page 14
On August 15, 1940, Judge P. Magsalin rendered decision granting the application. The Director of Lands appealed.
In the brief filed by Solicitor General Roman Ozaeta, afterwards Associate Justice of the Supreme Court and now
Secretary of Justice, and Assistant Solicitor General Rafael Amparo, appellant made only two assignments of error,
although both raised but one question, the legal one stated in the first assignment of error as follows:

The lower court erred in declaring the registration of the land in question in favor of the applicant who,
according to his own voluntary admission is a citizen of the Chinese Republic.

The brief was accompanied, as Appendix A, by the opinion of Secretary of Justice Jose A. Santos — who, while
Chief Justice of the Supreme Court, suffered heroic martyrdom at the hands of the Japanese — addressed to the
Secretary of Agriculture and Commerce on July 15, 1939, supporting the same theory as the one advanced by the
Director of Lands. The same legal question raised by appellant is discussed, not only in the brief for the appellee, but
also in the briefs of the several amici curiae allowed by the Supreme Court to appear in the case.

As a matter of fact, the case has been submitted for final decision of the Supreme Court since July of 1941, that is, six
years ago. It remained undecided when the Pacific War broke out in December, 1941. After the Supreme Court was
recognized in the middle of 1945, it was found that the case was among those which were destroyed in February,
1945, during the battle for the liberation of Manila. The case had to be reconstituted upon motion of the office of the
Solicitor General, filed with this Court on January 14, 1946, in which it was also prayed that, after being reconstituted,
the case be submitted for final adjudication. The case was for the second time submitted for decision on July 3, 1946.

After the last submission, it took the Supreme Court many days to deliberate on the case, especially on the legal
question as to whether an alien may, under the Constitution, acquire private urban lands. An overwhelming majority
answered no. But when the decision was promulgated on August 31, 1946, a majority resolved to ignore the question,
notwithstanding our efforts to have the question, which is vital, pressing and far-reaching, decided once and for all, to
dispel definitely the uncertainty gnawing the conscience of the people. It has been out lot to be alone in expressing in
unmistakable terms our opinion and decision on the main legal question raised by the appellant. The constitutional
question was by-passed by the majority because they were of opinion that it was not necessary to be decided,
notwithstanding the fact that it was the main and only legal question upon which appellant Director of Lands relied in
his appeal, and the question has been almost exhaustively argued in four printed briefs filed by the parties and
the amici curiae. Assurance was, nevertheless, given that in the next case in which the same constitutional question is
raised, the majority shall make known their stand on the question.

The next case came when the present one submitted to us for decision on February 3, 1947. Again, we deliberated on
the constitutional question for several days.

On February 24, 1947, the case was submitted for final vote, and the result was that the constitutional question was
decided against petitioner. The majority was also overwhelming. There were eight of us, more than two-thirds of the
Supreme Court. Only three Justices dissented.

While the decision was being drafted, somehow, the way the majority had voted must have leaked out. On July 10,
1947, appellant Krivenko filed a motion for withdrawal of his appeal, for the evident purpose of preventing the
rendering of the majority decision, which would settle once and for all the all-important constitutional question as to
whether aliens may acquire urban lots in the Philippines.

Appellant chose to keep silent as to his reason for filing the motion. The Solicitor General's office gave its conformity
to the withdrawal of the appeal. This surprising assent was given without expressing any ground at all. Would the
Supreme Court permit itself to be cheated of its decision voted since February 24, 1947?

Discussion immediately ensued as to whether the motion should be granted or denied, that is, whether this Court
should abstain from promulgating the decision in accordance with the result of the vote taken on February 24, 1947,

Page 15
as if, after more than six years during which the question has been submitted for the decision of the highest tribunal of
the land, the same has failed to form a definite opinion.

After a two-day deliberation, the Chief Justice, Mr. Justice Paras, Mr. Justice Hontiveros, Mr. Justice Padilla and and
Mr. Justice Tuason voted to grant the motion for withdrawal. Those who voted to deny the motion were Mr. Justice
Feria, Mr. Justice Pablo, ourselves, Mr. Justice Hilado and Mr. Justice Bengzon. The vote thus resulted in a tie, 5-5.
The deadlock resulting from the tie should have the effect of denying the motion, as provided by section 2 of Rule 56
to the effect that "where the Court in banc is equally divided in opinion . . . on all incidental matters, the petition or
motion shall be denied." And we proposed that the rule be complied with, and the denial be promulgated.

Notwithstanding this, as Mr. Justice Briones was then absent, our brethren resolved to give him the opportunity of
casting his vote on the question, although we insisted that it was unnecessary. Days later, when all the members of the
Court were already present, a new vote was taken. Mr. Justice Briones voted for the denial of the motion, and his vote
would have resulted, as must be expected, in 6 votes for the denial against 5 for granting. But the final result was
different. Seven votes were cast for granting the motion and only four were cast for its denial.

But then, by providential design or simply by a happy stroke of luck or fate, on the occasion of the registration by the
register of deeds of Manila of land purchases of two aliens, a heated public polemic flared up in one section of the
press, followed by controversial speeches, broadcast by radio, and culminating in the issuance on August 12, 1947, of
Circular No. 128 of the Secretary of Justice which reads as follows:

TO ALL REGISTER OF DEEDS:

Paragraph 5 of Circular No. 14, dated August 25, 1945, is hereby amended so as to read as follows:

5"(a). Instruments by which private real property is mortgaged in favor of any individual, corporation, or
association for a period not exceeding five years, renewable for another five years, may be accepted for
registration. (Section 1, Republic Act No. 138.)

"(b). Deeds or documents by which private residential, commercial, industrial or other classes of urban lands,
or any right, title or interest therein is transferred, assigned or encumbered to an alien, who is not an enemy
national, may be registered. Such classes of land are not deemed included within the purview of the
prohibition contained in section 5, Article XIII of the Constitution against the acquisition or holding
of "private agricultural land" by those who are not qualified to hold or acquire lands of the public domain.
This is in conformity with Opinion No. 284, series of 1941, of the Secretary of Justice and with the practice
consistently followed for nearly ten years since the Constitution took effect on November 15, 1935.

"(c). During the effectivity of the Executive Agreement entered into between the Republic of the Philippines
and the Government of the United States on July 4, 1946, in pursuance of the so-called Parity Amendment to
the Constitution, citizens of the United States and corporations or associations owned or controlled by such
citizens are deemed to have the same rights as citizens of the Philippines and corporations or associations
owned or controlled by such are deemed to have the same rights as citizens of the Philippines and
corporations or associations owned or controlled by citizens of the Philippines in the acquisition of all classes
of lands in the Philippines, whether of private ownership or pertaining to the public domain."

ROMAN OZAETA
Secretary of Justice

Paragraph 5 of Circular No. 14 dated August 25, 1945, amended by the above is as follows:

Deeds or other documents by which a real property, or a right, or title thereto, or an interest therein, is
transferred, assigned or encumbered to an alien, who is not enemy national, may be entered in the primary

Page 16
 entry book; but, the registration of said deeds or other documents shall be denied — unless and/or until
otherwise specifically directed by a final decision or order of a competent court — and the party in interest
shall be advised of such denial, so that he could avail himself of the right to appeal therefrom, under the
provisions of section 200 of the Revised Administrative Code. The denial of registration of shall be
predicated upon the prohibition contained in section 5, Article XIII (formerly Article XII) of the Constitution
of the Philippines, and sections 122 and 123 of Commonwealth Act No. 141, the former as amended by the
Commonwealth Act No. 615.

The polemic found echo even in the Olympic serenity of a cloistered Supreme Court and the final result of long and
tense deliberation which ensued is concisely recorded in the following resolution adopted on August 29, 1947:

In Krivenko vs. Register of Deeds, City of Manila, L-630, a case already submitted for decision, the appellant
filed a motion to withdraw his appeal with the conformity of the adverse party. After full discussion of the
matter specially in relation to the Court's discretion (Rule 52, section 4, and Rule 58), Mr. Justice Paras, Mr.
Justice Hilado, Mr. Justice Bengzon, Mr. Justice Padilla and Mr. Justice Tuazon voted to grant, while the
Chief Justice, Mr. Justice Feria, Mr,. Justice Pablo, Mr. Justice Perfecto and Mr. Justice Briones voted to deny
it. A redeliberation was consequently had, with the same result. Thereupon Mr. Justice Paras proposed that
Mr. Justice Hontiveros be asked to sit and break the tie; but in view of the latter's absence due to illness and
petition for retirement, the Court by a vote of seven to three did not approve the proposition. Therefore, under
Rule 56, section 2, the motion to withdraw is considered denied.

Mr. Justice Padilla states that in his opinion the tie could not have the effect of overruling the previous vote of
seven against four in favor of the motion to withdraw.

Mr. Justice Paras states: Justice Hontiveros is aware of and conversant with the controversy. He has voted
once on the motion to withdraw the appeal. He is still a member of the Court and, on a moment's notice, can
be present at any session of the Court. Last month, when all the members were present, the votes on the
motion stood 7 to 4. Now, in the absence of one member, on reconsideration, another changed his vote
resulting in a tie. Section 2 of Rule 56 requires that all efforts be exerted to break a deadlock in the votes. I
deplore the inability of the majority to agree to my proposition that Mr. Justice Hontiveros be asked to
participate in the resolution of the motion for withdrawal. I hold it to be fundamental and necessary that the
votes of all the members be taken in cases like this.

Mr. Justice Perfecto stated, for purposes of completeness of the narration of facts, that when the petition to
withdraw the appeal was submitted for resolution of this Court two days after this petition was filed, five
justices voted to grant and five others voted to deny, and expressed the opinion that since then, according to
the rules, the petition should have been considered denied. Said first vote took place many days before the one
alluded to by Mr. Justice Padilla.

Mr. Justice Tuason states: The motion to withdraw the appeal was first voted upon with the result that 5 were
granting and 5 for denial. Mr. Justice Briones was absent and it was decided to wait for him. Some time later,
the same subject was deliberated upon and a new voting was had, on which occasion all the 11 justices were
present. The voting stood 7 for allowing the dismissal of the appeal and 4 against. Mr. Justice Perfecto and
Mr. Justice Briones expressed the intention to put in writing their dissents. Before these dissents were filed,
about one month afterwards, without any previous notice the matter was brought up again and re-voted upon;
the result was 5 to 5. Mr. Justice Hontiveros, who was ill but might have been able to attend if advised of the
necessity of his presence, was absent. As the voting thus stood, Mr. Justice Hontiveros' vote would have
changed its result unless he changed his mind, a fact of which no one is aware. My opinion is that since there
was no formal motion for reconsideration nor a previous notice that this matter would be taken up once more,
and since Mr. Justice Hontiveros had every reason to believe that the matter was over as far as he was
concerned, this Justice's vote in the penultimate voting should, if he was not to be given an opportunity to
recast his vote, be counted in favor of the vote for the allowance of the motion to withdraw. Above all, that

Page 17
 opportunity should not have been denied on grounds of pure technicality never invoked before. I counted that
the proceeding was arbitrary and illegal.

The resolution does not recite all the reasons why Mr. Justice Hontiveros did not participate in that last two votings
and why it became unnecessary to wait for him any further to attend the sessions of the Court and to cast his vote on
the question.

Appellant Krivenko moved for the reconsideration of the denial of his withdrawal of appeal, alleging that it became
moot in view of the ruling made by the Secretary of Justice in circular No. 128, thus giving us a hint that the latter,
wittingly or unwittingly, had the effect of trying to take away from the Supreme Court the decision of an important
constitutional question, submitted to us in a pending litigation. We denied the motion for reconsideration. We did not
want to entertain any obstruction to the promulgation of our decision.

If the processes had in this case had been given the publicity suggested by us for all the official actuations of this
Supreme Court, it should have been known by the whole world that since July, 1946, that is, more than a year ago, the
opinion of the members of this Court had already been crystallized to the effect that under the Constitution, aliens are
forbidded from acquiring urban lands in the Philippines, and it must have known that in this case a great majority had
voted in that sense on February 24, 1947.

The constitutional question involved in this case cannot be left undecided without jeopardizing public interest. The
uncertainty in the public mind should be dispelled without further delay. While the doubt among the people as to what
is the correct answer to the question remains to be dissipated, there will be uneasiness, undermining public morale and
leading to evils of unpredictable extent. This Supreme Tribunal, by overwhelming majority, already knows what the
correct answer is, and should not withhold and keep it for itself with the same zealousness with which the ancient
families of the Eumolpides and Keryces were keeping the Eleusinian mysteries. The oracle of Delphus must speak so
that the people may know for their guidance what destiny has in store for them.

The great question as to whether the land bequeathed to us by our forefathers should remain as one of the most
cherished treasures of our people and transmitted by inheritance to unending generations of our race, is not a new one.
The long chain of land-grabbing invasions, conquests, depredations, and colonial imperialism recorded in the darkest
and bloodiest pages of history from the bellicose enterprises of the Hittites in the plains of old Assyria, irrigated by
the waters of the Tigris and Euphrates, and the invasion of Egypt by the Hyksos, up to the conquests of Hernan Cortes
and Pizarro, the achievements of Cecil Rhodes, and the formation of the Spanish, Portuguese, Dutch, French and
German colonial empires, had many of its iron links forged in our soil since Magellan, the greatest navigator of all
history, had set foot at Limasawa and paid, for his daring enterprises, with his life at the hands of Lapulapu's men in
the battle of Mactan.

Since then, almost four centuries ago, our people have continuously been engaged in an unrelentless struggle to
defend the national patrimony against the aggressive onslaughts of foreigners bent on grabbing our lands. First came
the Spanish encomenderos and other gratuitous concessioners who were granted by the Spanish crown immense areas
of land. Immediately came the friars and other religious corporations who, notwithstanding their sacred vow of
poverty, felt their greed whetted by the bountiful opportunities for easy and unscrupulous enrichment. Taking
advantage of the uncontrollable religious leadership, on one side, and of the Christian virtues of obedience,
resignation, humility, and credulity of a people who, after conversion to Catholicism, embraced with tacit faith all its
tenets and practiced them with the loyalty and fidelity of persons still immune from the disappointments and
bitterness caused by the vices of modern civilization, the foreign religious orders set aside all compunction to acquire
by foul means many large estates. Through the practice of confession and other means of moral intimidation, mostly
based on the eternal tortures of hell, they were able to obtain by donation or by will the lands of many simple and
credulous Catholics who, in order to conquer the eternal bliss of heaven, renounced all their property in favor of
religious orders and priests, many under the guise of chaplaincies or other apparently religious purposes, leaving in
destitute their decendants and relatives. Thus big religious landed estates were formed, and under the system
unbearable iniquities were committed. The case of the family of Rizal is just an index of the situation, which, under

Page 18
the moral leadership of the hero, finally drove our people into a national revolution not only against the Spanish
sovereignty under which the social cancer had grown to unlimited proportions.

Profiting from the lessons of history, the Delegates to our Constitutional Convention felt it their duty to insert in the
fundamental law effective guarantees for conserving the national patrimony, the wisdom of which cannot be disputed
in a world divided into nations and nationalities. In the same way that scientists and technicians resorted to radar,
sonars, thermistors and other long range detection devices to stave off far-away enemy attacks in war, said Delegates
set the guarantees to ward off open inroads or devious incursions into the national patrimony as a means of insuring
racial safety and survival.

When the ideal of one world should have been translated into reality, those guarantees might not be needed and our
people may eliminate them. But in the meantime, it is our inescapable devoir, as the ultimate guardians of the
Constitution, never to neglect the enforcement of its provisions whenever our action is called upon in a case, like the
one now before us.

One of the fundamental purposes of the government established by our Constitution is, in its very words, that it "shall
conserve and develop the patrimony of the nation." That mandate is addressed to all departments and branches of our
government, without excluding this Supreme Court. To make more specific the mandate, Article XIII has been
inserted so as to avoid all doubt that all the natural resources of the country are reserved to Filipino citizens. Our land
is the most important of our natural resources. That land should be kept in the hands of our people until, by
constitutional amendment, they should decide to renounce that age-long patrimony. Save by hereditary succession —
the only exception allowed by the Constitution — no foreigner may by any means acquire any land, any kind of land,
in the Philippines. That was the overwhelming sentiment prevailing in the Constitutional Convention, that was the
overpowering desire of the great majority of the Delegates, that was the dominating thought that was intended to be
expressed in the great document, that was what the Committee on Style — the drafter of the final text — has written
in the Constitution, and that was what was solemnly ratified in the plebiscite by our people, who then were rankling
by the sore spot of illegally Japanized Davao.

The urgency of settling once and forever the constitutional question raised in this case cannot be
overemphasized. If we should decide this question after many urban lots have been transferred to and
registered in the name of alien purchasers, a situation may be created in which it will be hard to nullify the
transfers and the nullification may create complications and problems highly distasteful to solve. The Georgia
case is an objective lesson upon which we can mirror ourselves. From pages 22 and 23 of the book of
Charless P. Curtiss, Jr. entitled "Lions Under the Throne," we quote the following:

It is of interest that it seems to have happened chiefly in important cases. Fletcher vs. Peck, in 1810, is the
stock example. That was the first case in which the Court held a state statute void. It involved a national
scandal. The 1795 legislature of Georgia sold its western lands, most of Alabama and Mississippi, to
speculators. Perhaps it was the greatest real estate steal in our history. The purchase price was only half a
million dollars. The next legislature repealed the statute for fraud, the bribery of legislator, but not before the
land companies had completed the deal and unloaded. By that time, and increasingly soon afterwards, more
and more people had bought, and their title was in issue. Eleven million of the acres had been bought for
eleven cents an acre by leading citizens of Boston. How could they clear their title? Alexander Hamilton gave
an opinion, that the repeal of the grant was void under the Constitution as an impairment of the obligation of a
contract.

But could they not get a decision from the Supreme Court? Robert Fletcher of Anhirst, New Hampshire, had
bought fifteen thousand acres from John Peck of Boston. He sued Peck, and he won. Fletcher appealed.
Plainly it was a friendly suit. Marshall was nobody's fool. He told Cranch that the Court was reluctant to
decide the case "as it appeared manifestly made up for the purpose of getting the Court's judgment." John
Quincy Adams so reports in his diary. Yet Marshall decided it, and he held the repeal void, just as Hamilton
said it was. "The fact that Marshall rendered an opinion, under the circumstances," says Beveridge, "is one of

Page 19
 the finest proofs of his greatness. A weaker man than John Marshall, and one less wise and courageous,
would have dismissed the appeal." That may be, but it was the act of a stateman, not of a judge. The Court has
always been able to overcome its judicial diffidence on state occasions.

We see from the above how millions of acres of land were stolen from the people of Georgia and due to legal
technicalities the people were unable to recover the stolen property. But in the case of Georgia, the lands had fallen
into American hands and although the scandal was of gigantic proportions, no national disaster ensued. In our case if
our lands should fall into foreign hands, although there may not be any scandal at all, the catastrophe sought to be
avoided by the Delegates to our Constitutional Convention will surely be in no remote offing.

We conclude that, under the provisions of the Constitution, aliens are not allowed to acquire the ownership of urban
or residential lands in the Philippines and, as consequence, all acquisitions made in contravention of the prohibitions
since the fundamental law became effective are null and void per se and ab initio. As all public officials have sworn,
and are duty bound, to obey and defend the Constitution, all those who, by their functions, are in charge of enforcing
the prohibition as laid down and interpreted in the decision in this case, should spare no efforts so that any and all
violations which may have taken place should be corrected.

We decide, therefore, that, upon the above premises, appellant Alexander A. Krivenko, not being a Filipino citizen,
could not acquire by purchase the urban or residential lot here in question, the sale made in his favor by the
Magdalena Estate, Inc. being null and void ab initio, and that the lower court acted correctly in rendering the appealed
decision, which we affirm.

HILADO, J., concurring:

Upon appellant's motion to withdraw his appeal herein with the conformity of the Solicitor General in behalf of
appellee, indulging, at that time, all possible intendments in favor of another department, I ultimately voted to grant
the motion after the matter was finally deliberated and voted upon. But the votes of the ten Justices participating were
evenly divided, and under Rule 52, section 4, in relation, with Rule 56, section 2, the motion was denied. The
resolution to deny was adopted in the exercise of the court's discretion under Rule 52, section 4, by virtue of which it
has discretion to deny the withdrawal of the appeal even though both appellant and appellee agree upon the
withdrawal, when appellee's brief has been filed. Under the principle that where the necessary number have concurred
in an opinion or resolution, the decision or determination rendered is the decision or determination of the court (2
C.J.S., 296), the resolution denying the motion to withdraw the appeal was the resolution of the court. Pursuant to
Rule 56, section 2, where the court in banc is equally divided in opinion, such a motion "shall be denied." As a
necessary consequence, the court as to decide the case upon the merits.

After all, a consistent advocate and defender of the principle of separation of powers in a government like ours that I
have always been, I think that under the circumstances it is well for all concerned that the Court should go ahead and
decide the constitutional question presented. The very doctrine that the three coordinate, co-equal and independent
departments should be maintained supreme in their respective legitimate spheres, makes it at once the right and duty
of each to defend and uphold its own peculiar powers and authority. Public respect for and confidence in each
department must be striven for and kept, for any lowering of the respect and diminution of that confidence will in the
same measure take away from the very usefulness of the respective department to the people. For this reason, I
believe that we should avert and avoid any tendency in this direction with respect to this Court.

I am one of those who presume that Circular No. 128, dated August 12, 1947, of the Secretary of Justice, was issued
in good faith. But at the same time, that declaration in sub-paragraph (b) of paragraph 5 of Circular No. 14, which was
already amended, to the effect that private residential, commercial, industrial or other classes of urban lands "are not
deemed included within the purview of the prohibition contained in section 5, Article XIII, of the Constitution", made
at a time when the self-same question was pending decision of this Court, gives rise to the serious danger that should
this Court refrain from deciding said question and giving its own interpretation of the constitutional mandate, the
people may see in such an attitude an abandonment by this Court of a bounden duty, peculiarly its own, to decide a

Page 20
question of such a momentous transcedence, in view of an opinion, given in advance of its own decision, by an officer
of another department. This will naturally detract in no small degree from public respect and confidence towards the
highest Court of land. Of course, none of us — the other governmental departments included — would desire such a
situation to ensue.

I have distinctively noticed that the decision of the majority is confined to the constitutional question here presented,
namely, "whether or not an alien under our Constitution may acquire residential land." (Opinion, p. 2) Leases of
residential lands, or acquisition, ownership or lease of a house or building thereon, for example, are not covered by
the decision.

With these preliminary remarks and the statement of my concurrence in the opinion ably written by the Chief Justice,
I have signed said decision.

BRIONES, M., conforme:

Estoy conforme en un todo con la ponencia, a la cual no e puede añadir ni quitar nada, tal es su acabada y compacta
elaboracion. Escribo, sin embargo, esta opinion separada nada mas que para unas observaciones, particularmente
sobre ciertas fases extraordinarias de este asunto harto singular y extraordinario.

I. Conforme se relata en la concurrencia del Magistrado Sr. Perfecto, despues de laboriosas deliberaciones este asunto
se puso finalmente a votacion el 24 de Febrero de este año, confirmandose la sentencia apelada por una buena
mayoria. En algunos comentarios adelantados por cierta parte de la prensa — impaciencia que solo puede hallar
explicacion en un nervioso y excesivo celo en la vigilancia de los intereses publicos, maxime tratandose, como se
trata, de la conservacion del patrimonio nacional — se ha hecho la pregunta de por que se ha demorado la
promulgacion de la sentencia, habiendose votado el asunto todavia desde case comienzos del año.

A simple vista, la pregunta tiene justificacion; pero bien considerados los hechos se vera que no ha habido demora en
el presente caso, mucho menos una demora desusada, alarmante, que autorice y justifique una critica contra los
metodos de trabajo de esta corte. El curso seguido por el asunto ha sido normal, bajo las circunstancias. En realidad,
no yan en esta Corte ahora, sino aun en el pasado, antes de la guerra, hubo mas lentitud en casos no tan dificiles ni tan
complicados como el que nos ocupa, en que las cuestiones planteadas y discutidas no tenian la densidad constitucional
y juridica de las que se discuten en el presente caso. Hay que tener en cuenta que desde el 24 de Febrero en que se
voto finalmente el asunto hasta el 1.0 de Abril en que comenzaron las vacaciones judiciales, no habian transcurrido
mas que 34 dias; y cuando se reanudaron formalmente las sesiones de esta Corte en Julio se suscito un incidente de lo
mas extraordinario — incidente que practicamente vino a impedir, a paralizar la pronta promulgacion de la sentencia.
Me refiero a la mocion que el 10 de Julio persentaron los abogados del apelante pidiendo permiso para retirar su
apelacion. Lo sorpredente de esta mocion es que viene redactada escuetamente, sin explicar el por que de la retirada,
ni expresar ningun fundamento. Pero lo mas sorpredente todavia es la conformidad dada por el Procurador General,
tambien escueta e inceremoniosamente.

Digo que es sorprendente la retirada de la apelacion porque pocos casos he visto que hayan sido arguidos con tanta
energiaa, tanto interes y tanto celo por la parte apelante como este que nos ocupa. Los abogados del apelante no solo
presentaron un alegato concienzudo de 34 paginas, sino que cuando se llamo a vista el asunto informaron verbalmente
ante esta Corte argumentando vigorosa y extensamente sobre el caso. El Procurador General, por su parte, ha
presentado un alegato igualmente denso, de 31 paginas, en que se discuten acabadamente, hasta el punto maximo de
saturacion y agotamiento, todos los angulos de la formidable cuestion constitutional objeto de este asunto. Tambien
informo el Procurador General verbalmente ante esta Corte, entablando fuerte lid con los abogados del apelante.

Con la mocion de retirada de la apelacion se hubo de retardar necesariamente la promulgacion de la sentencia, pues
trabajosas deliberaciones fueron necesarias para resolver la cuestion, dividiendose casi por igual los miembros de la
Corte sobre si debia o no permitirse la retirada. Habia unanimidad en que bajo la regla 52, seccion 4, del Reglamento
de los Tribunales teniamos absoluta discrecion para conceder o denegar la mocion, toda vez que los alegatos estaban

Page 21
sometidos desde hacia tiempo, el asunto estaba votado y no faltaba mas que la firma y promulgacion de la decision
juntamente con las disidencias. Sin embargo, algunos Magistrados opinaban que la discrecion debia ejercitarse en
favor de la retirada en virtud de la practica de evitar la aplicacion de la Constitucion a la solucion de un litigio siempre
que se puede sentenciarlo de otra manera. (Entre los Magistrados que pensaban de esta manera se incluian algunos
que en el fundo del asunto estaban a favor de la confirmacion de la sentencia apelada, es decir, creian que la
Constitucion prohibe a los extranjeros la adquisicion a titulo dominical de todo genero de propiedad inmueble, sin
excluir los solares residenciales, comerciales e industriales.) Pero otros Magistrados opinaban que en el estado tan
avanzado en que se hallaba el asunto los dictados del interes publico y de la sana discrecion requerian imperiosamente
que la cuestion se atacase y decidiese frontalmente; que si una mayoria de esta Corte estaba convencida, como al
parecer lo estaba, de que existia esa interdiccion constitucional contra la facultad adquisitiva de los extranjeros,
nuestro claro deber era apresurarnos a dar pleno y positivo cumplimiento a la Constitucion al presentarse la primera
oportunidad; que el meollo del asunto, la lis mota era eso — la interdiccion constitucional — ; por tanto, no habia otra
manera de decidirlo mas que aplicando la Constitucion; obrar de otra manera seria desercion, abandono de un deber
jurado.

Asi estaban las deliberaciones cuando ocurre otro incidente mucho mas extraordinario y sorprendente todavia que la
retirada no explicada de la apelacion con la insolita conformidad del Procurador General; algo asi como si de un cielo
sereno, sin nubes, cayera de pronto un bolido en medio de nosotros, en medio de la Corte: me refiero a la circular
num. 128 del Secretario de Justicia expedida el 12 de Agosto proximo pasado, esto es, 32 dias despues de presentada
la mocion de retirada de la apelacion. Esa circular se cita comprensivamente en la ponencia y su texto se copia
integramente en la concurrencia del Magistrado Sr. Perfecto; asi que me creo excusado de transcibirla in toto. En
breves terminos, la circular reforma el parrafo 5 de la circular num. 14 del mismo Departamento de Justicia de fecha
25 de Agosto, 1945, y levanta la prohibicion o interdiccion sobre el registro e inscripcion en el registro de la
propiedad de las "escrituras o documentos en virtud de los cuales terrenos privados residencias, comerciales,
industriales u otras clases de terrenos urbanos, o cualquier derecho, titulo o interes en ellos, se transfieren, ceden o
gravan a un extranjero que no es nacional enemigo." En otras palabras, el Secretario de Justicia, por medio de esta
circular dejaba sin efecto la prohibicion contenida en lacircular num. 14 del mismo Departamento — la prohibicion
que precisamente ataca el apelante Krivenko en el asunto que tenemos ante Nos — y authorizaba y ordenaba a
todoslos Registradores de Titulos en Filipinas para que inscribiesen las escrituras o documentos de venta, hipoteca o
cualquier otro gravamen a favor de extranjeros, siempre que no se tratase de terrenos publicos o de "terrenos privados
agricolas," es decir, siempre que los terrenos objeto de la escritura fuesen "residenciales, comerciales e industriales."

La comparacion de esa circular con un bolido caido subitamenteen medio de la Corte no es un simple tropo, no esuna
mera imagen retorica; refleja una verdadera realidad.Esa circular, al derogar la prohibicion decretada en elparrafo 5 de
la circular num. 14 — prohibicion que, comoqueda dicho, es precisamente el objeto del presente asunto — venia
practicamente a escamotear la cuestion discutida, lacuestion sub judice sustrayendola de la jurisdiccion de
lostribunales. Dicho crudamente, el Departamento de Justiciavenia a arrebatar el asunto de nuestras manos, delas
manos de esta Corte, anticipandose a resolverlo por simismo y dando efectividad y vigor inmediatos a su
resolucionmediante la correspondiente autorizacion a los Registradoresde Titulos.

A la luz de esa circular queda perfectamente explicadala mocion de retirada de la apelacion consentida
insolitamentepor el Procurador General. ¿ Para que esperar ladecision de la Corte Suprema que acaso podria ser
adversa? ¿ No estaba ya esa circular bajo la cual podian registrarseahora la ventas de terrenos residenciales,
comerciales oindustriales a extranjeros? Por eso no es extraño quelos abogados del apelante Krivenko, en su mocion
de 1.0 de Septiembre, 1947, pidiendo la reconsideracion de nuestroauto denegando la retirada de la apelacion, dijeran
porprimera vez como fundamento que la cuestion ya era simplemente academica ("question is now moot") en vista
deesa circular y de la conformidad del Procurador Generalcon la retirada de la apelacion. He aqui las propias palabras
de la mocion del apelante Krivenko:

In view of Circular No. 128 of the Department of Justice, dated August 12, 1947, which amends Circular No.
14 by expressly authorizing the registration of the sale of urban lands to aliens, and in view of the fact that the
Solicitor General has joined in the motion for withdrawal of the appeal, there is no longer a controversy

Page 22
 between the parties and the question is now moot. For this reason the court no longer has jurisdiction to act on
the case.1

Lo menos que se puede decir de esa accion del Departamentode Justicia atravesandose en el camino de los
tribunalesmientras un asunto esta sub judice, es que ello no tieneprecedentes, que yo sepa, en los anales de la
administracionde justicia en Filipinas en cerca de medio siglo que llevamosde existencia bajo un gobierno
constitucional y sustancialmente republicano. Ni aun en los llamados dias del Imperio, cuando la soberania americana
era mas propensa a manejar el baston grueso y afirmar vigorosamente losfueros de su poder y autoridad, se vio jamas
a un departamento de Justicia o a alguna de sus dependencias entrometerseen el ejercicio ordenado por los tribunales
de sujurisdiccion y competencia. Era una tradicion firmamenteestablecida en las esfersas del Poder Ejecutivo —
tradicioninviolada e inviolable — maxime en el Departamento de Justicia y en la Fiscalia General, el inhibirse de
expresar algunaopinion sobre un asunto ya sometido a los tribunales, excepto cuando venian llamados a hacerlo, en
representaciondel gobierno, en los tramites de un litigio, civil o criminal,propiamente planteado ante dichos
tribunales. Fuera deestos casos, la inhibicion era tradicionalmente absoluta,observada con la devocion y la
escrupulosidad de un rito.Y la razon era muy sencilla: hamas se queria estorbar nientorpecer la funcion de los
tribunales de justicia, loscuales, bajo la carta organica y las leyes, tenian absolutoderecho a actuar con maximo
desembarazo, libres de todaingerencia extraña. Esto se hizo bajo la Ley Cooper; estose hizo bajo la Ley Jones; y esto
se hizo bajo la Ley Tydings-McDuffie, la ley organica del Commonwealth. Creo que el pueblo filipino tiene derecho a
que eso mismo se haga bajo el gobierno de la Republica, que es suyo, que es de su propia hechura. ¡ No faltaba mas
que los hombres de su propia raza le nieguen lo que no le negaron gobernantesde otra raza!

No se niega la facultad de supervision que tiene el Departamento de Justicia sobre las oficinas y dependenciasque
caen bajo su jurisdiccion, entre ellas las varias oficinasde registro de la propiedad en Manila y en las
provincias.Tampoco se niega la facultad que tiene dicho Departamentopara expedir circulares, ya de caracter
puramente administrativo,ya de caracter semijudicial, dando instrucciones,vgr., a los registradores acerca de como
deben desempenarsus funciones. De hecho la circular num. 14 de 25 deAgosto, 1945, es de esta ultima naturaleza: en
ella seinstruye y ordena a los registradores de titulos que noregistren ni inscriban ventas de propiedad inmueble
aextranjeros, asi sean terrenos residenciales, comerciales oindustriales. Pero la facultad llega solo hasta alli; fuerade
esas fronteras el campo ya es pura y exclusivamentejudicial. Cuando una determinada circular del Departamentoa los
registradores es combatida o puesta en telade juicio ante los tribunales, ora por fundamentosconstitucionales, ora por
razones meramente legales, ya no esel Departamento el que tiene que determinar o resolverla disputa, sino que eso
compete en absoluto a los tribunalesde justicia. Asi lo dispone terminantemente el articulo200 del Codigo
Administrativo. Segun este articulo, elasunto o disputa debe elevarse en forma de consulta a la Sala Cuarta del
Juzgado de Primera Instancia de Manila.La ley no confiere ninguna facultad al Departamento deJusticia para enjuiciar
y decidir el caso. Y cuando unaparte no estuviere conforme con la decision de la SalaCuarta, ella puede alzarse de la
sentencia para ante laCorte Suprema. He aqui el texto integro del articulo 200 del Codigo Administrativo:

SEC. 200. Reference of doubtful matter to judge of fourth branch of Court of First Instance at Manila. —
When the register of deeds is in doubt with regard to the proper step to be taken or memorandum to be made
in pursuance of any deed, mortgage, or other instrument presented for registration or where any party in
interest does not agree with the register of deeds with reference to any such matter, the question shall be
referred to the judge of the fourth branch of the Court of First Instance of the Ninth Judicial District either on
the certificate of the register of deeds stating the question upon which he is in doubt or upon the suggestion in
writing of the party in interest; and thereupon said judge, upon consideration of the matter as shown by the
record certified to him, and in case of registered lands, after notice to the parties and hearing, shall enter an
order prescribing the step to be taken or memorandum to be made.

Tal es lo que ha ocurrido en el presente caso. Krivenkopresento su escritura de compraventa al Registrador de

laPropiedad de Manila. Este denego la inscripcion solicitadaen virtud de la prohibicion contenida en la circular
num.14. ¿ Que hizo Krivenko entonces? Elevo acaso el asuntoal Departamento de Justicia? No. Lo que hicieron
susabogados entonces fue presentar una demanda el 23 de Noviembre, 1945, contra el Registrador de Titulos ante
laSala Cuarta del Juzgado de Primera Instancia de Manila,numerandose dicha demanda como consulta num. 1289;

Page 23
ycuando esta Sala decidio el asunto confirmando la acciondel Registrador, Krivenko trajo a esta Corte la apelacionque
estamos considerando. Tan elemental es esto que enla misma circular num. 14 se dice que la prohibicion
quedadecretada hasta que los tribunales resuelvan lo contrario. He aqui la fraseologia pertinente de dicha circularnum.
14:

. . . the registration of said deeds or other documents shall be denied, — unless and /or until otherwise
specifically directed by a final decision or order of a competent court — and the party in interest shall be
advised of such denial, so that he could avail himself of the right to appeal therefrom, under the provisions of
section 200 of the Revised Administrative Code.

La posicion de la Corte Suprema ante este caso claro ypositivo de intromision (interference) en sus funciones esde lo
mas peculiar. Tenemos en el Reglamento de losTribunales algunas disposiciones que proveen sancion pordesacato
para ciertos actos de intromision en el ejercicio de lasfunciones judiciales.2 Pero se preguntara naturalmente;son
aplicables estas disposiciones cuando la intromisionprocede de un ramo del poder ejecutivo, el cual, como sesabe, en
la mecanica de los poderes del Estado, es — usandoun anglicismo-coigual y coordinado con el poder judicial,maxime
si esa intromision se ha realizado so capa de unacto oficial? Cualquiera, pues, puede imaginarse la
situaciontremendamente embarazosa, inclusive angustiosa enque esta Corte ha quedado colocada con motivo de esa
intromision departamental, exponiendose a chocar con otropoder del Estado. En casos recientes en que estaban
envueltos otros poderes, esta Corte, estimando dudosa suposicion constitucional, prefirio adoptar una actitud
deelegante inhibicion, de "manos fuera" (hands-off), si bienhay que hacer constar que con la fuerte disidencia
dealgunos Magistrados, entre ellos el opinante.3 Tenemos, portanto, un caso de verdadera intromision en que siendo,
porlo menos, dudosa la facultad de esta Corte para imponeruna sancion por desacato de acuerdo con el Reglamento
delos Tribunales, le queda el unico recurso decente, ordenado:registrar su excepcion sin ambages ni eufemismos
contrala intromision, y reafirmar con todo vigor, con toda firmezasu independencia.

Se arguye con tenaz persitencia que debiamos de haberconcedido la mocion de retirada de la apelacion, por
dosrazones: (a) porque el Procurador General estaba conformecon dicha retirada; (b) para evitar la resolucion
delpunto constitucional envuelto, en virtud de la practica,segun se dice, de soslayar toda cuestion
constitucionalsiempre que se pueda. Respecto de la primera razon serasuficiente decir que el Procurador General es
libre de entraren cualquiera transaccion sobre un asunto en que interviene,pero es evidente que su accion no ata no
obliga aesta Corte en el ejercicio de la discrecion que le confierela regla, 52, seccion 4, del Reglamento de los
Tribunales,que reza como sigue:

Rule 52, SEC. 4 — An appeal may be withdrawn as of right at any time before the filing of appelle's
brief. After that brief is filed the withdrawal may be allowed by the court in its discretion. . . . (Las cursivas
son nuestras.)

Como se ve, nuestra discrecion es absoluta:no estacondicionada por la conformidad o disconformidad de una delas
partes. Y la incondicionalidad de esa discrecion es masabsoluta e imperativa alli donde el litigio versa sobre
unamateria queno afecta solo a un interes privado, sino quees de interes publico, como el caso presente en que el
Procurador General ha transigido no sobre un asunto suyopersonal o de un cliente particular, sino de un cliente
demucha mayor monta y significacion — el pueblo filipino — ysiendo materia del litigio la propiedad del suelo,
parte, vitalisima del patrimonio nacional que nuestro pueblo hacolocado bajo la salvaguardia de la Constitucion.

Respecto del segundo fundamento, o se que debiamospermitir la retirada dela apelacion para no tener queresolver la
cuestion constitucional disputada, bastara decirque la practica, prinsipio o doctrina que se invoca, llevaconsigo una
salvedad o cualificacion y es que el litigio se pueda resolver de otra mañera. ¿ Podemos soslayar elpunto
constitucional discutido en el pleito que nos ocupa? ¿ Podemos decidirlo bajo otra ratio decidendi, esto es, queno sea
la constitucionalidad o inconstitucionalidad de laventa del inmueble al apelante Krivenko, en virtud desucondicion de
extranjero? Indudablemente que no: la lis mota, la unica, es la misma constitucionalidad de la compraventa de que se
trata. Para decidir si al recurrido apelado, Registrador de Titulos de la Ciudad de Manila,le asiste o no razon para
denegar la inscripcion solicitada por el recurrente y apelante, Krivenko, la unica disposicionlegal que se puede aplicar

Page 24
es el articulo XIII, seccion 5, dela Constitucion de Filipinas, invocado por el Registrador como defensa e inserto en el
parrafo 5 de la circular num.14 como fundamento de la prohibicion o interdiccion contrael registro de las ventas de
terreno a extranjeros. Nohay otra ley para el caso.

El caso de Oh Cho contra el Director de Terrenos43 Gac. Of., No. 3 pag. 866), que se cita en unade las disidencias, es
completamente diferente. Es verdadque alli se planteo tambien la cuestion constitucional de quese trata, por cierto que
el que lo planteaba en nombre delGobierno era el actual Secretario de Justicia que entoncesera Procurador General, y
lo pleantaba en un sentido absolumente concorde con la circular num. 14. Pero esta Corte, con la disidencia de
algunos Magistrados, opto porsoslayar el punot constitucional denegando el registro solicitadopor Oh Cho, por
fundamento de que bajo la LeyNo. 2874 sobre terrenos de dominio publico los extranjerosestan excluidos de dichos
terrenos; es decir, que el terrenosolicitado se considero como terreno publico. ¿ Podemos hacer la misma evasion en el
presente caso, acogiendonosa la ley No. 2874 o a cualquier otra ley? Indudablemente que no porque ningun
Magistrado de esta Corte, muchomenos los disidentes, consideran el terreno reclamado por Krivenko como terreno
publico. Luego todos los caminosestan bloqueados para nosotros, menos el camino constitucional.Luego el segundo
fundamento alegado paracubrir la evasiva tambien debe descartarse totalmente.

Se insinua que no debiamos darnos prisa en resolver constitucionalmente el presente asunto, puesto que
puedenpresentarse otros de igual naturaleza en tiempo no remoto,y en efecto se cita el caso de Rellosa contraGaw
Chee Hun(49 Off. Gaz., 4345), en que los alegatos de ambas partesya estan sometidos y se halla ahora pendiente de
decision.Es evidente que esto tampoco arguye en favor de la evasiva,en primer lugar, porque cuando se le somete el
deber de iraveriguando en su Escribania si hay casos de igual naturaleza, sino que los casos se someten por orden de
prelaciony prioridad de tiempo a medida que esten preparados paracaso debe decidirse por sus propios meritos y
conforme ala ley pertinente. La salvedad o cualificacion de la doctrinao practica que se invoca no dice: "hay qoe
soslayar la cuestionconstitucional siempre que se pueda resolver de otra manera, reservando dicha cuestion
constitucional para otro caso; la salvedad es dentro del mismo caso. De otro modono seria un simple soslayo legal,
sino que seria unsub terfugio impropio, indebido, ilegal. En el presente caso no ha habido ninguna prisa, excesivo
celo, como se insinua;desde luego no mayor prisa que en otros asuntos. Elcurso, el ritmo de los tramites ha sido
normal; en realidad,si ha habido algo, ha sido un poco de parsimonia, lentitud.

¿ Habia justificacion para demorar el pronto, rapido pronunciamento de nuestro veredicto sobre la formidablecuestion
constitucional debatida, por lo menos, tan pronto como fuese posible? ¿ Habia alguna razon de interespublico para
justificar una evasiva? Absolutamenteninguna. Por el contrario, nuestro deber ineludible, imperioso,era formular y
promulgar inmediatamente ese veredicto. Lo debiamos a nuestras conciencias; lo debiamos, sobretodo, al pais para la
tranquilidad y conveniencia de todos — del pueblo filipino y de los extranjeros residentes o quetuvieren voluntad de
residir o negociar en estas Islas. Asicada cual podria hacer su composicion de lugar, podriaorientarse sin zozobras ni
miedo a la incertidumbre. Tantonacionales como extranjeros sabrian donde invertir sudinero. Todo lo que
necesitabamos era tener dentro de esta Corte una provee la interdiccion de que se trata. Tuvimosesa mayoria cunado
se voto por primera vez este asuntoen Febrero de este año (8 contra 3); la tuvimos cuandodespues de laboriosas
deliberaciones quedo denegada lamocion de retirada de la mayoria haya cambiado de opinionsobre el fondo de la
cuestion; la tenemos ahora naturalmente.Por tanto, nada hace falta ya para que se de lasenal de "luz verde" a la
promulgacion de la sentencia.Toda evasiva seira neglignecia, desidia. Es mas: seriaabandono de un deber jurado,
como digo en otra parte deesta concurrencia; y la Corte Suprema naturalmente npha de permitir que se la pueda
proferir el cargo de queha abandonado su puesto privilegiado de vigia, de centinela avanzado de la Constitucion.

No es que la Corte Suprema, con esto, pretenda tener"un monopolio de la virtud de sostener y poner en vigor,o de
suplir una deficiencia en la Constitucion," o que segobierno, como se insinua en una de las disidencias. Nohay tal
cosa. El principio de la supremacia judicial no esuna pretension ni mucho menos un ademan de inmodestiao
arrogancia, sino que es una parte vital de nuestrasinstutuciones, una condicion peculiarisima de nuestro sistema de
gobierno en que la judicatura, como uno de lostres poderes del Estado, corresponde la facultad exclusivade disponer
de los asuntos judiciales. Con respecto a losasuntos de registro particularmente esa facultad exclusivano solo se
infiere del principio de la supremacia judicial, sino que, como ya se ha dicho en otra parte de esta concurrencia,se
halla especificamente estutuida en el articulo 200del Codigo Administrativo transcrito arriba. Este articuloconfiere

Page 25
jurisdiccion exclusiva a los tribunales de justiciapara decidir las cuestiones sobre registro, y esto lo ha reconocido el
mismo Departamento de Justicia en su circularnum. 14 al referir tales cuestiones a la determinacion oarbitrio judicial
en casos de duda o litigio.

Es injustificada la insinuacion de que, al parecer, la mayoria denego la retirada de la apelacion no tanto para resolver
el asunto en su fondo o por sus meritos, como paraenrvar los efectos de la circular num. !28 del Departamentode
Justicia, pues Krivenko, el apelante, habriaganado entonces su pleito no en virtud de una sentenciajudicial, sino
pasando por la puerta trasera abierta por esacircular. Tampoco hay tal cosa. Ya repetidas veces seha dicho que el
presente asunto se habia votado muchoantes de que se expidiese esa circular. Lo que mascorrectamente podria decirse
es que antes de la expedicion deesa desafortunada circular poderosas razones de interespublico aconsejaban que se
denegase la retirada de la apelacion y se diese fin al asunto mediante una sentencia enel fondo, despues de la
expidicion esas razones quedaroncentuplicadas. La explicacion es sencilla: nuestra aquiescenciaa la reirada hubiera
podico interpretarse entoncescomo que nuestra jurisdiccion. Es mas: hubiera podidointerpretarse como una abyecta
rendicion en la pugna porsostener los fueros de cada ramo coigual y coordinado del gobierno.

Es todavia mas injustificada la insinuacion de que ladenegacion de la retirada de la apelacion equivale "a asumir queel
solicitante-apelante y el Procurador General sehan confabulado con el Departamento de Justicia no solopara ingerirse
en las funciones de esta Corte, sino paraenajenar el patrimonio nacional a los extranjeros." Estoes inconcebible. La
corte presume que todos han obradode buena fe, de acuerdo con los dictados de su conciencia.Se ha denegado la
retirada de la apelacion por razonespuramente juridicas y objectivas, sin consideracion a losmotivos de nadie.

Por ultimo, estimo que debe rectificarse la asercion de queel Magistrado Hontiveros fue excluido de la votacion
queculmino en un emmpate y que determino el rechazamientode la retirada de la apelacion, a tenor de la regla 56,
seccion2, Reglamento de los Tribunales. El Magistrado Hontiverosno estaba presente en la sesion por estar
enfermo;pero estaban presentes 10 Magistrados, es decir, mas queel numero necesario para formar quorum y para
despacharlos asuntos. La rueda de la justicia en la Corte Supremajamas ha dejado de rodar por la ausencia de uno o
dosmiembros, siempre que hubiese quorum. A la votacionprecedieron muy laboriosas y vivas deliberaciones. Ningun
Magistrado Ilamo la atencion de la Corte hacia la ausencia del Sr. Hontiveros. Ningun Magistrado pidio que se
leesperase o llamase al Sr. Hontiveros. Todos se conformaroncon que se efectuase la votacion, no obstante la ausencia
del Sr. Hontiveros. En efecto, se hace la votaciony resulta un empate, es decir, 5 contra 5. De acuerdo conla regla 56,
quedaba naturalmente denegrada la mocion deretirada. ¿Donde esta, pues, la "ilegalidad", donde la"arbitrariedad"?

Algunos dias despues se presento una mocion de reconsideracion,la misma en que ya se alegaba como ndamentoel
hecho de que la cuestion era simplemente academica (moot question) por la conformidad del Procurador Generalcon
la retirada y por la circular num. !28 del Departamento de Justicia. Tampoco estaba presente el Sr. Hontiverosal
someterse la mocion, la cual fue de nuevo denegada.Pregunto otra vez: ¿donde esta la "arbitrariedad"? Queculpa tenia
la Corte de que el Sr. Hontiveros no pudieraestar presente por estar enfermo? ¿Iba a detenerse larueda de la justicia
por eso? Conviene, sin embargo, hacerconstar que sobre el fondo de la cuestion el Sr. Hontiverosera uno de los 8 que
habian votado en favor de la confirmacion de la sentencia apelada, es decir, en favor delveredicto de que la
Contitucion excluye a los extrajerosde la propiedad de bienes raices en Filipinas.

II. No queda casi nada decir sobre el fondo de lacuestion. Todos los angulos y fases de la misma estanacabadamente
tratados y discutidos en la ponencia. Melimitare, por tanto, a hacer unas cuantas observaciones,unas sobre
hermeneutica legal, y otra sobre historia nacionalcontemporanea, aprovachando en este ultimo respectomis
reminiscencias y mi experiencia como humilde miembroque fui de la Asamblea Constituyente que redacto y arobola
Constitucion de Filipinas.

Toda la cuestion, a mi juicio, se reduce a determinar einterpretar la palabra "agricola" (agricultural) usada enel
articulo XIII, seccion 5, de la Constitucion. He aqui eltexto completo de la seccion:

Page 26
 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.

¿Incluye la palabra "agricultural" aqui empleada los terrenosresidenciales, comerciales e industriales? Tal es
lacuestion: la mayoria de esta Corte que si; los disidentesdicen que no.

Es indudable que por razones sanas de hermenuetica legalel articulo XIII de que se trata debe interpretarse como
untodo homogeneo, simetrico. En otras palabras, los cocablosalli empleados deben interpretarse en el sentido de
quetienen un mismo significado. Es absurdo pensar o suponerque en el texto de una ley, sobre todo dentro del
estrechomarco de un articulo, un vocablo tenga dos o mas significadosdistintos, a menos que la misma ley asi to diga
expresamente. Lapresuncion es que el legislador sigue y seatiene a las reglas literarias elementales.

Ahora bien: el articulo XIII consta de dos partes — laprimera, que trata de los terrenos agricolas de dominiopublico, y
la segunda, que se a los terrenos agricolaprivados o partuculares.

La primera parte se compone de las secciones 1 y 2que vinculanla propiedad de los terrenos publicos enel Estado y
disponen que solo se pueden enajenar a favorde ciudadanos filipinos, o de corporaciones o asociacionesen que el 60
por ciento del cacital, por lo menos, pertenecea tales ciudadanos. En secciones se emplea literalmentela frase "public
agricultural land."

La segunda parte la componen las secciones 3 y 5: laseccion 3 perceptua que "the Congress may determine bylaw the
size of private agricultural land which individuals,coporations, or associations may acquire and hold, subjectto rights
existing prior to the enactment of such law"4 ;y la seccion 5 es la que queda transcrita mas arriba y esobjeto del
presente litigio. En ambas secciones se emplealiteralmente la frase "private agricultural land."

No hay ninguna cuestion de que la frase "public agriculturalland" empleada en la primera parte comprende
terrenosresidenciales, comerciales e industriales; lo admitenlos mismos abogados del apelante y los Sres.
Magistradosdisidentes. Y ¿por que lo admiten? Sera porque en laConstitucion se define la palabra "agricultural"
aplicadaa terrenos publicos, en el sentido de incluir solaresresidenciales, comerciales e industriales?
Indudablementeque no, porque en ninguna parte de la Constitucion se datal definicion. Lo admiten porque en esta
jurisdicciontenemos una serie consistente de sentencias de esta CorteSuprema en que es jurisprudencia firmamente
establecidala doctrina de que la palabra "agricultural" usada en laLey del Congreso de los Estados Unidos de 1902
(LeyCooper) y en nuestras leyes de terrenos publicos comprendey abarca solares residenciales, comerciales,
industriales yqualquier otra clase de terrenos, excepto forestales yminerales.5 Es decir, que se aplica a la actual
Constitucion deFilipinas una interpretacion clasica, tradicional, embebidaen nuestra jurisprudencia de cerca de medio
siglo.

Ahora bien, pregunto: si la palabra "agricultural" empleadaen la primera parte del articulo XIII tiene talsignificado —
y lo tiene porque la Constitucion no da otrodiferente — ¿por que esa misma palabra empleada en lasegunda parte,
unas cuantas lineas mas adelante, no hade tener el mismo significado? ¿Da acaso la Constitucionuna definicion de la
palabra "agricultural" cuandose refiere a terreno privado? ¿Donde esta esa definicion? ¿O es que se pretende que la
diferenciacion opera no envirtud de la palabra "agricultural", sino en virtud delvocablo "public" o "private", segun que
se trate de terrenopublico o privado?

Si la intencion de la Asemblea Constituyente fuera eldar a la palabra "agricultural" aplicada a terreno privadoun
significado distinto de cuando se refiere a terreno publico, lo hubiese hecho constar asi expresamente en elmismo
texto de la Constitucion Si, como se admite, laAsemblea opto por no definir la palabra "agricultural"aplicada a terreno
poblico porque contaba para ello con ladefinicion clasica establecida en la jurisprudencia, cuandola misma Asemblea
tampoco definio la palabra con relaciona terreno privado, es logico inferir que tuvo la mismaintencion, esto es, aplicar
la definicion de la jurisprudenciaa ambos tipos de terreno — el publico y el privado. Pensarde otra manera podria ser

Page 27
ofensivo, insultante; podriaequivaler a decir que aquella Asemblea estaba compuestade miembros ignorantes,
desconocederos de las reglas elementalesen la tecnica de redaccion legislativa.

Tuve el honor de partenecer a aquella Asemblea comouno de los Delegados por Cebu. Tambien me cupo elhonor de
partenecer al llamado Comite de Siete — elcomite encargado finalmente de redactar la ponencia dela Constitucion.
No digo que aquella Asemblea estabacompuesta de sabios, pero indudablemente no era inferiora ninguna otra de su
tipo en cualquiera otra partedel mundo. Alli habia un plantel de buenos abogados,algunos versados y especialistas en
derecho constitucional.Alli estaba el Presidente de la Universidad de FilipinasDr. Rafael Palma; alli estaba el propio
Presidentede la Asemblea Constituyente Hon. Claro M. Recto, conlos prestigios de su reconocida cultura juridica y
humanista; alli estaba tambien el Dr. Jose P. Laurel, considerado comouna de las primeras autoridades en derecho
constitucionaly politico en nuestro pais. En el Comite de Siete o dePonencia figuraban el actual Presidente de
Filipinas Hon.Manuel Roxas; el ex-Senador de Cebu Hon. Filemon Sotto;el Hon. Vicente Singson Encarnacion, lider
de la minoria en la primera Asemblea Filipina, ex-miembro de la Comisionde FIlipinas, ex-Senador y ex-Secretario de
Gabinete;el ex-Magistrado de la Corte Suprema Hon. NorbertoRomualdez; el actual Secretario de Hacienda Hon.
MiguelCuaderno; y el ex-Decano del Colegio de Artes Liberalesde la Universidad de Filipinas, Hon. Conrado
Benitez.

No se puede concebir como bajo la inspiracion y guiade estas personas pudiera redactarse el texto de un articuloenque
un vocablo — el vocablo "agricultural" — tuviera dosacepciones diferentes: una, aplicada a terrenos publicos;y otra,
aplicada a terrenos privados. Menos se concibeque, si fuese esta la intencion, se incurriese en una
comisionimperdonable: la omision de una definicion especifica, diferenciadora, que evitase caos y confusion en la
mente delos abogados y del publico. Teniendo en cuenta la innegablecompetencia de los Delegados a la Asemblea
Constituyentey de sus liders, lo mas logico pensar es que alno definir la palabra "agricultural" y al no diferenciarsu
aplicacion entre terrenos publicos y privados, lo hicierondeliberamente, esto es, conla manifiesta intencion dedejar
enteramente la interpretacion de la palabra a la luzde una sola comun definicin — la establecida en la
jurisprudenciadel asunto tipico de Mapa contra Gobierno Insular y otrossimilares (supra); es decir, que la palabra
"agricultural",aplicada a terrenos privados, incluye tambien solaresresidenciales, comerciales, e industriales.

A word or phrase repeated in a statute will bear the same meaning throughout the statute, unless a different
intention appears. . . . Where words have been long used in a technical sense and have been judicially
construed to have a certain meaning, and have been adopted by the legislature as having a certain meaning
prior to a particular statute in which they are used, the rule of construction requires that the words used in
such statute should be construed according to the sense in which they have been so previously used, although
that sense may vary from the strict literal meaning of the words." (II Sutherland, Stat. Construction, p. 758.)

Pero acaso se diga que la Asemblea Constituyente hadejado sin definir la palabra "agricultural" referente aterreno
particular, dando a entendar con su silencio queendosaba la definicion al diccionario o a la usanza popular.La
suposicion es igualmente insostenible. ?Por queen un caso se entrega la definicion a la jurisprudencia,y por que en
otro al diccionario, o al habla popular?Aparte de que los miembros y dirigentes de la AsembleaConstituyente sabian
muy bien que esto causaria unatremenda confusion. Ni los diccionarios, ni mucho menosel lenguaje popular, ofrecen
apoyo seguro para una fiely autorizada interpretacion. Si el texto mismo de la ley,con definiciones especificas y
casuisticas, todavia ofrecedudas a veces ¿como no el lexico vulgar, con su infinitavariedad de matices e idiotismos?

Ahora mismo ¿no estamos presenciando una confusionn,una perplejidad? ¿Hay acaso uniformidad en la definicionde
lo que es un terreno privado agricola? No; cadacual lo define a su manera. Uno de los disidentesel Magistrado Sr.
Tuason toma su definicion de la palabra "agricultural " del Diccionario Internacional de Webster que dice . . . "of or
pertaining to agricultural connected with, or engaged in, tillage; as the agricultural class; agricultural implements,
wages etc." Tambien hacereferncia el mismo Magistrado al concepto popular. Otrodisidente el Magistrado Sr. Padilla
dice que "the termprivate agricultural land means lands privately owneddevoted to cultivation, to the raising of
agriculturalproducts." El Magistrado Sr Paras no da ninguna definicion;da por definida la palabra "agricultural", al
parecer, segunel concepto popular.

Page 28
Pero, sobre todo, los abogados del apelante definen elvocablo de una manera distinta. Segun ellos, "land spoken of as
`agricultural' naturally refers to land not only susceptible of agricultural or cultivation but more valuable for such than
for another purpose, say residential,commercial or educational. . . . The criterion is notmere susceptibility of
conversion into a farm but its greater value when devoted to one or the other purpose." Demode que, segun esta
definicion, lo que determina la calidaddel terreno es su valor relativo, segun que se dedique alcultivo, o a residencia, o
al comercio, o a la industria.Los autores de esta definicion indudablemente tienen encuenta el hecho de que en las
afueras de las ciudades existenterrenos immensos que desde tiempo inmemorial se handedicado a la agricultura, pero
que se han convertido ensubdivisiones multiplicandose su valor en mil por cientosi no mas. De hecho esos terrenos
son agricolas; comoque todavia se ven alli los pilapiles y ciertas partes estancultivadas; pero en virtud de su mayor
valor para residencia,comercio e industria se les aquiere colocar fuera dela prohibicion constitucional. En verdad, el
criterio nopuede ser mas elastico y convencional, y denota cuanincierta y cuan confusa es la situacion a que da lugar
latesis del apelante y de los que le sostienen.

Si hubieramos de hacer depender la definicion de loque es un terreno agricola del concepto popular y de
losdiccionarios, asi sean los mejores y mas cientificamente elaborados ¿que normas claras, concretas y definitivasde
diferenciacion podrian establecerse? ¿Podrian trazarsefronteras inconfundibles entre lo que es agricola y lo quees
residencial, comercial e industrial? ¿Podria hacerseuna clasificacion que no fuese arbitraria? Indudablementeque no.
El patron mas usual de diferenciacion es lanaturaleza urbana o rural del terreno; se considera comoresidencial,
comercial e industrial todo lo que esta dentrode una urbe, ciudad o poblacion. Pero ¿resolveria esto la dificultad?
Proporcionaria un patron exacto, cientifico,no arbitrario? Tampoco. Por que dentro de una ciudado poblacio puede
haber y hay terrenos agricolas. Comodijo muy bien el Magistrado Sr. Willard en el asunto clasico de
Mapa contra Gobierno Insular, "uno de los inconvenientes de la adopcion de este criterio es que es tanvago e
indeterminado, que seria muy dificil aplicarlo enla practica. ¿Que terrenos son agricolas por naturaleza? l mismo
Fiscal General, en su alegato presentado en este asunto, dice: 'La montaña mas pedregosa y el suelo mas pobre son
susceptible de cultivo mediante la mano del hombre'" (Mapa contra Insular, 10 Jur. Fil.,183). Y Luego el Sr. Willard
añade las siguietes observacionessumamente petinentes e ilustratives para una correctare solucion del asunto que nos
ocupa, a saber:

. . . Tales terrenos (agricolas, quiere decir) se pueden encontrar dentro de los limites de cualquier ciudad. Hay
dentrode la ciudad de Manila, y en la parte densamente poblada de lamisma, una granja experimental. Esta es
por su naturaleza agricola. Contigua a la Luneta, en la misma ciudad, hay una gran extension de terreno
denominado Camp Wallace, destinada a sports. El terreno que circuda los muros de la ciudad de Manila,
situado entre estos y el paseo del Malecon por el Sur y Este contiene muchas hectareas de extension y es de
naturaleza agricola. La Luneta misma podria en cualquier tiempo destinarse al cultivo.

La dificultad es mayor tratanndose de diferenciar unterreno agricola de un terreno industrial. En este respectoes
preciso tener en cuenta que un terreno industiralno tienee que ser necesariamente urbano; en realidad,la tendencia
moderna es a situar las industrias fuera deas ciudades en vastas zonas rurales. Verbigracia; anpredor de la famosa
cascada de Maria Cristina en Lanao existen grandes extensiones de terreno agricola, algunasde propiedad particular.
Cuando, se industrialice aquellaformidable fuerza hidraulica bajo el llamado Plan Beyster ¿que normas segfuras se
podrian establecer para poner envigor la prohibicion constitucional fuese burlada enajenandosetierras agricolas de
propiedad privada a favorde extranjeros, ya sean individuos, ya sean corporacioneso asociaciones, so pretexto de ser
industriales?

Resulta evidence de lo expueto que los redactores denuetra Constitucion no pudienron haber tenido la idea deque el
articulo XIII fuera interpretado a la luz de ese criterio vago e indeterminado que llama el Sr. Willard. Es mas logico
pensar que el criterio que ellos tenian enla mente era el criterio establicido en la jurisprudencia sentada en el asunto
clasico de Mapa contra Gobierno y otros asuntos concomitantes citados — criterio mas frime, mas seguro, menos
expuesto a confusion y arbitrariedad, y sobre todo, "que ofrece menos inconvenientes", parafraseando otra vez al
Magistrado Sr. Willard, (supra, p. 185).

Page 29
Otro serio inconveniente, La seccion 3, articulo XIIIde;la Constitucion, dispone que "el Congreso puedo
determinarpor ley l;a eextension superficial del terrenoprivado agricola que los individous, corporaciones o
asociaciones pueden adquirir y poseer, sujeto a los derechos existentes antes de la aprobacion de dicha ley." Si
seinterpretase que la frase "private agricultural land" noincluye terrenos residenciales, comerciales e
industriales,entonces estas ultimas clases de yterreno quedarian excluidas de la facultad reguladora concedida por la
Constitucion al Congreso mediante dicha seccion 3. Entoncesun individuo o una corporacion podrian ser dueños de
todoslos terrenos de una ciudad; no habria limite a las adquisicionesy posesiones en lo tocante a terrenos
residenciales,comerciales e industriles. Esto parece absurdo, peroseria obligada consecuencia de la tesis sustentada
por elapelante.

Se hace hincapie en el argumento de que el el procesode tamizacion del articulo XIII durante las deliberacionesde la
Asamblea Constituyente y de los Comites de Ponnnnenciay de estilo al principio no figuraba el adjetivo "agricola"en
la seccion 5, diciendose solo "terreno privado" y quesolo mas trade se añadio la palabra calificativa agricola—"private
agricultural land" De este se quiere inferir quela adicion de la palabra "agricultural" debio de ser poralgun motivo y
este no podia ser mas que el de que sequiso excluir los terrenos residenciales comerciales e industriales, limitandose el
precepto a los propia o estrictamenteagricolas.

La deduccion es incorrecta y sin fundamento. No cabedecir que la adicion de la plabra "agricultural" en estecaso
equivale a excuir los terrenos residenciales, comercialese industriales, por la sencilla razon de que la Constitucion no
solo no define lo que es residencial comercial e industrial, comercial e industrial. En cambio ya hemosvisto que la
palabra "agricultral" tiene una significaciontradicionalmente bien establecida en nuestra jurisprudenciay en nuestro
vocabulario juridico: incluye no solo terrenoscultivados o susceptibles fe cultivo, sino tambien
residencialescomerciales e industriales. Se admite por todo elmundo que la palabra tiene tal significacion en el
articuloXIII, seccion 5, de la Constitucion, en cuanto se refierea terreno publico. Ahora bien; ¿que diferencia hay,
despuesde todo, entire un terreno publico agricolo y uno sea a la calidad de agricola, absolutamente ninguna.Uno no
es mas menois agricola que el otro. La unicadiferencia se refiere a la propiedad, al titulo dominical — en que el uno es
del Estado y el otro es de un particular.

En realidad, creo que la diferencia es mas bien psicologica,subjetiva — en que vulgarmente hablando pareceque los
conceptos de "agricola" y "residencial" se repelen.No se debe menospreciar la influencia del vulgo en algunascosas;
en la misma literatura el vulgo juega su papel; digasi no la formacion popular del romancero. Pero es indudable que
cietas cosas estan por encima del conceptovulgar — una de estae la interpretacion de la leyes, lahermeneutica legal.
Esto no es exagerar la importancia de la tecnica sino que es simplemente colocar las cosasensu verdadero lugar. La
interpretacion de la ley es unafuncion de minoria — los abogados. Si no fuera asi paraque los abogados? ¿Y para que
las escuelas de dercho,y para que los exmenes, cada vez mas rigidos, para de purar el alma de la toga, que dijo un
gran abogado español?6 Asi que cuando decimos que el precepto constitucional en cuestion debe interpretatarse
tecnicamente, a la luz de la jurisprudencia, por ser ello el metodo mas seguro para hallar la verdad judicial, no
importa que ello repugne al concepto vulgar a simple vista, no ponemos,en realidad, nionguna pica en Flandes, sino
que propugnamos una cosa harto elememntal por lo sabida.

Por tanto no es necesario especular o devanarse lossesos tratando de inquirir por que en la tamizacion delprecepto se
añadio el adjetivo 'agricultural" a las palabras"private land" en vez de dejarlas solas sin cualificacion.Algunos diran
que fue por razon de simentria para hacer"pendant diran que fue por razon de simetria para hacer"pendant" con la
frase "public agricultural land" puestamas arriba. Pero esto np tiene ninguna importancia. Loimportante es saber que
la añadidura, tal como esta jurisdiccion, de la palbra "agricultural" empleada en dicho texto. Eso es todo; lo demas
creo que es puro bizantinis mo.

III. Cero que una examen de los documentos y debatesde la Asamblea Constituyente para ver de inquirir la
motivacion y finalidad del precepto constitucional que nos ocupapuede ayudar grandemente y arrojar no poca luz en
lainterpretacion de la letra y espiritu de dicho precepto.Este genero de inquisicion es perfectamente propio y
permisible en hermeneutica constitucional, y se ha hechosiempre, segun las majores autoridades sobre la materia.

Page 30
Cooley, en su authorizado tratado sobre Limitaciones Constitucionales (Constitutional Limitations) dice a este
efectolo sigiuente:

When the inquiry is directedto ascertaining the mischief designed to be remedied, or the purpose sought to be
accomplished by a particular provision, it may be proper to examine the proceedings of the convention which
framed the instrument. Where the proceedings clearly point out the purpose of the provision, the aid will be
valuable and satisfactory; but where the question is one of abstract meaning, it will be difficult to derive from
this source much reliable assistance in interpretation. (1 Cooley on Constitutional Limitations [8th ed.], p.
142.)

¿Que atmosfera prevalecia en la Asamblea sobre elproblema de la tierra en general sobre el problema capitalismo de
los terrenos naturales? ¿Cual era la tendenciapredominante entre los Delegados? Y ¿como era tambienel giro de la
opinion, del sentimiento publico es decir comoera el pulso del pueblo mismo del cual la Asamblea despuesde todo no
era mas que organo e interprete?

Varios discursos sobre el particular se pronounciaronen la Asamblea Constituyente. El tono predomionante entodos
ellos era un fuerte, profundo nacionalismo. Tanto dentro como fuera de la Asamblea Constituyente era evidente,
acusado, el afan unanime y decidido de conservar el patrimonio nacional no solo para las presentes generaciones
filipinas, sino tambien para la posteridad. Y patrimonio nacional tenia, en la mente de todos un significadocategorio e
indubitable; significion de si es dedominio publico o privado. Muestras tipicas y representativas de este tono pecular y
dominantes de la ideologiaconstituyente son ciertas m,anifestaciones que constanen el diario de serines has en el curso
de los debateso en el proceso de la redaccion del proyecto constitucionalpor Delegados de palabra autorizadam bien
por su significacion personal bein por el papel particula que desempeñaban en las treas constituyentes. Por ejemplo el
Delegado Montilla por Negros Occidental, conspicuo representante del agro, usando del privilegio de madia
horaparlamentaria dijo en parte lo siguinte:

. . . Con la completa nacionnalization de nuestras tierras y recursos natural debe entenderse que nuetro
patrimonio nacional debe estar vinculado 100 por 100 en manos filipinas. Tierras y recursos naturales son
inm,uebles y como tales pueden compararse con los organos vitales del cuerpo de una persona: la falta de
posesion de los mismo puede caussar la muete instantannea o el abreviamiento de la vida (Diario de Sesiones
Asamblea Constituyente, inedita, "Framing of the Constitution," tit. 2 0 pag. 592 Libro del Profesor Aruego).

Como se ve el Delegado Montilla habla de tierras sin adjetivacion, es decir sin difenciar entre propiedad publica y
privada.

El Delgado Ledesma, por Iloilo, otro conspicuo representante del agro presidente del comte de agricultura de la
Asamblea que los extramnjeros no podian ser mismas palabras:

La exclusion de los extranjeros del privilegio de adquirir terrenos publicos agricolas y de poder se dueños de
propiedades inmuebles (real estate) es una parte necesaria de las leyes de terrenos publicos de Filipinas para
mantener firme la idea de conservar Filipinaspara los filipos' (Diario de Sesiones, id.; Libro de Aruego, supra,
pag. 593.)

Es harto significtativo que en el informe del Colite de Nacionalizacion y Conservacion de Recursos Naturales de la
Asamblea Constituyente la plabra tierra (land) se usa generricamente sin cualificacion de publica o privada. Dice el
Comite:

Que la tierra, los minerales los bosques y otros recursos naturalesconstituyen la herencia exclusiva de la
nacion filipina. Deben,por tanto, ser conservados para aquellos que se halian bajo la autoridad soberana de esa
nacion y para su posteridad. (Libro de Aruego, supra, pag. 595.)

Page 31
La conservacion y fomento del patrimonio nacional fue una verdadera obsesion en la Asamblea Constituyente. Sus
mienbros que todavia viven recordaran l;a infinita paciencia, el esmero de orfe breria con que se trabajo el preambulo
de la Constitucion. Cada frase, cada concepto se sometio a un rigido proceso de seleccion y las gemas resultans es la
labor benedictina una de las gemas redel patrimonio nacional. He aqui el preambulo:

The Filipino people, imploring the aid of Divene Providence,in order to establish a government that shall
enbody their ideals, conserve and develop the patrimony of the nation, promote the general welfare, and
secure to themslves and their posterity the blessings of independence under a regime of justice, liberty, and
democracy, do ordain and promulgate this Constitution.

El espiritu fuertemente nacionalista que saturaba la Asamblea Constituyente con respecto a la tierre y
recursosnaturales es de facil explicacion. Estabamos escribiendouna Constitucion no solo para el Commonwealth,
sino tambien para la republica que advendria despues de10 años. Querianos, puesd asegurar firmemente las basesde
nuestra nacionalidad. ¿Que cosa major para ello quebildar por los cuatro costrados el cuerpo dela mnacion delcual —
parodiando al Delegado Montilla — la tierra y losresoursos naturales son como organos vitales cuya perdidapuede
causar la muerte instantanea o el abreviamiento dela vida?

Para aprociar el pulso de la nacion en aquel memontohistorico es preciso tener en cuenta las cirucmstancias.Nos
debamos perfecta cuenta de nuetra posicion geografica,asi como tambien de nuestras limitaciones demograficas.Se
trataba, por ciento de una conciencia agudamenteatormentadora y alarmante. Estabamos roodeadosde enormes mesas
humanas — centenares de milliones — economica y biologicamente agresivas, avidad de desbordarsepor tadas partes,
poir las areas del Pafico particularmente,en busca de espacio vitales. China, Japon-Japon, sobretodo que estaba
entonces en el apogeo de su delirio deengrandecimiento economico y militarista. Teniamos apantadoal mismo
corazon, como espada rutilante de Samurrai,el pavoroso problema de Davao, donde, por errores incialesdel Gobierno,
Japon tenia el control de la tierra, instituyendos alli una especie de Japon en miniatura, con todaslas amenasas y
peligros que ello implicaba para la integridadde nuestra existancia nacional. Como que Davaoya se llamaba popular y
sarcasticamente Davaoko, entragica rima con Manchuko.

Tambien nos obsesionaban otras lecciones dolorosas dehistoria contemporanea. Texas, Mejico, Cuba y otraspaises del
Mar Caribe y de la America Latina que todaviaexpiaban, como una terrible maldicion el error de susgobernantes al
permitir la enajenacion del suelo a extranjeros.

Con el commercio y la industria principalmente en manosno-filipinas, los Delegados a la Constituyente se

haciancargo tambien de la vitalisima necesidad de, por lo menos,vincular el apatrimonio nacional, entre otras cosas la
tierra, en manos de los filipinos.

Que de extraño habia, pues, que en semejante atmosfera y tales circumstancias se aprobase un articulo
rigidamentenacionalismta como es el Article XIII? La motivacion y finalidad, como ya se ha dicho, era triple:
(a)consetvar el patrimonio nacional para las presentes yfuturas generaciones filipinas; (b) vincular, por lo menos,la
propiedad de la tierra y de los recursos naturales en manos filipinas como la mejor manera de mantener elequilibrio de
un sistema economico dominado principalmente por extranjeros en virtud de su tecnica (know-how) superior y de su
abudancia de capitales: (c) prefictos y complicaciones internacionales.

No se concibe que los Delegados tuvieran la intercionde excluir del precepto los terrenos residenciales comercialese
industrial, pues sabian muy bien que los finesque se trataban de conseguir y los peligros quie se trataban de evitar con
la politica de nacionalizacion y conservacionrezaban tanto para una clase de terrenos como para otra. ¿Por que se iba a
temer, verbigracia, el dominio extranjero sobre un terreno estrictamente, agricola, sujeto a cultivo, y no sobre el
terreno en que estuviera instalada unaformidable industria o fabrica?

Otro detalle significativo. Era tan vigoroso el sentimiento nacionalista en la Asamblea Constituyente que, noobstante
el natural sentimiento de gratitud que nos obligabaa favor de los americanos., a estos no se les concedioningun
privilegio en relacion con la tierra y demas recusosnaturales, sino que se les coloco en el mismo plano que alos otros

Page 32
extranjeros. Como que ha habido necesidad deuna reforma constitucional — la llmada reforma sobre laparidad —
para equipararlos a los filipinos.

The mere literal construction of a section in a statute ought not to prevail if it is opposed to the intention of the
legislature apparent by the statute; and if the words are sufficiently flexible to admit of some other
construction it is to be adopted to effectuate that intention. The intent prevails over the letter, and the latter
will, if possible, be so read as to conform to the spirit of the act. While the intention of the legislature must be
ascertained from the words used to express it, the manifest reason and the obvious purpose of the law should
not be sacrificed to a literal interpretation of such words. (II Sutherland, Stat. Construction, pp. 721, 722.)

IV. — Se insinua que no debieramos declarar que laConstitucion excluye a loc extranjeros de la propiedadsobre
terrenos residenciales e industriales,porque ello imposibilitaria toda accion legislativa en sentidocontrario para el caso
de que el Congreso Ilegagealguna vez a pensar que semejante interdiccio debialevantarse. Se dice que es majes y mas
conveniente dejaresta cuestion en manos del Congreso para que haya maselasticidad en las soluciones de los
diferentes problemassobre la tierra.

Cometeriamos un grave error si esto hicieramos. Estaes una cuestion constitucional por excelencia. Solamenteel
pueblo puede disponer del patrimonio nacional. Ni el Congreso, ni mucho menos los tribunales, pueden disponerde
ese patrimonio. Lo mas que puede hecer el Congreso es proponer una reforma constitucional mediante los votosde
tres cuartas (3/4) de sus miembros; y el pueblo tienela ultima palabra que se expresara en una eleccion oplebiscito
convocado al efecto.

El argumento de que esto costaria dinero es insostenible. Seria una economia mal entendida. Si no se escatiman gastos
para celebrar elctiones ordinarias periodicamente ¿como ha del pueblo en un asunto tan vital como es la disposicion
del patrimonio nacional, base de su mismaexistencia? para reformar la Constitucion, apoyado portres cuartas (3/4) del
Congreso, por lo menos.

En el entretanto el articulo XIII de la Constitucion debequedar tal como es, e interpretarse en la forma como lo
interpretamos en nuestra decision.

Se confirma la sentencia.

PARAS, J., dissenting:

Section 5 of Article XIII of the Constitution provides 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 important question that arises is whether private
residential land is included in the terms "private agricultural land."

There is no doubt that under section 1 of Article XIII of the Constitution, quoted in the majority opinion, lands of the
public domain are classified into agricultural, timber,or mineral. There can be no doubt, also, that public lands suitable
or actually used for residential purposes, must of necessity come under any of the three classes.

But may it be reasonably supposed that lands already of private ownership at the time of the approval of the
Constitution, have the same classification? An affirmative answer will lead to the conclusion — which is at once
absurd and anomalous — that private timber and mineral lands may be transferred or assigned to aliens by a mode
other than hereditary succession. It is, however, contended that timber and mineral lands can never be private, and
reliance is placed on section 1, Article XIII, of the Constitution providing that "all agricultural, timber and mineral
lands of the public domain . . . belong to the State," and limiting the alienation of natural resources only to public

Page 33
agricultural land. The contention is obviously untenable. This constitutional provision, far from stating that all timber
and mineral lands existing at the time of its approval belong to the State, merely proclaims ownership by the
Government of all such lands as are then of the public domain; and although, after the approval of the Constitution, no
public timber or mineral land may be alienated, it does not follow that timber or mineral lands theretofore already of
private ownership also became part of the public domain. We have held, quite recently, that lands in the possession of
occupants and their predecessors in interest since time immemorial do not belong to the Government, for such
possession justifies the presumption that said lands had been private properties even before the Spanish conquest. (Oh
Cho vs. Director of Lands, 43 Off. Gaz., 866.) This gives effect to the pronouncement in Cariño vs. Insular
Government (212 U.S., 446; 53 Law. ed., 594), that it could not be supposed that "every native who had not a paper
title is a trespasser." It is easy to imagine that some of such lands may be timber or mineral. However, if there are
absolutely no private timber or mineral. However, if there are absolutely no private timber or mineral lands, why did
the framers of the Constitution bother about speaking of "private agricultural land" in sections 3 and 5 of Article XIII,
and merely of "lands" in section 4?

SEC. 3. The Congress may determine by law the size of private agricultural land which individuals,
corporations, or associations may acquire and hold, subject to rights existing prior to the enactmentof such
law.

SEC. 4. The Congress may authorize, upon payment of just compensation, the expropriation of lands to be
subdivided into small lots and conveyed at cost to individuals.

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.

Under section 3, the Congress may determine by law the size of private agricultural land which individuals,
corporations, or associations may acquire and hold, subbject to rights existing prior to the enactment of such law, and
under section 4 it may authorize, upon payment of just compensation, the expropriation of lands to be subdivided into
small lots and conveyed at cost to individuals. The latter section clearly negatives the idea that private lands can only
be agricultural. If the exclusive classification of public lands contained in section 1 is held applicable to private lands,
and , as we have shown, there may be private timber and mineral lands, there would be neither sense nor justification
in authorizing the Congress to determine the size of private agricultural land only, and in not extending the prohibition
of section 5 to timber and mineral lands.

In may opinion, private lands are not contemplated or controlled by the classification of public lands, and the term
"agricultural" appearing in section 5 was used as it is commonly understood, namely, as denoting lands devoted to
agricultural. In other words, residential or urban lots are not embraced within the inhibition established in said
provision. It is noteworthy that the original draft referred merely to "private land." This certainty would have been
comprehensive enough to included any kind of land. The insertion of the adjective "agricultural " is therefore
significant. If the Constitution prohibits the alienation to foreigners of private lands of and kind, no legislation can
ever be enacted with a view to permitting limited areas of land for residential, commercial, or industrial use, and said
prohibition may readily affect any effort towards the attainment of rapid progress in Philippine economy. On the other
hand, should any danger arise from the absence of such constitutional prohibition, a law may be passed to remedy the
situation, thereby enabling the Government to adopt such elastic policy as may from time to time be necessary,
unhampered by any inconveniences or difficulties in amending the Constitution. The power of expropriation is,
furthermore, a handy safeguard against undersirable effects of unrestricted alienation to, or ownership by, aliens of
urban properties. The majority argue that the original draft in which the more general terms "private land" was used,
was amended in the same that the adjective "agricultural" was inserted in order merely "to clarify concepts and avoid
uncertainties" and because, as under section 1, timber and mineral lands can never be private, "the prohibition to
transfer the same, would be superfluous." In answer, it may be stated that section 4 of Article XIII, referring to the
right of expropriation, uses "lands" without any qualification, and it is logical to believe that the use was made
knowingly in contradistinctions with the limited term "private agricultural land" in section 3 and 5. Following the line

Page 34
of reasoning of the majority, "lands" in section 4 necessarily implies that what may be expropriated is not only private
agricultural land but also private timber and mineral lands, as well, of course, as private residential lands. This of
course tears apart the majority's contention that there cannot be any private timber or mineral land.

Any doubt in the matter will be removed when it is, borne in mind that no less than Honorable Filemon Sotto,
Chairman of the Sponsorship Committee of the Constitutional Convention, in supporting section 3 of the Article XIII,
explained that the same refers to agricultural land, and not to urban properties, and such explanation is somewhat
confirmed by the statement of another member of the Convention (delegate Sevilla) to the effect that said section "is
discriminatory and unjust with regard to the agriculturists."

Sr. SOTTO (F) Señor Presidente: "Que hay caballeros de laConvencion en el fondo de esta cuestion al parecer
inocente yordinaria para que tanto revuelo haya metido tanto en la sesion de ayer como en la de hoy? Que hay
de misterios en el fondo de este problem, para que politicos del volumen del caballero por Iloilo y del
caballero por Batangas, tomen con gran interes una macion para reconsiderar lo acordado ayer? Voy a ser
frio, señores. Parece que es meyor tratar estas cuestiones con calma y no apasionamiento. He prestado
atencion, como siempre suelo hacer a todos los argumentos aqui en contra del precepto contenido en el draft y
a favor ahora de la reconsideracion y siento decir lo siguiente; todos son argumentos muy buenos
a posteriori. Cuando la Asamble Nacional se haya reunido, sera la ocasion de ver si procede o no expropiar
terrenos o latifundios existentes ahorao existentes despues. En el presente, yo me limito a invitar la atencion
de la Convencion al hecho de que el procepto no tome las medidas necesarias en tiempo oportuno, cuando el
problema del latifundismo se haya presentado con caracterres tales que el beinestar, interes y orden publico lo
requieran. Permitame la Convencion que lo discuta en globo las dos pates del articulo 9. Hay tal engranaje en
los dos mandatos que tiene dicho precepto, hay tral eslabon en una u otra parte que es imposible, que es dificil
que quitaramos deslindes si nos limitasemos a considerar una sola parte. La primera parte autoriza a la
legislatura para fijar el limite maximo de propiedad agricola que los ciudadanos particulares puede tener.
Parece que es un punto que ha pasado desapercibido. No se trata aqui ahora de propiedades urbanas, sino
de propiedades agricolas, y es por la razon de que con mucha especialidad en las regiones agricolas, en las
zones rusticas es donde el latifundismo se extiende con facilidad, y desde alli los pequeños propietariou
precisamente para ahogarles y para intilizarles. Esta pues, a salvo completamente la cuestion de las
propiedades urbans. Cietos grandes soleres de nuestras ciudaes que con pretexto de tener cietos eficios, que
en realidad no necesitan de tales extensos solares para su existencia ni para su mantenimineto, puedan
dormir transquilos. No Vamos contra esas propiedades. Por una causa o por otra el pasado nos legardo ese
lastre doloroso. Pero la region agricola, la region menos explotada por nuetro pueblo, la region que
necesitamos si queremos vivir cuenta propia la region que es el mayor incentivo no para solo para los
grandes capitalistas de fuera merece todos los ciudados del gobierno.

Voy a pasar ahora a la relacion que tiene la seggunda parte de la enmiendad con la primera. Una vez
demostrado ante la Lehgislatura, una vez convencida la Asamblea Nacional de que existe un latifundismo y
que este laitifundismo puede producir males e esta produciendo daños a la comunidad, es cuando entonces la
Legislatura puede acordar la expropiacion de los latifundios. Donde esta el mal que los opositores a este es un
postulado que todos conocen. Bien, voy a admitir para los propositos del argumento que hoy no existen
laifundios, y si los opostores al precepto quieren mas vamos a convenir en que no existrian en el futuro. Pues,
entonces, donde este el temor de que el hijo de tal no pueda recibir la herencia de cual? Por lo demas el
ejemplo repetidas veces presentado ayer yhoy en cuanto al herdero y al causahabiente no es completamente
exacto. Vamos a suponer que efectivamente un padre de familia posee un numero tal de hectareas de terreno,
superior o exedente a lo que fija la ley. Creen los Caballeros, creen los opositorees al precepto que la
Legislatura, la Asamblea Nacional va a ser tan imprudente, tan loca que inmediatemente disponga por ley que
aquella porcion excedente del terreno que ha de recibir un hijo de su padre no podra poseerlo, no podra
tenerlo o recibirlo el heredero.

Esa es una materia para la Asamblea Nacional. La asamblea Nacional sabe que no puede dictar leyes o
medidas imposibles de cumplir. Fijara el plazo, fijara la proporcion de acuedo con las circunstancias del

Page 35
 tiempo entonces en que vivamos. Es posible que ahora un numero determinado de hectereas sea excesivo; es
posible que por desenvolvimientos economics del paius ese numero de hectareas puede ser elevado o
reducido. Es por esto porque el Comite precisamente no ha querido fijar desde ahora el numero de hectareas
presamente no ha querido fijar desde ahora el numero de hectareas, prefireindo dejar a la sabiduria, a la
prudencia, al patriotismo y a la justicia de la Asambela Nacional el fijar ese numero.

Lomismo digo de la expropiacion. Se habla de que el gobierno no tendra dinero; se hablqa de que no podra
revender las propieedades. Pero, Caballeros de la Convencion, caballeros opositores del precepto; si la
Legislatura, si la AsambleaNacional estuviera convencida de que el gobierno no puede hecer una
exporpiacion, va a hecerlo? La Asamblea Nacional dictara una ley autorizando la expropiacion de tal a cual
latifundio cuando este convencida, primero, de que la existencia de ese latifundio es amenazante para el
publico; y segundo, cuando la asamblea Nacional este convencida de que el gobierno esta disposicion para
disponer la expropiacion.

Visto, pues, desde este punto el asunto, no es malo autorizar,fijar los limites, ni macho menos es malo
autorizar a la Legislatura para dictar leyes de expropiacion.

Pero voy a molestaros por un minuto mas. Se ha mentado aquicon algun exito esta mañana — y digo con
exito porque he oidoalgunos aplausos — se ha mentado la posibilidad de que los comunistas hagan un issuede
esta disposicion que existe en el draft; podran los comunistas pedir los votos del electorado para ser elloslos
que dicten las leyes fijando el limite del terreno y ordenen la expropriacion? ¡Que argumento mas bonito si
tuviera base! Lo mas natural, creo yo, es que el pueblo, el electorado, al ver queno es una Asamblea
Constituyente comunista la que ha puestoesta disposicion, otorgue sus votors a esta misma Asamblea
Nacional, o a esos condidatos no comunistas. ¿Quien esta en disposicion de terminar mejor una obra aquel
que trazado y puesto los primeros pilares, o aquel que viene de gorra al final de la obra para decir: "Aqui
estoy poner el tejado?"

Es sensible, sin embargo, que una cuetion de importancia tannacional como este, pretendamos ligarla a los
votos de los comulites de terreno; no ha de venir porque nosotros fijemos loslimites de terreno; no ha de venir
porque prohibamos los latifundiosmediante expropiacion forzosa, no; ha de venir precisamentepor causa de
los grandes propietarios de terreno, y ha de venir,queramoslo o no, porque el mundo esta evolucionando y se
va aconvencer de que la vida no es solamente para unos cuantos sinopara todos , porque Dios no la dio, con la
libertad, el aire, la luz,la tierra para vivir (Grandes Aplausosz), y por algo se ha dichoque en los comienzos de
la vida himana debio haber sido fusilado,matado, a aquel primero que puso un cerco a un pedazo de
tierrareclamando ser suya a propiedad.

Por estas razones, señor Presidente, y sintiendo que mi tiempoesta para terminar, voy a dar fin a mi discurso
agradeciendo a la Convencion. (Speech of Delegate Sotto.)

I would further add, Mr. President, that this precept by limiting private individuals to holding and acquiring
lands, private agricultural lands . . . is discriminatory and unjust with regard to the agriculturists. Why not,
Mr. President, extend this provision also to those who are engaged in commerce and industries? Both
elements amass wealth. If the purpose of the Committee, Mr. President, is to distribute the wealth in such a
manner that it will no breed discontent, I see no reason for the discrimination against the agricultural. In view
of these reasons, Mr. President, I do not want to speak further and I submit this amendment because many
reasons have been given already yesterday and this morning. (Speech of Delegate Sevilla.)

Delegate Sotto was not interpellated, much less contradicted, on the observation that section 3 of Article XIII does not
embrace private urban lands. There is of course every reason to believe that the sense in which the terms "private
agricultural lands" were employed in section 3 must be the same as that in section 5, if consistency is to be attributed
to the framers of the Constitution.

Page 36
We should not be concluded by te remarks, cited in the majority opinion, made by Delegate Ledesma to the effect that
"the exclusion of aleins from the private of acquiring public agricultural lands and of owning real estate is a necessary
part of the Public Land Laws," and of the statement of Delegate Montilla regarding "the complete nationalization of
our lands and natural resources," because (1) the remarks of Delegate Ledesma expressly mentions "public
agricultural lands" and the terms "real estate" must undoubtedly carry the same meaning as the preceding words
"public agricultural lands", under the principle of "ejusdem generis"; (2) Delegate Ledesma must have in mind purely
"agricultural" lands, sicne he was the Chairman of the Committee on Agricultural Development and his speech was
made in connection with the national policy on agricultural lands; (3) the general nature of the explanations of both
Delegate Ledesma and Delegate Montilla, cannot control the more specific clarification of Delegate Sotto that
agricultural lands in section 3 do not include urban propeties. Neither are we bound to give reater force to the view
(apparently based on mere mental recollections) of the Justices who were members of the Constitutional Convention
than tot he specific recorded manifestation of Delegate Sotto.

The decision in the case of Mapa vs. Insular Government (10 Phil., 175), invoked by the majority, is surely not
controlling, because, first, it dealt with "agricultural public lands" and, secondly, in that case it was expressly held that
the phrase "agricultural land" as used in Act No. 926 "means those public lands acquired from Spain which are not
timber or mineral lands," — the definition held to be found in section 13 of the Act of Congress of July 1, 1902.

We hold that there is to found in the act of Congress a definition of the phrase "agricultural public lands," and
after a carefully consideration of the question we are satisfied that the only definition which exists in said act
is the definition adopted by the court below. Section 13 says that the Government shall "make rules and
regulations for the lease, sale or other disposition of the public lands other than timber or mineral lands." To
our minds that is the only definition that can be said to be given to agricultural lands. In other words, that the
phrase "agricultural land" as used in Act No. 926 means those public lands accquired from Spain which are
not timber or mineral lands. (Mapa vs. Insular Government, 10 Phil., 182.)

The majority, in support of their construction, invoke Commonwealth Act No. 141, enected after the approval of the
Constitution, which prohibits the alienation to foreigners of "land originally acquired in any manner under the
provisions of this Act," (section 122) or "land originally acquired in any manner under the provisions of any previous
Act, ordinance, royal order, royal decree, or any other provision of law formerly in force in the Philippines with
regard to public lands, terrenos baldios realengos, or lands of any other denomination that were actually or
presumptively of the public domain." (Section 123.) They hold that the constitutional intent "is made more patent and
is strongly implemented by said Act." The majority have evidently overlooked the fact that the prohibition contained
in said sections refer to lands originally acquired under said sections referto land originally acqured under said Act or
otherlegal provisions lands, which of course do not include lands not originally of the public domain. The lands that
may be acquired under Act No. 141 necessarily have to be public agricultural lands, since they are the only kinds that
are subject to alienation or disposition under the Constitution. Hence, even if they become private, said lands retained
their original agricultural character and may not therefore be alienated to foreigners. It is only in this sense, I think,
that act No. 141 seeks to carry out and implement the constitutional objective. In the case before us, however, there is
no pretense that the land bought by the appellant was originally acquired under said Act or other legal provisions
contemplated therein.

The majority is also mistaken in arguing that "prior to the Constitution, under section 24 of the Public Land Act No.
2874 aliens could acquire public agricultural lands used for industrial or residential purposes, but after the
Constitution and under section 23 of Commonwealth Act No. 141, the right of aliens to acquire such kind of lands is
completely stricken out, undoubtedly in pursuanceof the Constitutional limitation," and that "prior to the Constitution,
under section 57 of the Public Land Act No.2874, land of the public domain suitable for residence or industrial
purposes could be sold or leased to aliens, but after the Constitution and under section 60 of Commonwealth Act No.
141, such land may only be leased, but not sold, to aliens, and the lease granted shall only be valid while the land is
used for the purpose referred to." Section 1 of article XIII of the Constitution speaks of "public agricultural lands" and
quite logically, Commonwealth Act No. 141, enacted after the approval of the Constitution, has to limit the alienation
of its subject matter (public agricultural land, which includes public residential or industrial land) to Filipino citizens.

Page 37
But it is not correct to consider said Act as a legislation on, or a limitation against, the right of aliens to acquire
residential land that was already of private ownership prior to the approval of the Constitution.

The sweeping assertion of the majority that "the three great departments of the Government — Judicial, Legislative
and Executive — have always maintained that lands of the public domain are classified into agricultural, mineral and
timber, and that agricultural lands include residential lots," is rather misleading and not inconsistent, with our position.
While the construction mistakenly invoked by the majority refers exclusively to lands of the public domain, our view
is that private residential lands are not embraced within the terms "private agricultural land" in section 5 of Article
XIII. Let us particularize in somewhat chronological order. We have already pointed out that the leading case of Mapa
vs. Insular Government, supra, only held that agricultural public lands are those public lands acquired from Spain
which are neither timber nor mineral lands. The opinion of the Secretary of Justice dated July 15, 1939, quoted in the
majority opinion, limited itself in affirming that "residential, commercial or industrial lots forming part of the public
domain . . . must be classified as agricultural." Indeed, the limited scope of said opinion is clearly pointed out in the
following subsequent opinion of the Secretary of Justice dated September 25, 1941, expressly hoding that "in cases
involving the prohibition in section 5 of Article XIII (formerly Article XII) regarding transfer or assignment of private
agricultural lands to foreigners, the opinion that residential lots are not agricultural lands is applicable."

This is with reference to your first indorsement dated July 30, 1941, forwarding the request of the Register of
Deeds of Oriental Misamis for an opinion as to whether Opinion No. 130, dated July 15, 1939, of this
Department quoted in its Circular No. 28, dated May 13, 1941, holding among others, that the phrase "public
agricultural land" in section 1, Article XIII (formerly article XII) of the Constitution of the Philippines,
includes residential, commercial or industrial lots for purposes of their disposition, amends or supersedeas a
decision or order of the fourth branch of the Court of First Instance of the City of Manila rendered pursuant to
section 200 of the Administrative Code which holds that a residential lot is not an agricultural land, and
therefore, the prohibition in section 5, Article XIII (formerly Article XII) of the Constitution of the
Philippines does not apply.

There is no conflict between the two opinions.

Section 1, Artcile XIII (formerly article XII of the Constitution of the Philippines, speaks of public
agricultural lands while section 5 of the same article treats of private agricultural lands. A holding, therefore,
that a residential lot is not private agricultural land within the meaning of that phrase as found in section 5 of
Article XIII (formerly Article XII) does not conflict with an opinion that residential, commercial or industrial
lots forming part of the public domain are included within the phrase "public agricultural land" found in
section 1, Article XIII (formerly Article XII) of the Constitution of the Philippines. In cases involving the
prohibition in section 5 of Article XIII (formerly Article XII) regarding transfer or assignment of private
agricultural lands to foreigners, the opinion that residential lots are not agricultural lands is applicable. In
cases involving the prohibition in section 1 of Article XIII (formerly Article XII) regarding disposition in
favor of, and exploitation, development or utilization by foreigners of public agricultural lands, the opinion
that residential, commercial or industrial lots forming part of the public domain are included within the phrase
"public agricultural land" found in said section 1 of the Article XIII (formerly Article XII) governs.

Commonwealth Act No. 141, passed after the approval of the Constitution limited its restriction against transfers in
favor of alien to public agricultural lands or to lands originally acquired under said Act or other legal provisions
formerly in force in the Philippines with regard to public lands. On November 29, 1943, the Court of Appeals
rendered a decision affirming that of the Court of First rendered a decision affirming that of the Court of First Instance
of Tarlac in a case in which it was held that private residential lots are not included in the prohibition in section 5 of
Article XIII. (CA-G. R. No. 29.) During theJapanese occupation, the Constitution of the then Republic of the
Philippines contained an almost verbatim reproduction of said section 5 of Article XIII; and the then National
Assembly passed an Act providing that "no natural or juridical person who is not a Filipino citizen shall acquire
directly or indirectly any title to private lands (which are not agricultural lands) including buildings and other
improvements thereon or leasehold rights on said lands, except by legal succession of proper cases, unless authorized

Page 38
by the President of the Republic of the Philippines." (Off. Gaz., Vol. I, p. 497, February,1944.) It is true that the
Secretary of Justice in 1945 appears to have rendered an opinion on the matter, but it cannot have any persuasive
force because it merely suspended the effect of the previous opinion of his Department pending judicial determination
of the question. Very recently, the Secretary of Justice issued a circular adopting in effect the opinion of his
Department rendered in1941. Last but not least, since the approval of the Constitution, numerous transactions
involving transfers of private residential lots to aliens had been allowed to be registered without any opposition on the
part of the Government. It will thus be seen that, contrary to what the majority believe, our Government has
constantly adopted the view that private residential lands do not fall under the limitation contained in section 5 of
Article XIII of the Constitution.

I do not question or doubt the nationalistic spirit permeating the Constitution, but I will not permit myself to be
blinded by any sentimental feeling or conjectural considerations to such a degree as to attribute to any of its
provisions a construction not justified by or beyond what the plain written words purport to convey. We need not
express any unnecessary concern over the possibility that entire towns and cities may come to the hands of aliens, as
long as we have faith in our independence and in our power to supply any deficiency in the Constitution either by its
amendment or by Congressional action.

There should really have been no occasion for writing this dissent, because the appellant, with the conformity of the
appellee, had filed a motion for the withdrawal of the appeal and the same should have been granted outright. In Co
Chiong vs. Dinglasan (p. 122, ante),decided only a few days ago, we reiterated the well-settled rule that "a court
should not pass upon a constitutional question and decide a law to be unconstitutional or invalid unless such question
is raised by the the parties, and that when it is raised, if the record also presents some other ground upon which the
court may rest its judgment, that course will be adopted and the constitutional question will be left for consideration
until a case arises in which a decision upon such question will be unavoidable." In other words, a court will always
avoid a constitutional question, if possible. In the present case, that course of action was not only possible but
absolutely imperative. If appellant's motion for withdrawal had been opposed by the appellee, there might be some
reasons for its denial, in view of section 4 of Rule 52 which provides that after the filing of appellee's brief, "the
withdrawal may be allowed by the court in its discretion." At any rate, this discretion should always be exercised in
favor of a withdrawal where a constitutional question will thereby be avoided.

In this connection, let us describe the proceedings (called "arbitrary and illegal" by Mr. Justice Tuason) that led to teh
denial of the motion for withdrawal. During the deliberation in which all the eleven members were present, seven
voted to allow and four to deny. Subsequently, without any previous notice and when Mr. Justice Hontiveros was
absent, the matter was again submitted to a vote, and one Justice (who previously was in favor of the withdrawal)
reversed his stand, with the result that the votes were five to five. This result was officially released and the motion
denied under the technicality provided in Rule of Court No. 56, section 2. It is very interesting to observe that Mr.
Justice Hontiveros, who was still a member of the Court and could have attended the later deliberation, if notified and
requested, previously voted for the granting of the motion. The real explanation for excluding Mr. Justice Hontiveros,
against my objection, and for the reversal of the vote of one Justice who originally was in favor of the withdrawal is
found in the confession made in the majority opinion to the effect that the circular of the Department of Justice
instructing all registers of deeds to accept for registration transfers of residential lots to aliens, was an "interference
with the regular and complete exercise by this Court of its constitutional functions," and that "if we grant the
withdrawal, the result is that petitioner-appellant Alexander A. Krivenko wins his case, not by a decision of this
Court, but by the decision or circular of the Department of Justice issued while this case was pending before this
Court." The zealousness thus shown in denying the motion for wuthdrawal is open to question. The denial of course is
another way of assuming that the petitioner-appellant and the Solicitor General had connived with the Department of
Justice in a scheme not only to interfere with the functions of this Court but to dispose of the national patrimony in
favor of aliens.

In the absence of any injunction from this Court, we should recognize tha right of the Department of Justice to issue
any circular it may deem legal and proper on any subject, and the corollary right of the appellant to take advantage
thereof. What is most regrettable is the implication that the Department of Justice, as a part of the Executive

Page 39
Department, cannot be as patriotic and able as this Court in defending the Constitution. If the circular in question is
objectionable, the same can be said of the opinion of the Secretary of Justice in 1945 in effect prohibiting the
registration of transfers of private residential lots in favor of aliens, notwithstanding the pendency in this Court of the
case of Oh Cho vs. Director of Lands (43 Off. Gaz., 866), wherin according to the appellant, the only question raised
was whether, or not "an alien can acquire a residential lot and register it in his name," and notwithstanding the fact
that in said case the appealed decision was in favor of the alien applicant and that, as hereinbefore stated, the Court of
Appeals in another case (CA-G.R. No. 29) had renderd in 1943 a decision holding that private residential lots are not
included in the prohibition in section 5 of Article XIII of the Constitution. And yet this Court, failing to consider said
opinion as an "interference," chose to evade the only issue raised by the appellant and squarely met by the appellee in
the Oh Cho case which already required a decision on the constitutional question resolved in the case at bar against,
so to say, the will of the parties litigant. In other words, the majority did not allow the withdrawal of the present
appeal not so much as to dispose of it on the merits, but to annul the circular of the Department of Justice which is,
needless to say, not involved in this case. I cannot accept the shallow excuse of the majority that the denial of the
motion for withdrawal was promted by the fear that "our indifference of today might signify a permanent offense to
the Constitution," because it carries the rather immodest implication that this Court has a monopoly of the virtue of
upholding and enforcing, or supplying any deficiency in, the Constitution. Indeed, the fallacy of the impliation is
made glaring when Senator Franscisco lost no time in introducing a bill that would clarify the constitutional provision
in question in the sense desired by the majority. Upon the other hand, the majority should not worry about the
remoteness of the opportunity that will enable this Court to pass upon this constitutional question, because we can
take advance notice of the fact that in Rellosa vs. Gaw Chee Hun (49 Off. Gaz., 4345), in which the parties have
already presented. But even disregarding said case, I am sure that, in view of the recent newspaper discussion which
naturally reached the length and breadth of the country, there will be those who will dispute their sales of residential
lots in favor of aliens and invoke the constitutional prohibition.

BENGZON, J., dissenting:

It is unnecessary to deliver at this time any opinion about the extent of the constitutional prohibition. Both parties
having agreed to writer finis to the litigation, there is no obligation to hold forth on the issue. It is not our mission to
give advice to other person who might be interested to give advice to other persons who might be interested to know
the validity or invalidity of their sales or purchases. That is the work of lawyers and juriscounsults.

There is much to what Mr. Justice Padilla explains regarding any eagerness to solve the constitutional problem. It
must be remembered that the other departments of the Government are not prevented from passing on constitutional
question arising in the exercise of their official powers. (Cooley, Constitutional Limitations, 8th ed., p. 101.) This
Tribunal was not established, nor is it expected to play the role of an overseer to supervise the other Government
departments, with the obligation to seize any opportunity to correct what we may believe to be erroneous application
of the constitutional mandate. I cannot agree to the suggestion that the way the incumbent Secretary of Justice has
interpreted the fundamental law, no case will ever arise before the court, because the registers of deeds under his
command, will transfer on thier books all sales to aliens. It is easy to perceive several probabilities: (1) a new
secretary may entertain opposite views; (2) parties legally affected — like heirs or or creditors of the seller — may
wish to avoid the conveyance to aliens, invoking the constitutional inhibition. Then, in a truly contested case, with
opposing litigants actively arguing their sides we shall be in a position to do full justice. It is not enough that briefs —
as in this case — have been filed; it is desirable, perhaps essential, to make sure that in a motion for reconsideration,
or in a re-hearing in case of tie, our attention shall be invited to points inadequately touched or improperly considered.

It is stated that sales to aliens of residential lots are currently being effected. No matter. Those sales will be subject to
the final decision we shall reach in a properly submitted litigation. To spell necessity out of the existence of such
conveyances, might amount to begging the issue with the assumption that such transfers are obviously barred by the
Organic Law. And yet sales to foreigners of residential lots have taken place since our Constitution was approved in
1935, and no one questioned their validity in Court until nine years later in 1945, after the Japanese authorities had
shown distaste for such transfers.

Page 40
The Court should have, I submit, ample time to discuss this all-important point, and reflect upon the conflicting
politico-economic philosophies of those who advocate national isolation against international cooperation, and vice-
versa. We could also delve into several aspects necessarily involved, to wit:

(a) Whether the prohibition in the Constitution operated to curtail the freedom to dispose of landowners at the time of
its adoption; or whether it merely affected the rights of those who should become landowners after the approval of the
Constitution;7

(b) What consequences would a ruling adverse to aliens have upon our position and commitments in the United
Nations Organization, and upon our treaty-making negotiations with other nations of the worlds; and

(c) When in 1941 Krivenko acquired this land he was a Russian citizen. Under the treaties between the United States
and Russia, were Russian nationals allowed to acquire residential lots in places under the jurisdiction of the United
States? If so, did our Constitution have the effect of modifying such treaty during the existence of the Commonwealth
Government?

The foregoing view and doubts induced me to vote for dismissal of the appeal as requested by the parties, and for
withholding of any ruling on the constitutional prohibition. However, I am now ready to cast my vote. I am convinced
that the organic law bans the sales of agricultural lands as they are popularly understood — not including residential,
commercial, industrial or urban lots. This belief is founded on the reasons ably expounded by Mr. Justice Paras, Mr.
Justice Padilla and Mr. Justice Tuason. I am particularly moved by the consideration that a restricted interpretation of
the prohibition, if erroneous or contrary to the poeple's desire, may be remedied by legislation amplifying it; whereas
a liberal and wide application, if erroneous, would need the cumbersome and highly expensive process of a
constitutional amendment.

PADILLA, J., dissenting:

The question submitted for decision is whether a parcel of land of private ownership suitable or intended for residence
may be alienated or sold to an alien.

Section 5, Article XIII, of the Constitution provides:

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 majority holds that a parcel of land of privateownership suitable or intended or used for residence is included in
the term "private agricultural land" and comes within the prohibition of the Constitution. In support of the opinion that
lands of private ownership suitable for residence are included in the term "private agricultural land" and cannot be
alienated or sold to aliens, the majority invokes the decision of this Court in Mapa vs. Insular Government (10 Phil.,
175), which holds that urban lands of the public domain are included in the term "public agricultural land." But the
opinion of the majority overlooks the fact that the inclusion by this Court of public lands suitable for residence in the
term "public agricultural land" was due to the classification made by the Congress of the United States in the Act of 1
July 1902, commonly known as the Philippine Bill. In said Act, lands of the public domain were classified into
agricultural, timber and mineral. The only alienable or disposable lands of the public domain were those belonging to
the first class. Hence a parcel of land of the public domain suitable for residence, which was neither timber nor
mineral, could not be disposed of or alienated unless classified as public agricultural land. The susceptibility of a
residential lot of the public domain of being cultivated is not the real reason for the inclusion of such lot in the
classification of public agricultural land, for there are lands, such as foreshore lands, which would hardly be
susceptible of cultivation (Ibañez de Aldecoa vs. Insular Government, 13 Phil., 159, 167-168), and yet the same come
under the classification of public agricultural land. The fact, therefore, that parcels of land of the public domain
suitable for residence are included in the classification of public agricultural land, is not a safe guide or index of what

Page 41
the framers of the Constitution intended to mean by the term "private agricultural land." It is contrary to the rules of
statutory construction to attach technical meaning to terms or phrases that have a common or ordinary meaning as
understood by he average citizen.

At the time of the adoption of the Constitution (8 February 1935), the Public Land Act in force was Act No. 2874.
Under this Act, only citizens of the Philippine Islands or of the United States and corporations or associations
described in section 23 thereof, and citizens of countries the laws of which grant to citizens of the Philippine Islands
the same right to acquire the public land as to their own citizens, could acquire by purchase agricultural land of the
public domain (section 23, Act No. 2874). This was the general rule. There was an exception. Section 24of the Act
provides:

No person, corporation, association or partnership other than those mentioned in the last preceding section
may acquire or own agricultural public land or land of any other denomination or classification, not used for
industrial or residence purposes, that is at the time or was originally, really or presumptively, of the public
domain, or any permanent improvement thereon, or any real right on such land and improvement: Provided,
however, That persons, corporations, associations, or partnerships which at the date upon which this Act shall
take effect, hold agricultural public lands or land of any other denomination not used for industrial or
residence purposes, that belonged originally, really or presumptively, to the public domain, or permanent
improvements on such lands, or a real right upon such lands and improvements, having acquired the same
under the laws and regulations in force at the date of such acquisition, shall be authorized to continue holding
the same as if such persons, corporations, associations, or partnerships were qualified under the last preceding
section; but they shall not encumber, convey, or alienate the same to persons, corporations, associations or
partnerships not included in section twenty-three of this Act, except by reason of hereditary succession, duly
legalized and acknowledged by competent Courts. (Emphasis supplied.)

Section 57 of the Act, dealing with lands of the public domain suitable for residential, commercial, industrial, or other
productive purposes other than agricultural, provides:

Any tract of land comprised under this title may be leased or sold, as the case may be, to any person,
corporation, or association authorized to purchase or lease public lands for agricultural purposes. . . . Provided
further, That any person, corporation, association, or partnership disqualified from purchasing public land for
agricultural purposes under the provisions of this Act, may purchase or lease land included under this title
suitable for industrial or residence purposes, but the title or lease granted shall only be valid while such land
issued for the purposes referred to. (Emphasis supplied.)

Section 121 of the Act provides:

No land originally acquired in any manner under the provisions of the former Public Land Act or of any other
Act, ordinance, royal order, royal decree, or any other provision of law formerly in force in the Philippine
Islands with regard to public lands, terrenos baldios y realengos, or lands of any other denomination that
were actually or presumptively of the public domain, or by royal grant or in any other form, nor any
permanent improvement on such land, shall be encumbered, alienated, or conveyed, except to persons,
corporations, or associations who may acquire land of the public domain under this Act; . . . Provided,
however, That this prohibition shall not be applicable to the conveyance or acquisition by reason of hereditary
succession duly acknowledged and legalized by competent Courts, nor to lands and improvements acquired or
held for industrial or residence purposes, while used for such purposes: . . . (Emphasis supplied.)

Under and pursuant to the above quoted provisions of Act No. 2874, lands of the public domain, that were neither
timber nor mineral, held for industrial or residence purposes, could be acquired by aliens disqualified from acquiring
by purchase or lease public agricultural lands (sections 24, 57, 121, Act No. 2874). The delegates to the Constituent
Assembly were familiar with the provisions of the Public Land Act referred to. The prohibition to alienate public
agricultural lands to disqualified persons, corporations or associations did not apply to "lands and improvements

Page 42
acquired or held for industrial or residence purposes, while used for such purposes." Even under the provisions of Act
No. 926, the first Public Land Act, lots for townsites could be acquired by any person irrespective of citizenship,
pursuant to section 47 of the said Act. In spite of the nationalistic spirit that pervades all the provisions of Act No.
2874, the Philippine Legislature did not deem it necessary to exclude aliens from acquiring and owning lands of the
public domain suitable for industrial or residence purposes. It adopted the policy of excluding aliens from acquiring
agricultural lands of the public domain not "suitable for residential, commercial, industrial, or other productive
purposes," which, together with timber, mineral and private agricultural lands, constitute the mainstay of the nation.
Act No. 2874 was in force for nearly sixteen years — from 1919 to 1935. There is nothing recorded in the journals of
proceedings of the Constituent Assembly regarding the matter which would have justified a departure from the policy
theretofore adopted.

If under the law in force at the time of the adoption of the Constitution, aliens could acquire by purchase or lease
lands of the public domain, that were neither timber nor mineral, held for industrial or residence purposes, how can it
be presumed that the framers of the Constitution intended to exclude such aliens from acquiring by purchase private
lands suitable for industrial or residence purposes? If pursuant to the law in force at the time of the adoption of the
Constitution, lands of the public domain and improvements thereon acquired or held for industrial or residence
purposes were not included in the prohibition found in section 121 of ActNo. 2874, there is every reason for believing
that the framers of the Constitution, who were familiar with the law then in force, did not have the intention of
applying the prohibition contained in section 5, Article XIII, of the Constitution to lands of private ownership suitable
or intended or used for residence, there being nothing recorded in the journals of proceedings of the Constituent
Assembly regarding the matter which, as above stated, would have justified a departure from the policy then existing.
If the term "private agricultural land" comprehends lands of private ownership suitable or intended or used for
residence, as held by the majority, there was no need of implementing a self-executory prohibition found in the
Constitution. The prohibition to alienate such lands found in section 123 of Commonwealth Act No. 141 is a clear
indication and proof that section 5, Article XIII, of the Constitution does not apply to lands of private ownership
suitable or intended or used for residence. The term "private agricultural land" means privately owned lands devoted
to cultivation, to the raising of agricultural products, and does not include urban lands of private ownership suitable
for industrial or residence purposes. The use of the adjective "agricultural" has the effect of excluding all other private
lands that are not agricultural. Timber and mineral ands are not, however, included among the excluded, because these
lands could not and can never become private lands. From the land grants known as caballerias and peonias under the
Laws of Indies down to those under the Royal Decrees of 25 June 1880 and 13 February 1894, the Philippine Bill, Act
No. 926, the Jones Law, Act No. 2874, the Constitution, and Commonwealth Act No. 141, timber and mineral lands
have always been excluded from alienation. The repeal by sections 23, 60, 123 of Commonwealth Act No. 141 of the
exception provided for in sections 24, 57, 121 of Act No. 2874, did not change the meaning of the term "private
agricultural land," as intended by the framers of the Constitution and understood by the people that adopted it.

The next question is whether the court below was justified under the in confirming the refusal of the Register of
Deeds of Manila to record the sale of the private land for residence purposes to the appellant who is an alien.

There is no evidence to show the kind of land, the deed of sale of which is sought to be recorded by the appellant —
whether it is one of those described in section 123 of Commonwealth Act No. 141; or a private land that had never
been a part of the public domain (Carino vs. Insular Government, 212 U.S., 449; Oh Cho vs. Director of Lands, 43
Off. Gaz., 866). If it is the latter, the prohibition of section 123 of Commonwealth Act No. 141 does not apply. If it is
the former, section 123 of Commonwealth Act No. 141, which providesthat —

No land originally acquired in any manner under the provisions of any previous Act, ordinance, royal order,
royal decree, or any other provision of law formerly in force in the Philippines with regard to public
lands, terrenos baldios y realengos, or lands of any other denomination that were actually or presumptively of
the public domain, or by royal grant or in any other form, nor any permanent improvement on such land, shall
be encumbered, alienated, or conveyed, except to persons, corporations or associations who may acquire land
of the public domain under this Act or to corporate bodies organized in the Philippines whose charters
authorize them to do so: . . .

Page 43
is similar in nature to section 121 of Act No. 2874. This Court held the last mentioned section unconstitutional, for it
violates section 3 of the Act of Congress of 29 August 1916, commonly known as the Jones Law (Central
Capiz vs.Ramirez, 40 Phil., 883). Section 123 of Commonwealth Act No. 141, following the rule laid down in the
aforecited case, must also be declared unconstitutional, for it violates section 21 (1), Article VI, of the Constitution,
which is exactly the same as the one infringed upon by section 121 of Act No. 2874. This does not mean that a law
may not be passed by Congress to prohibit alienation to foreigners of urban lands of private ownership; but in so
doing, it must avoid offending against the constitutional provision referred to above.

Before closing, I cannot help but comment on the action taken by the Court in considering the merits of the case,
despite the withdrawal of the appeal by the appellants, consented to by the appellee. If discretion was to be exercised,
this Court did not exercise it wisely. Courts of last resort generally avoid passing upon constitutional questions if the
case where such questions are raised may be decided on other grounds. Courts of last resort do not express their
opinion on a consitutional question except when it is the very lis mota (Yangco vs. Board of Public Utility
Commissioners, 36 Phil., 116, 120; Co Chiong vs. Dinglasan, p. 122, ante). Moreover, the interpretation of the
provisions of the Constitution is no exclusive of the courts. The other coordinate branches of the government may
interpret such provisions acting on matters coming within their jurisdiction. And although such interpretation is only
persuasive and not binding upon the courts, nevertheless they cannot be deprived of such power. Of course, the final
say on what is the correct interpretation of a constitutional provision must come from and be made by this Court in an
appropriate action submitted to it for decision. The correct interpretation of a constitutional provision is that which
gives effect to the intent of its framers and primarily to the understanding of such provision by the poeple that adopted
it. This Court is only an interpreter of the instrument which embodies what its framers had in mind and especially
what the people understood it to be when they adopted it. The eagerness of this Court to express its opinion on the
constitutional provision involved in this case, notwithstanding of the withdrawal of the appeal, is unusualf or a Court
of last resort. It seems as if it were afraid to be deprived by the other coordinate branches of the government of its
prerogative to pass upon the constitutional question herein involved. If all the members of the Court were unanimous
in the interpretation of the constitutional provision under scrutiny, that eagerness might be justified, but when some
members of the Court do not agree to the interpretation placed upon such provision, that eagerness becomes
recklessness. The interpretation thus placed by the majority of the Court upon the constitutional provision referred to
will be binding upon the other coordinate branches of the government. If, in the course of time, such opinion should
turn out to be erroneous and against the welfare of the country,an amendment to the Constitution — a costly process
— would have to be proposed and adopted. But, if the Court had granted the motion for the withdrawal of the appeal,
it would not have to express its opinion upon the constitutional provision in question. It would let the other coordinate
branches of the Government act according to their wisdom, foresight and patriotism. They, too, possess those qualities
and virtues. These are not of the exclusive possession of the members of this Court. The end sought to be
accomplished by the decision of this Court may be carried out by the enactment of a law. And if the law should turn
out to be against the well-being of the people, its amendment or repeal would not be as costly a process as a
constitutional amendment.

In view of the denial by this Court of the motion to dismiss the appeal, as prayed for by the appellant and consented to
by the appellee, I am constrained to record my opinion, that, for the reasons hereinbefore set forth, the judgment under
review should be reversed.

TUASON, J., dissenting:

The decision concludes with the assertion that there is no choice. "We are construing" it says, "the Constitution as we
see it and not as we may wish it to be. If this is the solemn mandate of the Constitution, we cannot compromise it even
in the name of equity." We wish deep in our heart that we were given the light to see as the majority do and could
share their opinion. As it is, we perceive things the other way around. As we see it, the decision by-passed what
according to our humble understanding is the plain intent of the Constitution and groped out of its way in search of

Page 44
the ideal result. The denial by this Court of the motion to withdraw the appeal to which the Solicitor General gave his
conformity collides with the professed sorrow that the decision cannot be helped.

Section 5, Article XIII, of the Constitution reads:

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.

The sole and simple question at issue is, what is the meaning of the term "agricultural land" as used in this section?
Before answering the question, it is convenient to refresh our memory of the pertinent rule in the interpretation of
constitutions as expounded in decisions of courts of last resort and by law authors.

It is a cardinal rule in the interpretation of constitutions that the instrument must be a construed so to give
effect to the intention of the people who adopted it. This intention is to be sought in the constitution itself, and
the apparent meaning of the words employed is to be taken as expressing it, except in cases where the
assumption would lead to absurdity, ambiguity, or contradiction. Black on Interpretation of Laws, 2nd ed., p.
20.)

Every word employed in the constitution is to be expounded in its plain, obvious, and common sense, unless
the context furnishes some ground to control, qualify, or enlarge it. Constitutions are not designed for
metaphysical or logical subtleties, for niceties of expression, for critical propriety, for elaborate shades of
meaning, or for the exercise of philosophical acuteness or judicial research. They are instruments of a
practical nature founded on the common business of human life adapted to common wants, designed for
common use, and fitted for common understandings. The people make them, the people adopt them, the
people must be supposed to read them with the help of common sense, and cannot be presumed to admit in
them any recondite meaningor any extraordinary gloss. (1 Story, Const. sec. 451.)

Marshall , Ch. J., says:

The framers of the Constitution, and the people who adopted it, "must be understood to have employed words
in their natural sense, and to have intended what they have said." (Gibbons vs. Ogdon, 9 Wheat, 1, 188; 6
Law. ed., 23).

Questions as to the wisdom, expediency, or justice of constitutional provisions afford no basis for
construction where the intent to adopt such provisions is expressed in clear and unmistakable terms. Nor can
construction read into the provisions of a constitution some unexpressed general policy or spirit, supposed to
underline and pervade the instrument and to render it consonant to the genius of the institutions of the state.
The courts are not at liberty to declare an act void because they deem it opposed to the spirit of the
Constitution. (12 C.J., 702-703.)

There is no obscurity or ambiguity in the section of the Constitution above quoted, nor does a literal interpretation of
the words "agricultural land" lead to any un-the majority opinion, the phrase has no technical meaning, and the same
could not have been used in any sense other than that in which it is understood by the men in the street.

That there are lands of private ownership will not be denied, inspite of the fiction tha all lands proceed from the
sovereign. And, that lands of private ownership are known as agricultural, residential, commercial and industrial, is
another truth which no one can successfully dispute. In prohibiting the alienation of private agricultural land to aliens,
the Constitution, by necessary implication, authorizes the alienation of other kinds of private property. The express
mention of one thing excludes all others of the same kind.

Page 45
Let us then ascertain the meaning of the word "agricultural" so that by process of elimination we can see what lands
do not fall within the purview of the constitutional inhibition. Webster's New international Dictionary defines this
word as "of or pertaining to agriculture connected with, or engaged in, tillage; as, the agricultural class; agricultural
implements, wages, etc." According to this definition and according to the popular conception of the word, lands in
cities and towns intended or used for buildings or other kinds of structure are never understood to mean agricultural
lands. They are either residential, commercial, or industrial lands. In all city plannings, communities are divided into
residential, commercial and industrial sections. It would be extremely out of the ordinary, not to say ridiculous, to
imagine that the Constitutional Convention considered a lot on the Escolta with its improvement as agricultural land.

If extrinsic evidence is needed, a reference to the history of the constitutional provision under consideration will
dispel all doubts that urban lands were in the minds of the framers of the Constitution as properties that may be
assigned to foreigners.

Dean Aruego, himself a member of the Constitutional Convention, is authority for the statement that the committee on
nationalization and preservation of lands and other natural resources in its report recommended the incorporation into
the Constitution of the following provision:

SEC. 4. Save in cases of hereditary succession, no land of private ownership shall be transferred or assigned
by the owner thereof except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippine Islands; and the Government shall regulate the transfer or assignment of
land now owned by persons, or corporations,or associations not qualified under the provisions of this
Constitution to acquire or hold lands in the Philippine Islands.

In Article XIII, entitled "General Provisions," of the first draft of the Constitution, the sub-committee of seven
embodied the following provision which had been recommended in the reports of the committee on agricultural
development, national defense, industry, and nationalization and preservation of lands and other natural resources:

SEC. 16. Save in cases of hereditary succession, no land of private ownership shall be transferred or assigned
by the owner thereof except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippines.

But on January 22, 1935, the sub-committee of seven submitted to the Convention a revised draft of the articleo n
General Provisions of the first draft, which revised draft had been prepared by the committee in consultation with
President Quezon. The revised draft as it touches private lands provides as follows:

Save in cases of hereditary succession, no agricultural land of private ownership shall be transferred or
assigned by the owner thereof except to individuals, corporations, or associations qualified to acquire or hold
lands, of the public domain in the Philippine Islands. (2 The Framing of the Philippine Constitution, Aruego,
595-599.)

The last-quoted proposal became section 5 of Article XIII of the Constitution in its final form with sligh alteration in
the phraseology.

It will thus be seen that two committees in their reports and the sub-committee of seven in its first draft of the
Constitution all proposed to prescribe the transfer to non-Filipino citizens of any land of private ownership without
regard to its nature or use, but that the last mentioned sub-committee later amended that proposal by putting the word
"agricultural" before the word "land." What are we to conclude from this modification? Its self-evident purpose was to
confine the prohibition to agricultural lands, allowing the ownership by foreigners of private lands that do not partake
of agricultural character. The insertion of the word "agricultural" was studied and deliberated, thereby eliminating any
possibility that its implication was not comprehended.

Page 46
In the following paragraphs we shall, in our inadequate way, attempt to show that the conclusions in this Court's
decision are erroneous either because the premises are wrong or because the conclusions do not follow the premises.

According to the decision, the insertion of the word "agricultural" was not intended to change the scope of the
provision. It says that "the wording of the first draft was amended for no other purpose than to clarify concepts and
avoid uncertainties."

If this was the intention of the Constitutional Assembly, that could not have devised a better way of messing up and
obscuring the meaning of the provision than what it did. If the purpose was "to clarify concepts and avoid
uncertainties," the insertion of the word "agricultural" before the word "land" produced the exact opposite of the result
which the change was expected to accomplish — as witness the present sharp and bitter controversy which would not
have arisen had they let well enough alone.

But the assumption is untenable. To brush aside the introduction of the word "agricultural" into the final draft as
"merely one of words" is utterly unsupported by evidence, by the text of the Constitution, or by sound principles of
construction. There is absolutely no warrant or the statement that the Constitutional Convention, which was guided by
wise men, men of ability and experience in different fields of endeavor, used the termafter mature deliberation and
reflection and after consultation with the President, without intending to give it its natural signification and
connotation. "We are not at liberty to presume that the framers of the Constitution, or the people who adopted it, did
not understand the force of language." (People vs. Rathbone, 32 N.Y.S., 108.) The Constitution will be scanned in
vain for any reasonable indication that its authors made the change with intention that it should not operate according
to the rules of grammar and the ordinary process of drawing logical inferences. The theory is against the presumption,
based on human experience, that the framers of a constitution "have expressed themselves in careful and measured
terms, corresponding with the immense importance of the powers delegated, leaving as little as possible to
implication." (1 Cooley's Constitutional Limitations, 8th ed., 128, 129.) "As men, whose intention require no
concealment, generally employ the words which most directly and aptly express the ideas they intend to convey, the
enlightened patriots who framed our constitution, and the people who adopted it, must be understood to have
employed words in their natural sense and to have intended what they have said." (Gibbons vs. Ogden, ante.)

When instead of prohibiting the acquisition of private land of any kind by foreigners, as originally proposed, the
prohibition was changed to private agricultural lands, the average man's faculty of reasoning tells him that other lands
may be acquired. The elementary rules of speech with which men of average intelligence, and, above all, the members
of the Constitutional Assembly were familiar, inform us that the object of a descriptive adjective is to specify a thing
as distinct from another. It is from this process of reasoning that the maxim expressio unius est exclusio
alterius stems; a familiar rule of interpretation often quoted, and admitted as agreeable to natural reason.

If then a foreigner may acquire private lands that are not agricultural, what lands are they? Timber land or mineral
land, or both? As the decision itself says these lands are not susceptible of private ownership, the answer can only be
residential, commercial, industrial or other lands that are not agricultural. Whether a property is more suitable and
profitable to the owners as residential, commercial or industrial than if he devotes it to the cultivation of crops is a
matter that has to be decided according to the value of the property, its size, and other attending circumstances.

The main burden of this Court's argument is that, as lands of the public domain which are suitable for home building
are considered agricultural land, the Constitution intended that private residential, commercial or industrial lands
should be considered also agricultural lands. The Court says that "what the members of the Constitutional Convention
had in mind when they drafted the Constitution was this well-known classification (timber, mineral and agricultural)
and its technical meaning then prevailing."

As far as private lands are concerned, there is no factual or legal basis for this assumption. The classification of public
lands was used for one purpose not contemplated in the classification of private lands. At the outset, it should be
distinctively made clear that it was this Court's previous decisions and not an Act of Congress which declared that
public lands which were not forest or mineral were agricultural lands. Little reflection on the background of this

Page 47
Court's decisions and the nature of the question presented in relation to the peculia rprovisions of the enactments
which came up for construction, will bring into relief the error of applying to private lands the classification of public
lands.

In the first place, we cannot classify private lands in the same manner as public lands for the very simple and manifest
reason that only lands pertaining to one of the three groups of public lands — agricultural — can find their way into
the hands of private persons. Forest lands and mineral lands are preserved by the State for itself and for posterity.
Granting what is possible, that there are here and there forest lands and mineral lands to which private persons have
obtained patents or titles, it would be pointless to suppose that such properties are the ones which section 5 of Article
XIII of the Constitution wants to distinguish from private agricultural lands as lienable. The majority themselves will
not admit that the Constitution which forbids the alienation or private agricultural lands allows the conveyance of
private forests and mines.

In the second place, public lands are classified under special conditions and with a different object in view.
Classification of public lands was and is made for purposes of administration; for the purpose principally of
segregating lands that may be sold from lands that should be conserved. The Act of July 1, 1902, of the United States
Congress designated what lands of the public domain might be alienated and what should be kept by the State. Public
lands are divided into three classes to the end that natural resources may be used without waste. Subject to some
exceptions and limitation, agricultural lands may be disposed of by the Government. Preservation of forest and
mineral lands was and is a dominant preoccupation. These are important parts of the country's natural resources.
Private non-agricultural land does not come within the category of natural resources. Natural resources are defined in
Webster's Standard Dictionary as materials supplied or produced by nature. The United States Congress evinced very
little if any concern with private lands.

It should also be distinctively kept in mind that the Act of Congress of the United States above mentioned was an
organic law and dealt with vast tracts of untouched public lands. It was enacted by a Congress whose members were
not closely familiar with local conditions affecting lands. Under the circumstances, it was natural that the Congress
employed "words in a comprehensive sense as expressive of general ideas rather than of finer shades of thought or of
narrow distinctions. "The United States Congress was content with laying down a broad outline governing the
administration, exploitation, and disposition of the public wealth, leaving the details to be worked out by the local
authorities and courts entrusted with the enforcement and interpretation of the law.

It was a result of this broad classification that questions crept for a definition of the status of scattered small parcels of
public lands that were neither forest, mineral, nor agricultural, and with which the Congress had not bothered itself to
mention separately or specifically. This Court, forced by nature of its duty to decide legal controversies, ruled that
public lands that were fit for residential purposes, public swamps and other public lands that were neither forest nor
mineral, were to be regarded as agricultural lands. In other words, there was an apparent void, often inevitable in a
law or constitution, and this Court merely filled that void. It should be noted that this Court did not say that
agricultural lands and residential lands are the same or alike in their character and use. It merely said that for the
purpose of judging their alienability, residential, commercial or industrial lands should be brought under the class of
agricultural lands.

On the other hand, section 5 of Article XIII of the Constitution treats of private lands with a different aim. This Court
is not now confronted with any problem for which there is no specific provision, such as faced it when the question of
determining the character of public residential land came up for decision. This Court is not called to rule whether a
private residential land is forest, mineral or agricultural. This Court is not, in regard to private lands, in the position
where it found itself with reference to public lands, compelled by the limited field of its choice for a name to call
public residential lands, agricultural lands. When it comes to determining the character of private non-agricultural
lands, the Court's task is not to compare it with forests, mines and agricultural lands, to see which of these bears the
closest resembrance to the land in question. Since there are no private timber nor mineral lands, and if there were,
they could not be transferred to foreigners, and since the object of section 5 of Article XIII of the Constitution is
radically at variance withthat of the laws covering public lands, we have to have different standards of comparison

Page 48
and have to look of the intent of this constitutional provision from a different angle and perspective. When a private
non-agricultural land demands to know where it stands, we do not acquire, is it mineral, forest or agricultural? We
only ask, is it agricultural? To ascertain whether it is within the inhibition of section 5 of Article XIII.

The last question in turn resolves itself into what is understood by agricultural land. Stripped of the special
considerations which dictated the classification of public lands into three general groups, there is no alternative but to
take the term "agricultural land" in its natural and popular signification; and thus regarded, it imports a distinct
connotation which involves no absurdity and no contradiction between different parts of the organic law. Its meaning
is that agricultural land is specified in section 5 of Article XIII to differentiate it from lands that are used or are more
suitable for purposes other than agriculture.

It would profit us to take notice of the admonition of two of the most revered writers on constitutional law, Justice
Story and Professor Cooley:

"As a general thing, it is to be supposed that the same word is used in the same sense wherever it occurs in a
constitution. Here again, however, great caution must be observed in applying an arbitrary rule; for, as Mr. Justice
Story has well observed; `It does not follow, either logically or grammatically, that because a word is found in one
connection in the Constitution with a definite sense, therefore the same is to be adopted in every other connection in
which it occurs. This would be to suppose that the framers weighed only the force of single words, as philologists or
critics, and not whole clauses and objects, as statesmen and practical reasoners. And yet nothing has been more
common than to subject the Constitution to this narrow and mischievous criticism. Men of ingenious and subtle
minds, who seek for symmetry and harmony in language, having found in the Constitution a word used in some sense
which falls in with their favorite theory of interpreting it, have made that the standard by which to measure its use in
every other part of the instrument. They have thus stretched it, as it were, on the bed of Procrustes, lopping off its
meaning when it seemed too large for their purposes, and extending it, when it seemed too short. They have thus
distorted it to the most unnatural shapes, and crippled where they have sought only to adjust its proportions according
to their own opinions? And he gives many instances where, in the National Constitution, it is very manifest the same
word is employed in different meanings. So that, while the rule may be sound as one of presumption merely, its force
is but slight, and it must readily give way to a different intent appearing in the instrument." (1 Cooley's Constitutional
Limitations, 8th ed., 135.)

As to the proposition that the words "agricultural lands" have been given a technical meaning and that the
Constitution has employed them in that sense, it can only be accepted in reference to public lands. If a technical
import has been affixed to the term, it can not be extended to private lands if we are not to be led to an absurdity and
if we are avoid the charge that we are resorting to subtle and ingenious refinement to force from the Constitution a
meaning which its framers never held. While in the construction of a constitution words must be given the technical
meaning which they have acquired, the rule is limited to the "well-understood meaning" "which the people must be
supposed to have had in view in adopting them." To give an example. "When the constitution speaks of an ex post
facto law, it means a law technically known by that designation; the meaning of the phrase having become definite in
the history of constitutional law, and being so familiar to the people that it is not necessary to employ language of a
more popular character to designate it." In reality, this is not a departure from the general rule that the language used
is to be taken in the sense it conveys to the popular mind, "for the technical sense in these cases is the sense popularly
understood, because that is the sense fixed upon the words in legal and constitutional history where they have been
employed for the protection of popular rights." (1 Cooley's Constitutional Limitations, 8th ed., 132-133.) Viewed
from this angle, "agricultural land" does not possess the quality of a technical term. Even as applied to public lands,
and even among lawyers and judges, how many are familiar with the decisions of this Court which hold that public
swamps and public lands more appropriate for buildings and other structures than for agriculture are agricultural
lands? The same can be truthfully said of members of the Constitutional Assembly.

The speeches of delegates Montilla and Ledesma cannot serve as a means of interpretation. The sentiments expressed
in those speeches, like the first drafts of section 5 of Article XIII, may have reflected the sentiments of the Convention
in the first stages of the deliberation or down to its close. If they were, those sentiments were relaxed and not given

Page 49
full sway for reasons on which we need not speculate. Speeches in support of a project can be a valuable criterion for
judging the intention of a law or constitution only if no changes were afterward affected. If anything, the change in
section 5 of Article XIII wrought in the face of a strong advocacy for complete and absolute nationalization of all
lands, without exception, offers itself as the best proof that to the framers of the Constitution the change was not
"merely one of words" but represented something real and substantial. Firm and resolute convictions are expressed in
a document in strong, unequivocal and unqualified language. This is specially true when the instrument is a
constitution, "the most solemn and deliberate of human writings, always carefully drawn, and calculated for
permanent endurance."

The decision quotes from the Framing of the Constitution by Dean Aruego a sentence which says that one of the
principles underlying the provision of Article XIII of the Constitution is "that lands, minerals, forests and other natural
resources constitute the exclusive heritage of the Filipino Nation." In underlying the word lands the Court wants to
insinuate that all lands without exceptions are included. This is nothing to be enthusiastic over. It is hyperbole, "a
figure of speech in which the statement expresses more than the truth" but "is accepted as a legal form of expression."
It is an expression that "lies but does not deceive." When we say men must fight we do not mean all men, and every
one knows we don't.

The decision says:

It is true that in section 9 of said Commonwealth Act No. 141,"alienable or disposable public lands" which
are the same as "public agricultural lands" under the Constitution, are classified into agricultural, residential,
commercial, industrial and for other purposes. This simply means that the term "public agricultural lands" has
both a broad and a particular meaning. Under its broad or general meaning, as used in the Constitution, it
embraces all lands that are neither timber nor mineral. This broad meaning is particularized in section 9 of
Commonwealth Act No. 141 which classifies "public agricultural lands" for purposes of alienation or
disposition, into lands that are strictly agricultural or actually devoted to cultivation for agricultural purposes;
lands that are residential; commercial; industrial; or lands for other purposes. The fact that these lands are
made alienable or disposable under Commonwealth Act No. 141, in favor of Filipino Citizen, is a conclusive
indication of their character as public agricultural lands under said statute and under the Constitution."

If I am not mistaken in my understanding of the line of reasoning in the foregoing passage, my humble opinion is that
there is no logical connection between the premise and the conclusion. What to me seems clearly to emerge from it is
that Commonwealth Act No. 141, so far from sustaining that Court's theory, actually pulls down its case which it has
built upon the foundation of parallel classification of public and private lands into forest, mineral and agricultural
lands, and the inexistence of such things as residential, industrial or commercial lands. It is to be noted that Act No.
141, section 9, classifies disposable lands into agricultural, industrial, residential, commercial, etc. And these are lands
of the public domain.

The fact that the provisions regarding alienation of private lands happens to be included in Article XIII, which is
entitled "Conservation and Utilization of Natural Resources," is no ground for treating public lands and private lands
on the same footing. The inference should rather be the exact reverse. Agricultural lands, whether public or private,
are natural resources. But residential, commercial, and industrial lands, as we have seen, are not natural resources
either in the sense these words convey to the popular mind or as defined in the dictionary. This fact may have been
one factor which prompted the elimination of private non-agricultural lands from the range of the prohibition, along
with reasons, of foreign policy, economics and politics.

From the opinion of Secretary of Justice Jose A. Santos in 1939, the majority can not derive any comfort unless we
cling to the serious argument that as public lands go so go private lands. In that opinion the question propounded was
whether a piece of public land which was more profitable as a homesite might not be sold and considered as
agricultural. The illustrious Secretary answered yes, which was correct. But the classification of private lands was not
directly or indirectly involved. It is the opinion of the present Secretary of Justice that is to the point. If the
construction placed by the law-officer of the government on a constitutional provision may properly be invoked, as

Page 50
the majority say but which I doubt, as representing the true intent of the instrument, this Court, if it is to be consistent,
should adopt Secretary Ozaeta's view. If the Solicitor General's attitude as interested counsel for the government in a
judicial action is — as the decision also suggests but which, I think, is still more incorrect both in theory and in
practice — then this Court should have given heed to the motion for withdrawal of the present appeal, which had been
concurred in by the Solicitor General in line presumably with the opinion of the head of his department.

The Court fears that "this constitutional purpose of 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 reasons that "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." Sections122 and 123 of Act No. 141 should banish this fear. These sections, quoted and relied upon in the
majority opinion, prevent private lands that have been acquired under any of the public land laws from falling into
alien possession in fee simple. Without this law, the fear would be well-founded if we adopt the majority's theory,
which we precisely reject, that agricultural and residential lands are synonymous, be they public or private. The fear
would not materialize under our theory, that only lands which are not agricultural may be owned by persons other
than FIlipino citizens.

Act No. 141, by the way, supplies the best argument against the majority's interpretation of section 5 of Article XIII.
Prohibiting the acquisition by foreigners of any lands originally acquired in any manner under its provisions or under
the provisions of any previous law, ordinace, royal order, royal decree, or any other law formerly enforced in the
Philippines with regard to public lands, etc., it is a mute eloquent testimony that in the minds of the legislature, whose
interpretation the majority correctly say should be looked to as authoritative, the Constitution did not carry such
prohibition. For if the Constitution already barred the alienation of lands of any kind in favor of aliens, the provisions
of sections 122 and 123 of Commonwealth Act No. 141 would have been superfluous.

The decision says that "if under Article XIV section 8, of the Constitution, an alien may not even operate a small
jeepney for hire, it is certainly not hard to understand that neither is he allowed to own a piece of land." There is no
similitude between owning a lot for a home or a factory or a store and operating a jeepney for hire. It is not the
ownership of a jeepney that is forbidden; it is the use of it for public service that is not allowed. A foreigner is not
barred from owning the costliest motor cars, steamships or airplanes in any number, for his private use or that of his
friends and relatives. He can not use a jeepney for hire because the operation of public utilities is reserved to Filipino
nationals, and the operation of a jeepney happens to be within this policy. The use of a jeepney for hire maybe
insignificant in itself but it falls within a class of industry that performs a vital function in the country's economic life,
closely associated with its advancing civilization, supplying needs so fundamental for communal living and for the
development of the country's economy, that the government finds need of subjecting them to some measure of control
and the Constitution deems it necessary to limit their operation by Filipino citizens. The importance of using a
jeepney for hire cannot be sneered at or minimized just as a vote for public office by a single foreign citizen can not
be looked at with a shrug of the shoulder on the theory that it would not cause a ripple in the political complexion or
scene of the nation.

This Court quotes with approval from the Solicitor General's brief this passage: "If the term `private agricultural lands'
is to be construed as not including residential lots or lands of similar nature, the result will 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." Arguments like this have no
place where there is no ambiguity in the constitution or law. The courts are not at liberty to disregard a provision that
is clear and certain simply because its enforcement would work inconvenience or hardship or lead to what they
believe pernicious results. Courts have nothing to do with inconvenience or consequences. This role is founded on
sound principles of constitutional government and is so well known as to make citations of authorities presumptuous.

Page 51
Granting the possibility or probability of the consequences which this Court and the Solicitor General dread, we
should not overlook the fact that there is the Congress standing guard to curtail or stop such excesses or abuses if and
when the menace should show its head. The fact that the Constitution has not prohibited, as we contend, the transfer
of private non-agricultural lands to aliens does not prevent the Congress from passing legislation to regulate or
prohibit such transfer, to define the size of private lands a foreigner may possess in fee simple, or to specify the uses
for which lands may be dedicated, in order to prevent aliens from conducting fisheries, hatcheries, vacation resorts,
markets, golf-courses, cemeteries. The Congress could, if it wants, go so far as to exclude foreigners from entering the
country or settling here. If I may be permitted to guess, the alteration in the original draft of section 5 of Article XIII
may have been prompted precisely by the thought that it is the better policy to leave to the political departments of the
Government the regulation or absolute prohibition of all land ownership by foreigners, as the changed, changing and
ever-changing conditions demand. The Commonwealth Legislature did that with respect to lands that were originally
public lands, through Commonwealth Act No. 141, and the Legislative Assembly during the Japanese occupation
extended the prohibition to all private lands, as Mr. Justice Paras has pointed out. In the present Congress, at least two
bills have been introduced proposing Congressional legislation in the same direction. All of which is an infallible sign
that the Constitution does not carry such prohibition, in the opinion of three legislatures, an opinion which, we
entirely agree with the majority, should be given serious consideration by the courts (if needed there were any doubt),
both as a matter of policy, and also because it may be presumed to represent the true intent of the instrument. (12 C.J.,
714.) In truth, the decision lays special emphasis on the fact that "many members of the National Assembly who
approved the new Act (No. 141) had been members of the Constitutional Convention." May I add that Senator
Francisco, who is the author of one of the bills I have referred to, in the Senate, was a leading, active and influential
member of the Constitutional Convention?

Page 52
 DIGEST

FACTS:

Alexander Krivenko, an alien, bought a residential lot in December of 1941. The registration was interrupted by war.
In 1945, he sought to accomplish the registration but was denied by the register of deed on ground that, being an alien,
he cannot acquire land within the jurisdiction. Krivenko appealed to the Court.

ISSUES:

1. Whether or not an alien under our Constitution may acquire residential land?

2. Whether or not the prohibitions of the rights to acquire residential lot that was already of private ownership prior to
the approval of this Constitutions is applicable at the case at bar?

RULING:

1. NO. Under the Article XIII, Section 1, of the Constitution states that: 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 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. This means to say that, under the provisions of
the Constitutions, aliens are not allowed to acquire the ownership of urban or residential lands in the Philippines and,
as consequence, all acquisitions made in contravention of the prohibitions since the fundamental law became effective
are null and void per se and ab initio.

2. Prior to the Constitution, there were in the Public Land Act No. 2874 sections 120 and 121 which granted aliens the
right to acquire private only by way of reciprocity. It is to be observed that the pharase "no land" used in this section
refers to all private lands, whether strictly agricultural, residential or otherwise, there being practically no private land
which had not been acquired by any of the means provided in said two sections. Therefore, the prohibition contained
in these two provisions was, in effect, that no private land could be transferred to aliens except "upon express
authorization by the Philippine Legislature, to citizens of Philippine Islands the same right to acquire, hold, lease,
encumber, dispose of, or alienate land." In other words, aliens were granted the right to acquire private land merely by
way of reciprocity.

Page 53
 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.

Page 54
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?

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."

Page 55
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 ...

Page 56
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.

Page 57
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

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

Page 58
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:

Page 59
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).

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.

Page 60
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:

Page 61
[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.

Page 62
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 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

Page 63
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

Page 64
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

Yes, your Honor.43 (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 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.

Page 65
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.

Page 66
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:

Page 67
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?

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?

Page 68
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.)

You have familiarized yourselves with the minutes, Atty. Francisco?

MR. FRANCISCO. Yes, sir.

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 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 September 30,
1999 is 36,023,784,751. And with respect to PNCC’s obligation to Marubeni, this has been determined to be in the
total 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 made with respect to the review of the financial records of PNCC by Punongbayan and
Araullo, which have been included as part of the package of APT’s disposition to the national government’s interest
in PNCC."

You recall having made this representation as found in the minutes, I assume, Atty. Francisco?

Page 69
MR. FRANCISCO. Yes, sir. But I’d like to be refreshed on the memorandum, sir, because I don’t have a copy.

SEN. DRILON. Yes, this memorandum was cited earlier by Senator Arroyo, and maybe the secretary can give him a
copy? Give him a copy?

MS. OGAN. (Handing the document to Mr. Francisco.)

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. He asked for opinion, legal opinion.

SEN. DRILON. He said that they never made this representation and the transcript will bear us out. They said that
they never made this representation that the account of Marubeni should be recognized.

MR. FRANCISCO. Mr. Chairman, in the memorandum, I only mentioned here the acknowledgement and
confirmation of the PNCC obligations. I was not asking for a ratification. I never mentioned ratification in the
memorandum. I just based my memo based on the due diligence audit of the Feria Law Offices.

SEN. DRILON. Can you say that again? You never asked for a ratification...

MR. FRANCISCO. No. I never mentioned in my memorandum that I was asking for a ratification. I was just – in my
memo it says, "acknowledging and confirming the PNCC obligation." This was what ...

SEN. DRILON. Isn’t it the same as ratification? I mean, what’s the difference?

MR. FRANCISCO. I – well, my memorandum was meant really just to confirm the findings of the legal audit as ...

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.

SEN. DRILON. Right.

Page 70
Anyway, just of record, the Punongbayan representatives here yesterday said that they never made such
representation.

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 of this opinion but we were never furnished one. The ... no less than the Chairman of this
Committee was asking for a copy.

THE CHAIRMAN. Well, copy of the opinion...

MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this opinion because it’s opinion rendered for the
Asset Privatization Trust which is its client, not the PNCC, Mr. Chairman.

THE CHAIRMAN. All right. The question is whether – but you see, this is a memorandum of Atty. Francisco to the
Chairman of the Asset Privatization Trust. You say now that you were never furnished a copy because that’s supposed
to be with the Asset ...

MS. OGAN. Yes, Mr. Chairman.

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 PNCC in its minutes of October 20, 2000 where you are the corporate secretary, Ms. Ogan.

MS. OGAN. Yes, Mr. Chairman.

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. Yes, sir.

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. In effect the Feria Law Offices’ opinion was for the consumption of the APT.

MS. OGAN. That was what we were told, Mr. Chairman.

THE CHAIRMAN. And you were not even provided with a copy.

THE CHAIRMAN. Yet you adopted it.

Page 71
MS. OGAN. Yes, sir.

SEN DRILON. Considering you were the corporate secretary.

THE CHAIRMAN. She was the corporate secretary.

SEN. DRILON. She was just recording the minutes.

THE CHAIRMAN. Yes, she was recording.

Now, we are asking you now why it was taken up?

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. 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.

Page 72
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.

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.

Page 73
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

Page 74
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 …

Page 75
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 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.

Page 76
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:

WHEREAS, on January 15, 2001, RADSTOCK, as assignee of Marubeni Corporation, filed a complaint for sum of
money and damages with application for a writ of preliminary attachment with the Regional Trial Court (RTC),
Mandaluyong City, docketed as Civil Case 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;

Page 77
WHEREAS, on December 10, 2002, the RTC of Mandaluyong 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 (₱13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (₱10,000,000.00) as attorney's fees.

WHEREAS, PNCC had elevated the case to the Court of Appeals (CA-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 did not
commit grave abuse of discretion when it denied PNCC’s Motion to Dismiss which sets forth similar or substantially
the same grounds or defenses as those raised in PNCC's Answer;

WHEREAS, the case has remained pending for almost six (6) years even after the main action was appealed to the
Court of Appeals;

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");

WHEREAS, RADSTOCK is willing to settle the case at the reduced Compromise Amount of Six Billion One
Hundred Ninety-Six Million Pesos (₱6,196,000,000.00) which may be paid by PNCC, either in cash or in kind to
avoid the trouble and inconvenience of further litigation as a gesture of goodwill and cooperation;

WHEREAS, it is an established legal policy or principle that litigants in civil cases should be encouraged to
compromise or amicably settle their claims not only to avoid litigation but also to put an end to one already
commenced (Articles 2028 and 2029, Civil Code);

WHEREAS, this Compromise Agreement has been approved by the respective Board of Directors of both PNCC and
RADSTOCK, subject to the approval of the Honorable Court;

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 settle the above captioned Radstock
case under the following terms and conditions:

1. RADSTOCK agrees to receive and accept from PNCC in 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 Amount").

2. This Compromise Amount shall be paid by PNCC to 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;

(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,

Page 78
 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.

(3) T-49499 (529715 including T-68146-G (S-29716) (1,9747-A)-Parañaque (107 sq. m.) (54 sq. m.)
subject to the clarification of the Privatization and Management Office (PMO) claims thereon. The
transfer value is ₱1,409,100.00.

(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 ₱242,917,500.00.

(5) P-169 - Tagaytay (49,107 sq. m.). The transfer value is ₱13,749,400.00.

(6) P-170 - Tagaytay (49,100 sq. m.). The transfer value is ₱13,749,400.00.

(7) N-3320 - Town and Country Estate, Antipolo (10,000 sq. m.). The transfer value is
₱16,800,000.00.

(8) N-7424 - Antipolo (840 sq. m.). The transfer value is ₱940,800.00.

(9) N-7425 - Antipolo (850 sq. m.). The transfer value is ₱952,000.00.

(10) N-7426 - Antipolo (958 sq. m.). The transfer value is ₱1,073,100.00.

(11) T-485276 - Antipolo (741 sq. m.). The transfer value is ₱830,200.00.

(12) T-485277 - Antipolo (680 sq. m.). The transfer value is ₱761,600.00.

(13) T-485278 - Antipolo (701 sq. m.). The transfer value is ₱785,400.00.

(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945 sq, m.). The transfer value is ₱6,475,000.00.

(15) T-131501 - Bulacan (678 sq. m.). The transfer value is ₱887,600.00.

(16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.). The transfer value is ₱3,779,300.00.

(17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.). The transfer value is ₱974,400.00.

(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). The transfer value is ₱1,517,600.00.

(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan (20,000 sq. m.). The transfer value is
₱25,200,000.00.

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 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

Page 79
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.

Page 80
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 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.

Page 81
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,

Page 82
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.

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.

Page 83
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.

Section 9 [of PD 1113]. For the purposes of this franchise, the Government, shall turn over to the GRANTEE (PNCC)
not later than April 30, 1977 all physical assets and facilities including all equipment and appurtenances directly
related to the operations of the North and South Toll Expressways: Provided, That, the extensions of such

Page 84
Expressways shall also be turned over to GRANTEE upon completion 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 equipment and appurtenances directly related to their operations, shall
be turned over to the Government without any cost or obligation on the part of the latter. (Emphasis supplied)

Section 5 [of PD No. 1894]. In consideration of this franchise, the GRANTEE shall:

(a) Construct, operate and maintain at its own expense the Expressways; and

(b) Turn over, without cost, the toll facilities and all equipment, directly related thereto to the Government
upon expiration of the franchise period. (Emphasis supplied)

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, 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 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 and facilities, which have become National Government property upon the
expiry of PNCC’s franchise. Such act by the TRB would repeal Section 5 of PD 1894 which automatically vested in
the National 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 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 by PD 1894, are controlling.

The government’s ownership of PNCC's toll assets and facilities 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 includes public moneys of every sort and other resources pertaining to
any agency of the government.61 Even Radstock’s counsel admits that the toll fees are public funds, to wit:

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.

ASSOCIATE JUSTICE CARPIO:

Okay. So this is now owned by the national government. [A]ny income from these assets of the national government
is national government income, correct?

DEAN AGABIN:

Yes, Your Honor.62

xxxx

ASSOCIATE JUSTICE CARPIO:

Page 85
x x x My question is very simple x x x Is the income from these assets of the national government (interrupted)

DEAN AGABIN:

Yes, Your Honor.63

xxxx

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?

DEAN AGABIN:

It’s the same fund, Your Honor, except that (interrupted)

ASSOCIATE JUSTICE CARPIO:

So it goes to the general fund?

DEAN AGABIN:

Except that it can be categorized as a private fund in a commercial sense, and it can be categorized as a public fund in
a Public Law sense.

ASSOCIATE JUSTICE CARPIO:

Okay. So we agree that, okay, it goes to the general fund. I agree with you, but you are saying it is categorized still as
a private funds?

DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

But it’s part of the general fund. Now, if it is part of the general fund, who has the authority to spend that money?

DEAN AGABIN:

Well, the National Government itself.

ASSOCIATE JUSTICE CARPIO:

Who in the National Government, the Executive, Judiciary or Legislative?

DEAN AGABIN:

Well, the funds are usually appropriated by the Congress.

Page 86
ASSOCIATE JUSTICE CARPIO:

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:

x x x you are saying this is general fund money - the collection from the assets[?]

DEAN AGABIN:

Yes.64 (Emphasis supplied)

Forming part of the General Fund, the toll fees can only be disposed of in accordance with the fundamental principles
governing financial transactions and operations of any government agency, to wit: (1) no money shall be paid out of
the Treasury except in pursuance of an 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 mandated by Section 4(2) of PD 1445 or the Government Auditing Code.65

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

Section 29(1). No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.

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:

Section 84. Disbursement of government funds.

1. Revenue funds shall not be paid out of any public treasury or depository except in pursuance of an appropriation
law or other specific statutory authority.

xxxx

Section 85. Appropriation before entering into contract.

1. No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor,
the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure.

xxxx

Section 86 of PD 1445, on the other hand, requires that the proper accounting official must certify that funds have
been appropriated for the purpose.66 Section 87 of PD 1445 provides that any contract entered into contrary to the
requirements of Sections 85 and 86 shall be void, thus:

Page 87
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 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)

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."

Indisputably, without an appropriation law, PNCC cannot lawfully pay ₱6.185 billion to Radstock. Any contract
allowing such payment, like the Compromise Agreement, "shall be void" as provided in Section 87 of the
Government Auditing Code. In Comelec v. Quijano-Padilla,68 this Court ruled:

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 act otherwise would be a
futile exercise for the contract would inevitably suffer the vice of nullity. In Osmeña vs. Commission on Audit, this
Court held:

The Auditing Code of the Philippines (P.D. 1445) further provides that 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 entering into the obligation that funds have been duly appropriated
for the purpose and the amount necessary to cover the proposed contract for the current fiscal year is available for
expenditure on account thereof. Any contract entered into contrary to the foregoing requirements shall be VOID.

Clearly then, the contract entered into by the former Mayor Duterte was void from the very beginning since the agreed
cost for the project (₱,368,920.00) was way beyond the appropriated amount (₱,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 agree, that:

The prohibition contained in Sec. 85 of PD 1445 (Government Auditing Code) is explicit and mandatory. Fund
availability is, as it has always been, an indispensable prerequisite to the execution of any 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 availability is issued (Letter of Instruction No.
767, s. 1978). Antecedent of advance appropriation is thus essential to government liability on 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.

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:

ASSOCIATE JUSTICE CARPIO:

Okay, I agree with you. Now, you are saying that money can be paid out of the general fund only through an
appropriation by Congress, correct? That’s what you are saying.

DEAN AGABIN:

Page 88
Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

I agree with you also. Okay, now, can PNCC xxx use this money to pay Radstock without Congressional approval?

DEAN AGABIN:

Well, I believe that that may not be necessary. Your Honor, because earlier, the government had already decreed that
PNCC should be properly paid for the reclamation works which it had done. And so (interrupted)

ASSOCIATE JUSTICE CARPIO:

No. I am talking of the funds.

DEAN AGABIN:

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.

DEAN AGABIN:

Yes, Your Honor.

There is no law.

DEAN AGABIN:

Yes, except that, Your Honor, this fund has not yet gone to the general fund.

ASSOCIATE JUSTICE CARPIO:

No. It’s being collected everyday. As of May 7, 2007, 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.

DEAN AGABIN:

That is correct, Your Honor, as long as it has already gone into the general fund.

ASSOCIATE JUSTICE CARPIO:

Oh, you mean to say that it’s still being held now by the agent, PNCC. It has not been remitted to the National
Government?

DEAN AGABIN:

Page 89
Well, if PNCC (interrupted)

ASSOCIATE JUSTICE CARPIO:

But if (interrupted)

DEAN AGABIN:

If this is the share that properly belongs to PNCC as a private entity (interrupted)

ASSOCIATE JUSTICE CARPIO:

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 fund. If, somehow, PNCC is holding this money in the meantime, it 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.

DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Okay. Can the person holding in trust use it to pay his private debt?

DEAN AGABIN:

No, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Cannot be.

DEAN AGABIN:

But I assume that there must be some portion of the collections which properly pertain to PNCC.

ASSOCIATE JUSTICE CARPIO:

If there is some portion that xxx may be [for] operating expenses of PNCC. But that is not

DEAN AGABIN:

Even profit, Your Honor.

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.

Page 90
DEAN AGABIN:

Yes, Your Honor.

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)

Without an appropriation law, the use of the toll fees to pay Radstock 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:

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.

DEAN AGABIN:

That is correct, Your Honor, as long as it has already gone into the general fund.

ASSOCIATE JUSTICE CARPIO:

Oh, you mean to say that it’s still being held now by the agent, PNCC. It has not been remitted to the National
Government?

DEAN AGABIN:

Well, if PNCC (interrupted)

ASSOCIATE JUSTICE CARPIO:

But if (interrupted)

DEAN AGABIN:

If this is the share that properly belongs to PNCC as a private entity (interrupted)

ASSOCIATE JUSTICE CARPIO:

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 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 fund, National Government. So it must be holding this in trust for the National
Government.

Page 91
DEAN AGABIN:

Yes, Your Honor.70 (Emphasis supplied)

Indisputably, funds held in trust by PNCC for the National Government cannot be used by PNCC to pay a
private debt of CDCP Mining to Radstock, otherwise the PNCC Board will be liable for malversation of public
funds.

In addition, to pay Radstock ₱6.185 billion violates the fundamental public policy, expressly articulated in Section
4(2) of the Government Auditing Code,71 that government funds or property shall be spent or used solely for pubic
purposes, thus:

Section 4. Fundamental Principles. x x x (2) Government funds or property shall be spent or used solely for public
purposes. (Emphasis supplied)

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

Correct, Your Honor.72 (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 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.

Page 92
SEN. OSMEÑA. What’s 13 percent?

MR. AGUILAR. We owned ...

MS. PASETES. Thirteen percent of ...

SEN. OSMEÑA. PNCC owned ...

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

SEN. DRILON. Use the microphone, please.

MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP Basay Mining ...

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?

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 x73 (Emphasis supplied)

PNCC cannot use public funds, like toll fees that indisputably form part of the General Fund, to pay a private debt of
CDCP Mining to 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.

Considering that there is no appropriation law passed by Congress for the ₱6.185 billion compromise amount, the
Compromise Agreement is void for being contrary to law, specifically Section 29(1), Article VI of 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, 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 the
Government Auditing Code.

C. Radstock is not qualified to own land in the Philippines.

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 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 of the Constitution. These provisions state:

Section. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national
parks. Agricultural lands of the public domain may be further classified by law according to the uses 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 lands of the public domain except by lease, for a period not exceeding twenty-five

Page 93
years, renewable for not 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
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.

xxxx

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.

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:

ASSOCIATE JUSTICE CARPIO:

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

ATTY. AGRA:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Can a foreigner who xxx cannot own land assign the right of ownership to the land?

ATTY. AGRA:

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)

ASSOCIATE JUSTICE CARPIO:

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 ownership of a land when it cannot own the land itself?

ATTY. AGRA:

The foreigner cannot own the land, Your Honor.

ASSOCIATE JUSTICE CARPIO:

But you are saying it can own the right of ownership to the land, because you are saying, the right of ownership will
be assigned by Radstock.

ATTY. AGRA:

The rights over the properties, Your Honors, if there’s a valid assignment made to a qualified party, then the
assignment will be made.

Page 94
ASSOCIATE JUSTICE CARPIO:

Who makes the assignment?

ATTY. AGRA:

It will be Radstock, Your Honor.

ASSOCIATE JUSTICE CARPIO:

So, if Radstock makes the assignment, it must own its rights, 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?

ATTY. AGRA:

Yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

Yes?

ATTY. AGRA:

The premise, Your Honor, you mentioned a while ago was, if this Court approves said compromise (interrupted)

ASSOCIATE JUSTICE CARPIO:

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

ATTY. AGRA:

Under the Compromise Agreement, Your Honors, these rights should be respected.

ASSOCIATE JUSTICE CARPIO:

So, it can?

ATTY. AGRA:

It can. Your Honor. But again, this right must, cannot be perfected or cannot be, could not take effect.

ASSOCIATE JUSTICE CARPIO:

Page 95
But if it cannot - - It’s not perfected, how can it assign?

ATTY. AGRA:

Not directly, Your Honors. Again, there must be a qualified nominee assigned by Radstock.

ASSOCIATE JUSTICE CARPIO:

It’s very clear, it’s an indirect way of selling property that is prohibited by law, is it not?

ATTY. AGRA:

Again, Your Honor, know, believe this is a Compromise Agreement. This is a dacion en pago.

ASSOCIATE JUSTICE CARPIO:

So, dacion en pago is an exception to the constitutional prohibition.

ATTY. AGRA:

No, Your Honor. PNCC, will still hold on to the property, absent a valid assignment of properties.

ASSOCIATE JUSTICE CARPIO:

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:

No, Your Honor, I believe it (interrupted)

ASSOCIATE JUSTICE CARPIO:

Yeah, but it does not own the land, but it still holding the land in favor of the other party to the Compromise
Agreement

ATTY. AGRA:

Pursuant to the compromise agreement, that will happen.

ASSOCIATE JUSTICE CARPIO:

Okay. May I (interrupted)

ATTY. AGRA:

Again, Your Honor, if the compromise agreement ended with a statement that Radstock will be the owner of the
property (interrupted)

Page 96
ASSOCIATE JUSTICE CARPIO:

Yeah. Unfortunately, it says, to a qualified assignee.

ATTY. AGRA:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

And at this point, when it is signed and execut[ed] and approved, PNCC has no dominion over that land anymore.
Who has dominion over it?

ATTY. AGRA:

Pending the assignment to a qualified party, Your Honor, PNCC will hold on to the property.

ASSOCIATE JUSTICE CARPIO:

Hold on, but who x x x can exercise acts of dominion, to sell it, to lease it?

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. Your Honor. 74 (Emphasis
supplied)

There is no dispute that Radstock is disqualified to own lands in the Philippines. Consequently, Radstock is also
disqualified to own the rights to ownership of lands in the Philippines. Contrary to the OGCC’s claim, Radstock
cannot own the rights to ownership of any land in the 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 Philippines. In addition, Radstock cannot transfer the rights to ownership of land
in the Philippines if it cannot own the land itself. It is basic that an assignor or seller cannot assign or sell something
he does not own at the time the ownership, or the rights to the ownership, are to be transferred to the assignee or
buyer.75

The third party assignee under the Compromise Agreement who will be designated by Radstock can only acquire
rights duplicating those which its assignor (Radstock) is entitled by law to exercise.76 Thus, the assignee can acquire
ownership of the land only if its assignor, 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 corporation owning lands in the Philippines. Such circumvention renders the Compromise Agreement
void.

D. Public bidding is required for

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:

Page 97
V. MODE OF DISPOSAL/DIVESTMENT: -

This Commission recognizes the following modes of disposal/divestment of assets and property of national
government agencies, local government units and government-owned or controlled corporations and their
subsidiaries, aside from other such modes as may be provided for by law.

1. Public Auction

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 observe and adhere to
established mechanics and procedures in public bidding, viz:

a. adequate publicity and notification so as to attract the greatest number of interested parties; (vide, Sec. 79,
P.D. 1445)

b. sufficient time frame between publication and date of auction;

c. opportunity afforded to interested parties to inspect the property or assets to be disposed of;

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

Page 98
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.

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.

Page 99
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)

Page 100
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.

Page 101
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.

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

Page 102
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?

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.100

PNCC failed to explain satisfactorily why in its books the obligation to the National Government was reduced when
no payment to the National Government appeared to have been made. PNCC failed to justify why it made it appear
that the obligation to the National Government was less than the obligation to Marubeni. It is another obvious ploy to
justify the preferential treatment given to Radstock to the great prejudice of the National Government.

VI.
Supreme Court is Not Legitimizer of Violations of Laws

During the oral arguments, counsels for Radstock and PNCC admitted that the Compromise Agreement violates the
Constitution and existing laws. However, they rely on this Court to approve the Compromise Agreement to shield
their clients from possible criminal acts arising from violation of the Constitution and existing laws. In their view,
once 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:

ASSOCIATE JUSTICE CARPIO:

Page 103
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.

DEAN AGABIN:

Yes, that’s why, they are asking the Honorable Court to approve the compromise agreement.

ASSOCIATE JUSTICE CARPIO:

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

xxxx

ASSOCIATE JUSTICE CARPIO:

So, if Radstock makes the assignment, it must own its rights, 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?

ATTY. AGRA:

Yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

Yes?

Page 104
ATTY. AGRA:

The premise, Your Honor, you mentioned a while ago was, if this Court approves said compromise
(interrupted).102(Emphasis supplied)

This Court is not, and should never be, a rubber stamp for litigants hankering to pocket public funds for their selfish
private gain. This Court is the ultimate guardian of the public interest, the last bulwark against those who seek to
plunder the public coffers. This Court cannot, and must never, bring itself down to the level of legitimizer of
violations of the Constitution, existing laws or public policy.

Conclusion

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, constitute evident bad
faith and gross inexcusable negligence, amounting to fraud, in the management of PNCC’s affairs. Being public
officers, the government nominees in the PNCC Board must answer not only to PNCC and its stockholders, but also
to the Filipino people for grossly mishandling PNCC’s finances.

Under Article 1409 of the Civil Code, the Compromise Agreement is "inexistent and void from the beginning," and
"cannot be ratified," thus:

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public
policy;

xxx

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. x x x. (Emphasis supplied)

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.

We GRANT the intervention of Asiavest Merchant Bankers Berhad in G.R. No. 178158 but DECLARE that Strategic
Alliance Development Corporation has no legal standing to sue.

Page 105
SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

CONCURRING OPINION

CARPIO MORALES, J.:

I join the majority in granting the petition in G.R. No. 180428.

In G.R. No. 178159, petitioner Strategic Alliance Development Corporation (Stradec) assails the appellate court’s
Resolutions of January 25, 2007 and May 31, 2007 in CA-G.R. CV No. 87971 approving the Compromise Agreement
of August 17, 2006 between Radstock Securities Limited (Radstock) and Philippine National Construction
Corporation (PNCC), and denying Stradec’s motion for reconsideration, respectively. In G.R. No. 180428, petitioner

Page 106
Luis Sison (Sison) assails the appellate court’s Resolutions of June 12, 2007 and November 5, 2007 in CA-G.R. SP
No. 97982 dismissing his petition for annulment of the appellate court’s January 25, 2007 Resolution, and denying
reconsideration thereof, respectively.

This opinion dwells only on the legal claims and defenses surrounding the execution of the Compromise Agreement,
the validity of which is challenged in the present petitions.

The debt-to-equity transaction between the government and the PNCC (then CDCP) covered the assumption of
ownership not only as to the assets but also as to the liabilities of CDCP to the extent of its equity.

The separate issue of defensibility of the subject liability could not be taken into account in rejecting the compromise
agreement, since part of a compromise is the concession to surrender or waive the defenses against the claim. Whether
such waiver subjected the PNCC officers to personal liability is likewise a different question altogether.

Going beyond the mathematical computations in arriving at the ₱6.185 Billion value of the properties subject of the
Compromise Agreement vis-à-vis the ₱17.04 Billion liability adjudged by the trial court, the immediate effect of
approving the Compromise Agreement is pulling Radstock from the queue of PNCC creditors and placing it in front
of the line in order to collect on a debt ahead of the other PNCC creditors. Yet Radstock itself was complaining and
crying foul about this same scenario in its application for a writ of preliminary attachment, the subject of this Court’s
decision in Philippine National Construction Corporation v. Dy.1 Thus Radstock alleged:

. . . PNCC knowing that it is bankrupt and that it does not have enough assets to meet its existing obligations is
now offering for sale its assets as shown in the reports published in newspapers of general circulation.2 (emphasis and
underscoring supplied)

The Court in that case did not find such allegation as constitutive of fraud to merit Radstock’s prayer for the
attachment of PNCC properties because

. . . the fact that PNCC has insufficient assets to cover its obligations is no indication of fraud even if PNCC attempts
to sell them because it is quite possible that PNCC was entering into a bona fide . . . sale where at least fair
market value for the assets will be received. In such a situation, Marubeni[-predecessor-in-interest of Radstock]
would not be in a worse position than before as the assets will still be there but just liquidated.3(italics in the
original; emphasis and underscoring supplied)

Finding itself in the same position it abhors, Radstock now finds no objection to PNCC "selling"4 its assets to
Radstock and placing itself in a worse position than before as the assets will be actually conveyed and not merely
liquidated. Even worse, Radstock admits that PNCC is financially in distress and intimates that the creditors cannot in
any manner collect the claims due them.

Furthermore, Executive Order No. 292 or the Administrative Code of 1987 requires congressional approval on the
compromise of claims valued at more than ₱100,000, thus the pertinent section provides:

Section 20. Power to Compromise Claims. - (1) When the interest of the Government so requires, the Commission [on
Audit] 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 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.5 (emphasis and underscoring supplied)

At the outset, it bears clarification that the phrase "any settled claim or liability to any government agency" includes
not just liabilities to the government but also claims against the government. Although the two relevant cases (infra)

Page 107
so far decided by this Court involved only liabilities to the government, there is nothing in the law that prohibits the
government from amicably settling its own liability to a person, subject to the same stringent qualifications and
conditions. That the State has the whole government machinery to contest any alleged liability and protect the release
of government funds to pay off such claim is not in consonance with the avowed State policy expressed by law6 that
encourages settlement of civil cases.

In Benedicto v. Board of Administrators of Television Stations RPN, BBC and IBC,7 the Court ruled that the
requirement of prior congressional approval for the compromise of an amount exceeding ₱100,000 applies only to
a settled claim or liability.

In his dissent, Justice Lucas Bersamin states that the liability of PNCC to Radstock was not yet settled at the time of
the execution of the Compromise Agreement since the case was still the subject of litigation, in which PNCC resisted
liability by pleading various defenses. He expounds:

The exception of a compromise or release of a claim or liability yet to be settled from the requirement for presidential
or congressional approval is realistic and practical. In a settlement by compromise agreement, the negotiating party
must have the freedom to negotiate and bargain with the other party. Otherwise, tying the hands of the Government
representative by requiring him to submit each step of the negotiation to the President and to Congress will unduly
hinder him from effectively entering into any compromise agreement. (italics in the original omitted)

The majority opinion, meanwhile, declares that the claim was already settled upon recognition of the obligation in the
books of PNCC via the Board Resolution.

[It] 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. x x x (emphasis in the original
omitted)

I submit that a claim or liability is settled once it has been liquidated or determined and no issue remains as to the
amount or identity of the liability.

In Benedicto, the Court explained that "[t]he Government’s claim against Benedicto is not yet settled, and the
ownership of the alleged ill-gotten assets is still being litigated in the Sandiganbayan, hence, the PCGG’s
Compromise Agreement with Benedicto need not be submitted to the Congress for approval." In Benedicto, there was
yet no determination as to the ownership of the sequestered properties.

The determination, if it be a judicial one, need not be final and executory. Since the aim of a compromise is to "avoid
a litigation or put an end to one already commenced," there is no rhyme or reason to end a litigation that is already
terminated and to wait for a final and executory decision before discussing a possible compromise.

In The Alexandra Condominium Corporation v. Laguna Lake Development Corporation,8 the subject of compromise
was the ₱1,062,000 fine imposed by the Laguna Lake Development Authority against a condominium corporation as
compensation for damages resulting from failure to meet established water and effluent quality standards. The Court
therein ruled that the condominium corporation should have first pursued the administrative recourse to the
Department of Environment and Natural Resources Secretary before filing the petition in court. On the issue of the
alleged pending amicable settlement vis-à-vis the claim of non-exhaustion of administrative remedies, the Court ruled
that congressional approval of a compromise agreement is "not administrative but legislative [in nature], and need not
be resorted to before filing a judicial action."

Page 108
In the scheme of things, the congressional approval acts as a safeguard in reviewing the soundness of the business
judgment. It is not for the Court to preempt the legislative branch and say that "under the circumstances, the
compromise agreement could not be considered as disadvantageous to PNCC and the National Government."

CONCHITA CARPIO MORALES

Associate Justice

CONCURRING OPINION

LEONARDO-DE CASTRO, J.:

I concur in the ponencia of the Honorable Justice Antonio T. Carpio, subject to the following qualifications:

First, I do not believe that Section 36 of the Government Auditing Code grants government agencies any power to
compromise, and thereby admit, any indebtedness of the government to another party. Section 36, as amended by
Section 20, Chapter 4, Title I-B, Book V, E.O. No. 292 (the Administrative Code of 1987), provides:

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 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 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; and

(2) The Commission may, in the interest of the Government, authorize the charging or crediting to an appropriate
account in the National Treasury, small discrepancies (overage or shortage) in the remittances to, and disbursements
of, the National Treasury, subject to the rules and regulations as it may prescribe. (emphasis supplied)

Plainly, pursuant to the above-quoted provision, the power to compromise or release involves a claim or liability to a
government agency, i.e. an indebtedness to a government agency, which term by definition under E.O. No. 292
includes "government owned or controlled corporations." The language of Section 36 does not authorize the
compromise of an indebtedness of the government or a liability of the government to any party.

The aforesaid meaning or import of the term "claim or liability" used in Section 36 is reinforced by the immediate
preceding Section 35 which reads:

Section 35. Collection of Indebtedness Due to the Government. – The Commission shall, through proper channels,
assist in the collection and enforcement of all debts and claims, and the restitution of all funds or the replacement or
payment as a reasonable price of property, found to be due the Government, or any of its subdivisions, agencies or
instrumentalities, or any government-owned or controlled corporation or self-governing board, commission or agency
of the Government, in the settlement and adjustment of its accounts. If any legal proceeding is necessary to that end,
the Commission shall refer the case to the Solicitor General, the Government Corporate Counsel, or the Legal Staff of
the Creditor Government Office or agency concerned to institute such legal proceeding. The Commission shall extend
full support in the litigation. All such moneys due and payable shall bear interest at the legal rate from the date of
written demand by the Commission. (emphasis supplied)

Page 109
Previous jurisprudence applying Section 36 confirms that this provision authorizes the compromise of a liability or
indebtedness to the government.1 This is true even in Benedicto v. Board of Administrators of Television
Stations,2which was cited in the dissent. The Benedicto case ruled upon the power of the PCGG to compromise
actions for recovery of ill-gotten wealth. In such actions, it is the government who has a claim against third persons
and not the other way around.

Now, one might ask: Is there compelling reason to treat a compromise of an indebtedness to the government
differently from a compromise of an indebtedness of the government?

The answer is undeniably in the affirmative. First, when there is a compromise of an indebtedness to the government,
it generally presupposes that the government’s claim will be paid, albeit at a lower amount than the actual liability. It
involves funds going into the coffers of the government. On the other hand, when there is a compromise of an
indebtedness of the government, this means that public funds will be disbursed from the treasury to answer for such
debt. The former type of compromise makes practical sense since in that situation, the State is condoning a portion of
an actual or settled or definite obligation in order to collect some amount for a good or meritorious ground rather than
risk the non-payment of all of its claim.

However, the power to compromise an indebtedness to the government does not necessarily include the power to
compromise an asserted claim against or liability of the government, more so if the said claim against or liability of
the government is unsettled. It needs no deep logical reasoning to understand that before the government is made to
part with public funds or property, the claim against the government must be fixed, definite or settled. Otherwise, the
government may be holding itself liable for unfounded or baseless claims. This is because the power to compromise a
liability of the government entails the disbursement of public funds or property which is an act subject to stringent
rules in order to safeguard against loss or wastage of such funds or property that are so vital to the delivery of basic
public goods and services. Not the least of these rules is Article VI, Section 29(1) of the 1987 Constitution which
states that "[n]o money shall be paid out of the Treasury except in pursuance of an appropriation made by law." In
consonance with Section 29, Article VI, the General Auditing Code also provides:

Section 4. Fundamental Principles. – Financial transactions and operations of any government agency shall be
governed by the fundamental principles set forth hereunder, to wit:

1. No money shall be paid out of any public treasury or depository except in pursuance of an appropriation
law or other specific statutory authority.

2. Government funds or property shall be spent or used solely for public purposes. xxx xxx xxx (emphasis
supplied)

To my mind, neither Section 36 of the Government Auditing Code nor Benedicto can be used as legal basis for the
vaunted validity of the Compromise Agreement subject of this case.

Second, even assuming for the sake of argument that Section 36 may be interpreted as also authorizing the
compromise of government indebtedness to another party, it is my considered view as stated above that it must be a
settled claim or liability.

Section 36 is very clear that the Commission on Audit (COA) may only compromise or release "any settled claim or
liability."

The dissenting opinion characterizes Radstock’s claim against PNCC as an unsettled claim since its validity and its
amount had not yet been determined with judicial finality and in fact, the Compromise Agreement was entered into by
the parties during the pendency of the case with the Court of Appeals.

Page 110
However, I respectfully beg to disagree with the proposition that since Radstock’s claim is not yet settled, the
requirement under Section 36 for Presidential or Congressional approval does not apply. On the contrary, it is
precisely because the claim is still unsettled that Section 36 should not come into play at all and the concerned
government agency should be deemed to have no authority to compromise such claim. Under Section 36, the
authority to compromise must involve a "settled claim or liability" regardless of amount, the latter being significant
only to determine the approving authority. This is the clear import of Section 36.

This interpretation of Section 36, which requires a final and executory judicial determination of the liability as a
prerequisite to the exercise of the power to compromise, would reinforce the mandate of the COA to guard against
illegal or negligent disbursement of public funds.

This is an opportune time for the Court to revisit and reexamine the doctrine in Benedicto, insofar as it rules that
Presidential and/or Congressional approval may be dispensed with in the compromise of unsettled claims. The
authority to compromise granted in cases of settled claims, under Section 36, as amended by E.O. 292, subject to the
approval of the offices concerned depending on the amount of the claim cannot, by any rational reasoning, be
construed as to confer absolute authority to compromise, that is, sans any condition or approval at all, if the claim is
unsettled or not yet established. Rather, the inescapable deduction from the language of Section 36 is that no
compromise is allowed if the claim is unsettled. Besides, it should be emphasized that the claim in Benedicto did not
involve a claim against the government but a claim due to the government. Hence, it cannot be invoked as a
precedent.

Section 36 requires, as indispensable conditions for a compromise, that the claim is settled and the application for
relief is submitted to Congress for approval with the recommendation of the COA and the President if the "settled
claim" exceeds ₱100,000.00. The statutory conditions of (1) a settled claim and (2) Presidential endorsement and
Congressional approval of the compromise depending on the amount of the claim are entrenched as mechanisms for
ensuring public accountability and fiscal responsibility.

If a settled claim (i.e. a claim that has been adjudged valid and has been competently computed based on evidence)
that exceeds ₱100,000.00 requires Presidential endorsement and Congressional approval, with more reason, an
unsettled claim (i.e. one that is still of questionable validity or legality) of any amount should require Presidential
endorsement and Congressional approval before it can be compromised. This is especially true in the case of a
compromise of a supposed debt of the government to another party. It seems absurd that a compromise that will
require a disbursement of public funds or property will not require Congressional approval when the Constitution and
the law demand legislative action and a public purpose before such a disbursement can be made.

To be sure, in the case of a compromise of an indebtedness to the government, there must be a reasonable and
dependable benchmark by which to ascertain whether the amount of loss or waived receivables under the compromise
is acceptable or justified.

The existence of a reliable benchmark of the liability to be paid is even more imperative in the case of a compromise
of an indebtedness of the government because it entails a payment out of public funds or property. A judicial
determination of the liability would be one such standard by which we can reasonably gauge if the compromise
entered into by public officials is disadvantageous to the government or inimical to interests of the Filipino people.

The benchmark most certainly cannot be what the claimant asserts the government’s liability to be. I simply cannot
accept the reasoning that PNCC’s entering into a compromise with Radstock for ₱6 Billion is advantageous to the
government, since the purported claim amounted to approximately ₱17 Billion. For if Radstock is actually not entitled
to a single centavo of its claim, then our government would have lost ₱6 Billion for nothing. It is my firm belief that a
claim against the government must be proven, or otherwise settled with finality, before the whole claim or any part of
it can be paid or compromised.

Page 111
If this Court approves the compromise of an unsettled claim, then we will open the floodgates to even more suits of
this sort. Predictably, that kind of permissive ruling will encourage parties to file flimsy or dubious claims against the
government and unscrupulous government officials can compromise such claims even during the pendency of the
case and without need of any approval from higher authority. To say that this would be an anomalous outcome would
be an understatement. It is an abomination that the Court should not countenance or perpetuate.

We simply cannot apply to this case the statutory provisions on compromise of cases in ordinary civil or corporate
litigation. We must consider the far-reaching public interests involved herein and the special laws or rules applicable
to the expenditure or disposition of public funds or property, especially proscriptions against government guarantee of
debts or obligations incurred for a private purpose. Public officers entering into a compromise of an "unsettled"
indebtedness of the government, in the absence of a definite and categorical legal authority to do so, are assuming a
heavy burden of justifying such compromise in order to avoid accusations of entering into a manifestly
disadvantageous agreement on behalf of the government.

Finally, it should not escape this Court’s notice that PNCC became a government owned or controlled corporation
(GOCC) in the first place because it was indebted to the government. Instead of paying the government in cash, it
settled its obligations in shares of stock. If we approve the Compromise Agreement, the government, who itself was a
creditor of PNCC, will now in effect be paying PNCC’s debts. Worse, one such debt was not even an obligation of
PNCC to begin with but of its affiliate, and was incurred at a time when both PNCC and the affiliate were private
corporations. The strange circumstances surrounding PNCC’s recognition of the said debt and the startling facility by
which that debt was recognized by a PNCC official and then bought and sued upon by Radstock all arouse suspicion.
I believe the Court is right to disapprove the Compromise Agreement and should allow all issues to be fully ventilated
in the proceedings on merits.

There are still a number of important legal issues to be settled here, such as, the legal basis of a GOCC assuming the
indebtedness incurred by a private entity for a private purpose, the validity of the enforcement of a guarantee by a
GOCC of a private corporation’s foreign debt which did not pass through the usual controls, restrictions, and the
conditions imposed by law and the rules of the monetary authority for the validity of a government guarantee of such
foreign borrowing or indebtedness considering the change in the situation of the parties, and so on.

I likewise cannot agree with the dissenting opinion that the Court, in PNCC v. Dy, 3 had already substantially denied
PNCC’s affirmative defenses, such as prescription, among others. Indeed, all the Court held in that earlier case was
that the alleged errors of the trial court in its resolution of PNCC’s Motion to Dismiss were not correctible by
certiorari but this did not preclude PNCC from proving its affirmative defenses during trial. To quote the relevant
portion of that decision:

If error had been committed by the trial court, it was not of the character of grave abuse that relief through the
extraordinary remedy of certiorari may be availed. Indeed, the grounds relied upon by PNCC are matters that are
better threshed out during the trial since they can only be considered after evidence has been adduced and
weighed.4 (emphasis supplied)

Subject to the foregoing discussions, I agree with the conclusions reached in the ponencia of Justice Carpio and vote
to (1) grant the petition in G.R. No. 180428 and (2) to set aside (a) PNCC Board Resolution Nos. BD-092-2000 and
BD-099-2000 and (b) the Compromise Agreement for being null and void.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

DISSENT

Page 112
BERSAMIN, J.:

I hereby register my dissent to the majority opinion of Justice Carpio that grants the petition in G.R. No. 180428, and
declares (1) PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 (recognizing liability for the Marubeni
Corporation (Marubeni) loans) void ab initio for causing undue injury to the Government and giving unwarranted
benefits to a private party; and (2) the compromise agreement between the Philippine National Construction
Corporation (PNCC) and Radstock Securities Limited (Radstock) 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 and 85 of the Government Auditing Code;
Section 3(g) of the Anti-Graft and Corrupt Practices Act; Article 217 of the Revised Penal Code; and Articles 2241,
2242, 2243 and 2244 of the Civil Code; and that grants the intervention of Asiavest Merchant Bankers Berhad in G.R.
No. 178158.

The majority opinion declares that Strategic Alliance Development Corporation has no legal standing to sue.

I humbly submit that the PNCC Board resolutions and the compromise agreement entered into by and between PNCC
and Radstock were valid and effective, and did not violate any provision of the Constitution or any other law; and that
the intervention of Asiavest Merchant Bankers Berhad in G.R. No. 178158 has no legal and factual bases.

Let me justify this submission.

The Case, in a Nutshell

Respondent Radstock had sued for collection and damages respondent PNCC in the Regional Trial Court (RTC) in
Mandaluyong City (Civil Case No. MC 01-1398). The RTC rendered judgment in favor of Radstock, mandating
PNCC to pay to Radstock the amount of ₱13,151,956,528.00, plus interests and attorney’s fees. PNCC appealed to the
Court of Appeals (CA).1 On August 18, 2006, after negotiations held while the appeal (CA-GR CV No. 87971) was
still pending in the CA, PNCC and Radstock entered into a compromise agreement, agreeing to reduce PNCC’s
adjudged liability in the amount of ₱17,040,843,968.00 as of July 31, 2006 to ₱6,185,000,000. 2

Considering that at the time of the execution of the compromise agreement, G.R. No. 156887 (i.e., the appeal of
PNCC from the CA’s affirmance of the RTC’s denial of PNCC’s motion to dismiss in Civil Case No. MC 01-1398)
was still also pending in this Court, PNCC and Radstock submitted the compromise agreement for approval of the
Court, which saw fit to require said parties to refer the compromise agreement to the Commission on Audit (COA) for
study and recommendation. On its part, COA recommended the approval of the compromise agreement.

Thereafter, on November 22, 2006, the Court instructed PNCC and Radstock to submit the compromise agreement to
the CA for approval because CA-GR CV No. 87971 was still pending. 3 On January 25, 2007, the CA approved it.4

The approval of the compromise agreement quickly invited adverse reaction from several quarters, none of whom had
been parties up to that point in the litigation. One of them was Strategic Alliance Development Corporation
(STRADEC), the petitioner in G.R. No. 178185.5 Another was Rodolfo Cuenca. STRADEC and Cuenca wanted to
intervene in order to assail the compromise agreement between PNCC and Radstock as null and void. The CA
rejected their proposed interventions.6 On the other hand, Luis Sison (Sison), the petitioner in G.R. No. 180428,7filed
a petition for annulment of judgment approving the compromise agreement,8 which was raffled to another division of
the CA. The CA dismissed the petition.9

Before the Court now are the appeals of STRADEC and Sison. Cuenca did not pursue his cause after the rejection of
his intervention.

Common Antecedents10

Page 113
In the period between 1978 and 1980, Marubeni, a corporation organized under the laws of Japan, had extended two
loan accommodations to PNCC for the following purposes: (1) the sum of US$5 million to finance the purchase of
copper concentrates by Construction Development Corporation of the Philippines (CDCP) Mining Corporation (a
subsidiary of PNCC), which PNCC had guaranteed to pay jointly and severally up to the amount of ₱20 million; and
(2) ¥5.46 billion, or its equivalent in Philippine Pesos of ₱2,099,192,619.00, to finance the completion of the
expansion project of CDCP Mining Corporation in Basay, and as working capital, which PNCC had also guaranteed
to pay jointly and severally. By a deed of assignment dated January 10, 2001, Marubeni assigned the credit to
Radstock, a corporation organized under the laws of the British Virgin Islands, with office address at Suite 602, 76
Kennedy Road, Hong Kong. After due date of the obligation, Marubeni and Radstock had demanded payment, but
PNCC failed and refused to pay the obligation.

Upon default of PNCC, Radstock sued PNCC in the RTC in Mandaluyong City to recover the debt and consequential
damages, praying for the issuance of a writ of preliminary attachment. The suit was docketed as Civil Case No. MC
01-1398.

On January 23, 2001, the RTC issued a writ of preliminary attachment, the service of which led to the garnishment of
PNCC’s bank accounts and the attachment of several of PNCC’s real properties. On February 14, 2001, PNCC moved
to set aside the order of January 23, 2001, and to discharge the writ of attachment. Two weeks later, PNCC filed a
motion to dismiss. The RTC denied both motions. After the RTC denied PNCC’s corresponding motions for
reconsideration, PNCC instituted a special civil action for certiorari in the CA (C.A.-G.R. SP No. 66654).

Notwithstanding the pendency of C.A.-G.R. SP No. 66654, Civil Case No. MC 01-1398 proceeded in the RTC. In its
answer in Civil Case No. MC 01-1398, PNCC reiterated the grounds of its motion to dismiss as affirmative defenses,
namely: 1) that the plaintiff had no legal capacity to sue; 2) that the loan obligation had already prescribed because no
valid demand had been made; and 3) that the letter of guarantee had been signed by a person not authorized to do so
by a valid board resolution.

In C.A.-G.R. SP No. 66654, PNCC argued similar grounds to assail the denial of its motion to dismiss, to wit: 1) that
the cause of action was barred by prescription; 2) that the pleading asserting the claim stated no cause of action; 3)
that the condition precedent for filing of the instant suit had not been complied with; and 4) that the plaintiff had no
legal capacity to sue. PNCC further argued that the RTC had committed grave abuse of discretion in issuing the writ
of attachment, for there had been no valid grounds to grant the writ.

On August 30, 2002, the CA decided C.A.-G.R. SP No. 66654. It held that the RTC did not act with grave abuse of
discretion; and that the denial of the motion to dismiss, being interlocutory, could not be questioned through a special
civil action for certiorari. The CA denied PNCC’s motion for reconsideration on January 22, 2003.

Soon after the CA had rendered its decision in C.A.-G.R. SP No. 66654, the RTC promulgated its judgment in Civil
Case No. MC 01-1398, declaring PNCC liable to Radstock in the amount of ₱13,151,956,528, plus interest and
attorney’s fees. The RTC also threw out all of PNCC’s affirmative defenses for being inconsistent with the evidence
presented.

PNCC appealed the judgment to the CA (C.A.-G.R. CV No. 87971).

Even with the main case (Civil Case No. MC 01-1398) having been meanwhile decided, PNCC still appealed by
petition for review on certiorari the CA decision in C.A.-G.R. SP No. 66654, alleging that the CA gravely erred by
holding that certiorari was not available against the denial of a motion to dismiss; and insisting that the RTC had not
gravely abused its discretion in issuing its assailed orders. The appeal was docketed as G.R. No. 156887.

On October 3, 2005, the Court resolved G.R. No. 156887, viz:

Page 114
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.

After receiving the decision in G.R. No. 156887, the representatives and counsel of PNCC and Radstock met for a
number of times in order to discuss a possible settlement between them. They reached a final settlement on August
17, 2006. They submitted to the Court their compromise agreement on August 18, 2006.11 In the compromise
agreement, PNCC and Radstock agreed to reduce PNCC’s adjudged liability as of July 31, 2006 from
₱17,040,843,968.00 to ₱6,185,000,000.

On December 4, 2006, the Court in G.R. No. 156887 referred the compromise agreement to the COA for comment. In
due time, COA submitted its compliance, whereby it recommended the approval of the compromise agreement.12

On November 22, 2006, the Court instructed PNCC and Radstock to submit the compromise agreement to the CA
because the appeal of the RTC decision was still pending thereat.13

On January 25, 2007, the CA rendered its decision approving the compromise agreement.14

Alleging a claim against PNCC arising from the rejection of its bid during the bidding conducted in 2000 by the
Privatization and Management Office (PMO) for the privatization of the Government’s PNCC shares,15 STRADEC
sought reconsideration of the decision of January 25, 2007.

Cuenca, a stockholder of PNCC and its former President and Chairman of the Board of Directors, filed a motion for
intervention, maintaining that PNCC had no obligation to pay Radstock.16

On May 31, 2007, however, the CA denied STRADEC’s motion for reconsideration and Cuenca’s motion for
intervention.17

In the meanwhile, on February 20, 2007, Sison also joined the legal fray in the CA by filing his petition for annulment
of judgment approving the compromise agreement (C.A.-G.R. SP No. 97982).18

Asiavest Merchant Bankers Berhad (Asiavest), representing itself as a judgment creditor of PNCC, manifested its
intention to participate in C.A.-G.R. SP No. 97982 through its urgent motion for leave to intervene and to file the
attached opposition and motion-in-intervention.

On June 12, 2007, the CA (Ninth Division) promulgated a resolution in C.A.-G.R. SP No. 97982 dismissing
Sison’s petition for annulment of judgment approving the compromise agreement and denying Asiavest’s urgent
motion for leave to intervene.19

Sison moved for reconsideration of the dismissal, but the CA denied his motion for reconsideration.20

Page 115
On June 20, 2007, STRADEC came to the Court to seek a review on certiorari (G.R. No. 178158), praying that the
compromise agreement be declared void for violating the law and public policy. It sought a temporary restraining
order or writ of preliminary injunction.21

Cuenca did not appeal.

On July 2, 2007, the Court directed PNCC and Radstock, their officers, agents, representatives and other persons
acting under their orders to maintain the status quo ante.22

On September 21, 2007, Asiavest presented its urgent motion for leave to intervene and to file the attached opposition
and motion-in-intervention in G.R. No. 178158.23

On November 26, 2007, Sison also came to the Court via his own petition for review on certiorari to appeal the CA
decision (G.R. No. 180428).24

On February 18, 2008, the Court consolidated G.R. No. 180428 and G.R. No. 178158.25

Additional Antecedents in G.R. No. 178158

In 2000, STRADEC and Dong-A Pharmaceutical Co., Ltd., a Korean corporation, formed a consortium to participate
in the bidding for the shares and other interests of the Philippine Government in PNCC. The consortium was named
Dong-A Consortium.26 Dong-A Consortium’s bid of ₱1,228,888,800.00 was the highest.27 On October 30, 2000,
during the bidding process, the representative of the Assets Privatization Trust (APT) conducting the bidding
announced that the indicative price for the Government’s shares, receivables and other interests in PNCC was ₱7
billion.28 All the bids, including that of Dong-A Consortium, were thus rejected.29 In several communications
thereafter, Dong-A Consortium demanded that APT issue the notice of award to it. However, APT did not comply,
denying any irregularity in the bidding and informing Dong-A Consortium that its Board of Directors had confirmed
the decision to reject Dong-A Consortium’s bid.30

On October 3, 2005, STRADEC commenced an action for the declaration of its right to the notice of award and for
damages in the RTC in Makati (docketed as Civil Case No. 05-882) against the PMO (formerly APT) and PNCC.31

On October 6, 2006, STRADEC filed a motion for intervention in this Court, seeking to intervene in order to seek the
nullification of the compromise agreement.32 After the CA had approved the compromise agreement through the
decision in C.A.-G.R. CV No. 87971, STRADEC filed a motion for reconsideration. The CA denied the motion for
reconsideration on May 31, 2007, resulting in STRADEC’s present appeal in G.R. No. 178158.

Arguments of the Parties

In G.R. No. 178158, STRADEC contends that:

I. The Court of Appeals not only committed serious reversible error but may have also gravely abused its
discretion in refusing to allow petitioner STRADEC to intervene in the case.

II. The Compromise Agreement between respondents Radstock and PNCC is void for being contrary to law
and public policy.

III. In the event the Compromise Agreement between respondents Radstock and PNCC is upheld, said
Compromise Agreement should be made subject to the outcome of Civil Case No. 05-882.

In G.R. No. 180428, Sison submits the following arguments in support of his petition:33

Page 116
 I. An action to annul a final and executory judgment of the Court of Appeals where such judgment was
procured through fraud, and without fault, negligence or participation of the party concerned, can be filed and
maintained before the Court of Appeals. Hence, the Court of Appeals gravely erred in dismissing the petition
for annulment of judgment for supposed lack of jurisdiction.

II. Resolving the jurisdiction issues presented in this case will enrich jurisprudence.

III. Petitioner has a meritorious cause of action, and the instant petition warrants judicial review due to
compelling reasons.

On their part, Radstock and PNCC similarly argued in their respective memoranda that:34

1. The Compromise Agreement does not violate public policy.

2. The subject matter does not involve an assumption by the government of a private entity’s obligation in
violation of the law and/or the Constitution.

3. The PNCC Board Resolution of October 20, 2000 is not defective or illegal.

4. The Compromise Agreement is viable and does not include all oR substantially all of PNCC’s assets.

5. The Decision of the Court of Appeals is not annullable as there was no fraud practiced here.

On January 13, 2009, the Court conducted oral arguments in both appeals, and limited the matters to be covered to the
following:

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 October 20, 2000 defective or
illegal?

3. Is the Compromise Agreement viable in 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 the grounds of fraud,
public policy and the Constitution?35

Submissions

I
G.R. No. 178158

STRADEC seeks the reversal of the CA’s denial of its motion for intervention to enable it to have the compromise
agreement between Radstock and PNCC declared void, or, alternatively, to have the compromise agreement made
subject to the outcome of Civil Case No. 05-882.

I believe and submit that STRADEC’s position is untenable. Thus, I join the majority opinion in its rejection of
STRADEC’s intervention.

Page 117
 A
CA Committed No Grave Abuse of Discretion
in denying STRADEC’s Motion for Intervention

Section 2, Rule 19 of the 1997 Rules of Civil Procedure requires that the motion for intervention "may be filed at any
time before the rendition of judgment by the trial court."

The CA found that STRADEC had filed its motion for intervention only after the CA and the RTC had promulgated
their respective decisions. Worthy to note, indeed, is that as of the time when the joint motion for judgment based on
compromise agreement was submitted by PNCC and Radstock to the CA for consideration and approval, no motion
for intervention was as yet attached to the CA rollo.36 Consequently, the CA held that STRADEC’s motion for
intervention had been filed out of time.

Yet, STRADEC insists that the requirement for its intervention to be made prior to the rendition of judgment by the
RTC should not apply considering that it had no legal interest in the subject matter of the litigation until upon the
execution of the compromise agreement. It asserts that it became imbued with a legal interest in the subject matter in
litigation due to its being the winning bidder during the public bidding on October 30, 2000, by which it came to have
the right to acquire the Government’s shares, receivables, securities and other interests in PNCC, only after the
execution of the compromise agreement, because its right would be defeated if the compromise agreement were
approved considering that the compromise agreement provided for the transfer to Radstock of the Government’s
properties, rights, securities and other interests in PNCC.

STRADEC’s insistence is untenable. The CA’s rejection of STRADEC’s intervention was proper and in accord with
the Rules of Court and pertinent jurisprudence.

Rule 19 of the 1997 Rules of Civil Procedure, which regulates the procedure for permitting an intervention, relevantly
provides:

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. (2[a], [b]a, R12)

To be able to intervene in an action, therefore, the prospective intervenor must show an interest in the litigation that is
of such direct and material character that he will either gain or lose by the direct legal operation and effect of
judgment.37

STRADEC did not demonstrate sufficiently enough that it had the requisite legal interest in the subject matter of the
litigation between Radstock and PNCC. On the contrary, STRADEC’s interest, if any, was far from direct and
material, but was, at best, a mere expectancy, contingent and purely inchoate, due to such interest being dependent on
a favorable outcome of Civil Case No. 05-882, which was then still pending in the RTC. Therein lay the weakness of
STRADEC’s position.

Intervention is a proceeding in a suit or action by which a third person is permitted by the court to make himself a
party, either joining the plaintiff in claiming what is sought by the complaint, or uniting with the defendant in resisting
the claims of the plaintiff, or demanding something adverse to both of them. It is the act or proceeding by which a
third person becomes a party to a suit pending between two others. It is the admission, by leave of court, of a person
not an original party to pending legal proceedings, by which such person becomes a party for the protection of some
alleged right or interest to be affected by such proceedings.38

Page 118
I contend that the right to intervene is not absolute, for intervention is merely permissive; and that the conditions for
the right of intervention to be exercised must be shown by the party proposing to intervene. The procedure to secure
the right to intervene is fixed by a statute or rule, and intervention can be secured only in accordance with the terms of
the applicable statutory or reglementary provision. Under the rules on intervention, the allowance or disallowance of a
motion to intervene is addressed to the sound discretion of the court or judge. 39

B
Allowance of STRADEC’s Intervention
Will Unduly Delay Adjudication
of the Rights of the Original Parties

The decision of the RTC pronouncing PNCC liable to Radstock for ₱13,151,956,528.00, plus interests and attorney’s
fees, for an obligation incurred between 1978 and 1980, was promulgated as early as on December 10, 2002. Matters
involved in the case have also already reached this Court (G.R. No. 156887), with the Court upholding the denial of
PNCC’s motion to dismiss. Allowing STRADEC to intervene would mean having to remand the case to the CA or the
RTC for the reception of evidence and the introduction of new issues. Under such circumstances, the intervention
would give birth to the unwanted prospect of letting this case drag on for a few more years.

I submit that the petition fails because the Court cannot permit a further delay.

The purpose of intervention – never an independent action, but ancillary and supplemental to the existing litigation –
is not to obstruct or to unnecessarily delay the placid operation of the machinery of trial, but merely to afford one not
an original party, yet having a certain right or interest in the pending case, the opportunity to appear and be joined so
he can assert or protect such right or interest.40 Accordingly, as a general guide for determining whether a party may
be allowed to intervene or not, the trial court, in the exercise of its sound discretion, 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.41

C
STRADEC’s Rights Are Fully
Protected in Civil Case No. 05-882

STRADEC apprehends that its right cannot be fully protected in Civil Case No. 05-882 because it would have nothing
to acquire except worthless shares should the compromise agreement be upheld, considering that the assets of PNCC
were being conveyed to Radstock under the compromise agreement.

STRADEC’s apprehensions are unwarranted.

STRADEC’s apprehensions would not be assuaged through its intervention in the action between Radstock and
PNCC or through the nullification of the compromise agreement. STRADEC was a stranger in relation to the
transaction by which PNCC had incurred the obligations subject of the compromise agreement. Indeed, it would be
irregular to subordinate to STRADEC’s unsettled claim the right of Radstock to collect as PNCC’s creditor. The
alleged possibility that STRADEC might be left with worthless shares was no reason to allow its intervention in order
only to assail the compromise agreement, for such intervention would not enable PNCC to avoid its liability to
Radstock, or to save PNCC from being liable with its own assets for its obligations to Radstock, should the courts
ultimately find that the obligations were justly due and demandable. On the other hand, STRADEC could still hold
PNCC’s remaining assets liable should it prevail in Civil Case No. 05-882. Based on COA’s earlier cited compliance,
PNCC had remaining assets by which it could start anew and pursue its plans to revitalize its operation.42

II
G.R. No. 180428

Page 119
I disagree with the majority opinion in respect of Sison’s petition for annulment of judgment approving the
compromise agreement.

Let me give my reasons for my dissent.

A
CA’s Denial of Sison’s Petition for Annulment of Judgment
Approving the Compromise Agreement Was Correct

Sison assails the resolution dated November 5, 2007 in C.A.-G.R. SP No. 97982, whereby the CA, Ninth Division,
denied his motion for reconsideration of the decision promulgated on June 12, 2007 dismissing his petition for
annulment of judgment approving the compromise agreement, and also denied Asiavest’s urgent motion for leave to
intervene and to file the attached opposition and motion-in-intervention.43

Sison contends that the CA thereby gravely erred in holding that it had no jurisdiction over his petition for annulment
in C.A.-G.R. SP No. 97982 respecting the final disposition of the CA in C.A.-G.R. CV NO. 87971.44

The CA rationalized its dismissal of Sison’s petition thuswise:45

Stripped to its barest essential, the petition should be dismissed. The Court of Appeals has no jurisdiction to annul its
own final and executory judgment.

The Court’s jurisdiction over actions for annulment of judgment, as in the instant case, pertains only to those rendered
by the Regional Trial Courts (Sec. 9[2], BP Blg. 129; Sec. 1 Rule 47, 1997 Rules of Civil Procedure).

Sison’s contention is untenable and erroneous. We should instead sustain the CA, whose ruling was correct and in
accord with the Rules of Court and applicable jurisprudence.

The jurisdiction to annul a judgment rendered by the Regional Trial Court is expressly granted to the CA by Section 9
(2) of Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization Act. The procedure for the purpose
is governed by Rule 47, 1997 Rules of Civil Procedure, whose Section 1 provides:

Section 1. Coverage. – This Rule shall govern the annulment by the Court of Appeals of judgments or final orders and
resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for
relief or other appropriate remedies are no longer available through no fault of the petitioner.

Explaining the coverage of the procedure under Rule 47 in Grande v. University of the Philippines,46 the Court
definitely ruled out the application of Rule 47 to the nullification of a decision of the CA, viz:

The annulment of judgments, as a recourse, is equitable in character, allowed only in exceptional cases, as where there
is no available or other adequate remedy. It is generally governed by Rule 47 of the 1997 Rules of Civil Procedure.
Section 1 thereof expressly states that the Rule "shall govern the annulment by the Court of Appeals of judgments of
final orders and resolutions in civil action of Regional Trial Courts for which the ordinary remedies of new trial,
appeal, petition for relief or other appropriate remedies are no longer available through no fault of the petitioner."
Clearly, Rule 47 applies only to petitions for the nullification of judgments rendered by regional trial courts filed with
the Court of Appeals. It does not pertain to the nullification of decisions of the Court of Appeals.

Still, Sison supports his choice of remedy by citing the ruling in Conde v. Intermediate Appellate Court.47

I find Sison’s reliance on Conde to be misplaced.

Page 120
The error attributed to the Intermediate Appellate Court in Conde was not its refusal to exercise jurisdiction, but rather
its declaration that the complaint for annulment of judgment should be filed with the Supreme Court. Such declaration
was erroneous, considering that the Supreme Court has no original jurisdiction to look into allegations of fraud upon
which the complaint for annulment is based.48 The reasoning in Conde emphasized the principle that the Supreme
Court decides only questions of law, because it is not its function to analyze or weigh evidence, 49especially if newly
introduced. By virtue of the Supreme Court’s remanding the case to the Intermediate Appellate Court, however, it
then behooved the Intermediate Appellate Court in Conde to take cognizance of the remanded case. Its hesitation to
follow the order of remand merited for the Intermediate Appellate Court an admonition.

In dismissing Sison’s petition for annulment of the approval of the compromise agreement, the CA was simply
applying the pertinent law and rules. Thereby, the CA did not err, because the CA could not, on its own accord, take
cognizance of his petition to annul its own judgment absent any specific directive from the Supreme Court, as
in Conde.

Sison then points out the lack of any remedy under the Rules of Court in instances wherein a compromise agreement
was entered into late in the litigation process, such as during the appeal, by which persons aggrieved by the
compromise agreement were prevented from filing an action to annul the judgment based on a compromise agreement
or from resorting to other remedies. He posits that the Rules of Court must now be given a liberal interpretation,
thereby warranting the allowance of his petition vis-à-vis the compromise agreement.

Again, I cannot side with Sison. That he now finds himself bereft of any available remedy is not due to the lack of any
remedies under the law or the Rules of Court, but rather due to his wrong choice of remedy. Also, his lack of standing
to assail the compromise agreement, which we shall shortly delve on, militated against his position.

B
Sison Has No Standing to Assail
the Compromise Agreement

Sison alleges in his petition that he is a stockholder of record of PNCC by virtue of his holding 52,000 common
shares.50 Even as a stockholder of PNCC, however, he lacks the requisite standing to assail the compromise agreement
executed between PNCC and Radstock.

A corporation is vested by law with a personality separate and distinct from that of each person composing or
representing it.51 This legal personality of the corporation gives rise to the proposition that a stockholder may not
generally bring a suit to repudiate the actions of the corporation, unless it is a stockholder’s suit, more commonly
known as a derivative suit. Although Sison does not allege that he filed a derivative suit, it can be fairly deduced that
he was assailing the compromise agreement based on his being a stockholder of PNCC.

Did Sison’s action qualify as a stockholder’s suit?

In this jurisdiction, the stockholder must comply with the essential requisites for the filing of a derivative suit. The
requisites are set forth in Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies,52 namely:

1. That he was a stockholder or member at the time the acts or transactions subject of the action occurred and
at the time the action was filed;

2. That he exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires, and alleges the
same with particularity in the complaint;

3. No appraisal rights are available for the act or acts complained of; and

Page 121
 4. The suit is not a nuisance or harassment suit.

Sison’s petition did not qualify as a stockholder’s suit. To begin with, he did not allege that he had exhausted all
remedies available under the articles of incorporation, by-laws, or rules governing the corporation to obtain the relief
he desired. And, secondly, he did not allege that no appraisal rights were available for the act or acts complained of.

A stockholder’s suit is always one in equity, but it cannot prosper without first complying with the legal requisites for
its institution.53 Consequently, Sison’s petition was correctly disallowed.

III
The Compromise Agreement
Was Not Prejudicial to PNCC

The decision of PNCC to enter into the compromise agreement with Radstock did not prejudice PNCC and its
stockholders for several reasons.

Firstly, the compromise agreement reduced PNCC’s probable liability from the staggering starting sum of
₱13,151,956,528.00, as the RTC had adjudged, to the much lesser sum of ₱6,196,000,000.00. Considering that it was
highly probable for the CA, as the appellate forum, to affirm the higher liability given its frequency of upholding,
rather than reversing or modifying, the RTC on appeal, PNCC thereby effectively avoided the much greater liability.
The result was certainly favorable to PNCC and its stockholders.

Secondly, the chances of PNCC for success in its appeal against Radstock were realistically very low. This was
because by the time of the execution of the compromise agreement, the CA, in C.A.-G.R. SP No. 66654, and the
Court, in G.R. No. 156887, had already passed upon the merits of PNCC’s motion to dismiss by denying substantially
all the affirmative defenses that PNCC had raised against Radstock. Specifically, the CA affirmed the RTC’s denial of
PNCC’s motion to dismiss. In G.R. No. 156887, 54 the Court affirmed the CA’s ruling, holding as follows:

We have carefully reviewed the Motion to Dismiss and the action taken by the court a quo and we find nothing that
may constitute a grave abuse. The Order of April 19, 2001 which first denied the Motion to Dismiss meticulously
explained the legal and factual basis for the trial court’s rejection of the four grounds raised by PNCC:

With respect to the first issue of whether or not the instant action had already been barred by prescription, the Court,
after judicious examination of the environmental circumstances of this case and upon examination of the pertinent
jurisprudence, is inclined to rule in the NEGATIVE. The averment on the pleadings submitted by the parties had so
far revealed that the above-entitled case instituted by plaintiff Radstock Securities Limited for a sum of money and
damages against defendant Philippine National Construction Corporation is not barred by prescription in light of the
several demand letters and correspondences exchanged by the parties up to July 25, 1996. Further, it is interesting to
note that defendant had, in the Board meeting held last October 20, 2000, clearly acknowledged the subject
indebtedness to Marubeni. . . .

xxx

Regarding the issue of whether or not the plaintiff has a valid cause of action against the defendant, the Court notes
that the defendant heavily relies on the argument that the subject letter of guarantee executed by Alfredo Asuncion is
void for lack of authority from the PNCC Board of Directors. This is misplaced in light of the fact that when a
corporation such as the defendant in this case presents an officer to be the duly authorized signatory to a document
coupled with submission of a duly notarized Secretary’s Certificate said third party has every right to rely on the
regularity of actions done by said corporation. . . .

xxx

Page 122
As regards the issue of whether or not the condition precedent for filing the instant suit has not been complied with,
the [C]ourt finds the contention asserted by defendant to be bereft of merit. In setting up this ground of prematurity,
defendant argues that plaintiff failed to comply with the provisions on arbitration embodied in the advance agreement
executed on August 9, 1978 and loan Agreement executed on May 19, 1980. Apparently however, this case is being
filed against defendant PNCC under the letters of guarantee [sic]. [P]laintiff is not filing this case against CDCP-M
under the loan agreement and the advance payment agreement entered between Marubeni and CDPM wherein [sic]
arbitration clauses are provided.

xxx

Lastly, the defendant contended that the plaintiff has no legal capacity to sue and in support thereof it claims that
RADSTOCK is engaged in business in the Philippines without any proof that it has a required license. This argument
is erroneous. The plaintiff in this case is suing on an isolated transaction…. As correctly stated by the Plaintiff, it does
not intend to engage in any other business in the Philippines except to sue and collect what has been assigned to it by
Marubeni Corporation.

If error had been committed by the trial court, it was not of the character of grave abuse that relief through the
extraordinary remedy of certiorari may be availed. Indeed, the grounds relied upon by PNCC are matters that are
better threshed out during the trial since they can only be considered after evidence has been adduced and weighed.

With its affirmative defenses thus disposed of, the settlement by means of the compromise agreement would surely
work to the benefit of PNCC and its stockholders.

IV
Compromise Agreement Was Not Contrary to Law,
Morals, Good Customs, Public Order and Public Policy

Was the compromise agreement between PNCC and Radstock contrary to law, morals, good customs, public order
and public policy?

A
Compromise Agreement Did Not
Require Congressional Approval

During the oral arguments held on January 13, 2009, a concern about the validity of the compromise agreement due to
the lack of presidential or congressional approval was raised. Allegedly, the lack of presidential or congressional
approval contravened the law, particularly Section 20, Chapter 4, Sub-Title B, Title 1, Book 5, of Executive Order
No. 292,55 which required such approval in the disposition of properties valued at more than ₱100,000.00.56

I contend and hold that the cited law did not apply, considering that the liability of PNCC to Radstock was not yet
settled at the time of the execution of the compromise agreement.

In Benedicto v. Board of Administrators of Television Stations and Guingona, Jr. v. PCGG,57 the Court clarified that
Section 20, Chapter 4, Sub-Title B, Title 1, Book 5, of Executive Order No. 292, was applicable only to a settled
claim or liability, to wit:

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. Section 20, Chapter 4, Subtitle B, Title I, Book V of the
Revised Administrative Code of 1987 (E.O. No. 292) cited by Senator Guingona is inapplicable as it refers to a settled
claim or liability. The provision reads:

Page 123
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 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;

xxx xxx xxx

The Government’s claim against Benedicto is not yet settled, and the ownership of the alleged ill-gotten assets is still
being litigated in the Sandiganbayan. Hence, the PCGG’s compromise agreement with Benedicto need not be
submitted to the Congress for approval. (Underline supplied for emphasis)

The exception of a compromise or release of a claim or liability yet to be settled from the requirement for presidential
and congressional approval is realistic and practical. In a settlement by compromise agreement, the negotiating party
must have the freedom to negotiate and bargain with the other party. Otherwise, tying the hands of the Government
representative by requiring him to submit each step of the negotiation to the President and to Congress will unduly
hinder him from effectively entering into any compromise agreement.

The majority opinion stresses that Benedicto v. Board of Administrators of Television Stations is inapplicable, arguing
that the claim in Benedicto was not yet settled because no party therein ever admitted liability, while the claim subject
of this case was already settled upon the PNCC Board’s recognition of PNCC’s obligation to Marubeni.

I cannot agree with the majority, considering that the recognition by PNCC of its obligation to Marubeni did not
signify that the claim was already settled. On the contrary, the claim of Marubeni was far from settled, inasmuch as it
still became the subject of litigation in the courts in which PNCC resisted liability by pleading various defenses. In
fact, the PNCC Board’s resolution dated June 19, 2001 essentially revoked the previous resolutions (i.e., Resolution
No. BD-092-2000 and Resolution No. BD-099-2000) recognizing PNCC’s debts to Marubeni.

The majority hold that the PNCC Board had no autonomous power to compromise. They cite Section 36(2) of
Presidential Decree (P.D.) 1445 (Government Auditing Code of the Philippines), which requires the express grant by
the charters of the government-owned or government-controlled corporations (GOCCs) involved of the power to enter
into compromise agreements, and insist that nowhere in P.D. 1113, as amended, was the PNCC’s Board given the
authority to enter into compromise agreements. Thus, they conclude that the compromise agreement was illegal.

With all due respect, I believe that the majority err.

Firstly, it is incorrect to state that P.D. 1113 and its amendatory law, P.D. 1894, constituted the charter of PNCC,
because said laws merely granted to PNCC a secondary franchise. The existence of PNCC was independent of the
operation of said laws. Hence, the silence of P.D. 1113 and P.D. 1894 on the grant to PNCC of the power to enter into
compromise agreements was irrelevant.

It becomes appropriate to stress, for purposes of clarity, that the primary franchise of a corporation should not be
confused with its secondary franchise, if any. According to J.R.S. Business Corp. v. Imperial Insurance, Inc.:58

For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general
franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the
latter are certain rights and privileges conferred upon existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires.

Page 124
The distinction between the two franchises of a corporation should always be delineated. The primary franchise (or
the right to exist as such) is vested in the individuals composing the corporation, not in the corporation itself, and
cannot be conveyed in the absence of a legislative authority to do so; but the special or secondary franchise of a
corporation is vested in the corporation itself, and may ordinarily be conveyed or mortgaged under a general power
granted to the corporation to dispose of its property, except such special or secondary franchises as are charged with a
public use.59

The general law under which a private corporation is formed or organized is the Corporation Code, whose
requirements must be complied with by individuals desiring to incorporate themselves. Only upon such compliance
will the corporation come into being and acquire a juridical personality, as to give rise to its right to exist and to act as
a legal entity. This right is a corporation’s primary franchise. In contrast, a government corporation is normally
created by special law, often referred to as its charter.60

And, secondly, PNCC, prior to its acquisition by the Government, was a private corporation organized under the
Corporation Code, and, as such, it was governed by the Corporation Code and its own articles of incorporation. This
fact has been judicially recognized in PNCC v. Pabion,61 to wit:

xxx GOCCs may either be (1) with original charter or created by special law; or (2) incorporated under general law,
via either the Old Corporation Code or the New Corporation Code.

xxx xxx xxx

xxx, we have no doubt that over GOCCs established or organized under the Corporation Code, SEC can exercise
jurisdiction. These GOCCs are regarded as private corporations despite common misconceptions. That the
government may own the controlling shares in the corporation does not diminish the fact that the latter owes its
existence to the Corporation Code. More pointedly, Section 143 of the Corporation Code gives SEC the authority and
power to implement its provisions, specifically for the purpose of regulating the entities created pursuant to such
provisions. These entities include corporations in which the controlling shares are owned by the government or its
agencies.

Glaringly erroneous, therefore, is petitioner's reliance on Quimpo v. Tanodbayan and its theory that it is immaterial
"whether a corporation is acquired by purchase or through the conversion of the loans of the GFIs into equity in a
corporation [because] such corporation loses its status as a private corporation and attains a new status as a
GOCC." First, based on the discussion above, PNCC does not "lose" its status as a private corporation, even if we
were to assume that it is a GOCC. Second, neither would such loss of status prevent it from being further
classified into an acquired asset corporation, as will be discussed below.

xxx xxx xxx

Lest the focus of our disposition of this case be lost in the maze of arguments strewn before us, we stress that PNCC
is a corporation created in accordance with the general corporation statute. Hence, it is essentially a private
corporation, notwithstanding the government's interest therein through the debt-to-equity conversion imposed
by PD 1295. Being a private corporation, PNCC is subject to SEC regulation and jurisdiction.

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 Code62 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 an identity distinct and separate from those of its stockholders or
members.63

Page 125
 B
Public Bidding Was not Required

Sison opposes the disposition of PNCC’s assets through the compromise agreement as against public policy for lack
of a public bidding.

I cannot agree with Sison.

The rationale for requiring a public bidding is the need to prevent the Government from being shortchanged by
minimizing the occasions for corruption and the temptations to commit abuse of discretion on the part of government
authorities.64

As a rule, divestment or disposal of government property should be undertaken primarily through public bidding. The
mode of disposition of Government properties and assets is not limited to public bidding, however, because there are
recognized exceptions, including when public bidding is not the most advantageous means for the Government to
divest or dispose of its properties.

The compromise agreement was not entered into one-sidedly in favor of Radstock, for, as in all compromises, it
involved reciprocal concessions from both parties. PNCC’s decision to enter into the compromise agreement was
apparently an exercise of a business judgment to advance its interests. The obvious direct consequence of
the compromise agreement was to limit PNCC’s adjudged liability of ₱13,151,956,528 (which would be higher due to
increments from interest charges) to a lesser liability of ₱6,185,000,000. Under the circumstances, the compromise
agreement could not be considered as disadvantageous to PNCC and the National Government.

The Court itself referred the compromise agreement to the COA, the primary guardian of public accountability. In due
time, the COA recommended the approval of the compromise agreement, stating in its compliance dated October 3,
2006 submitted to the Court,65 thus:

The Government Accounting and Auditing Manual (GAAM) Volume I, prescribed under COA Circular No. 91-368
dated January 1, 1992, specifically under Title 7, Chapter 3 thereof, primarily governs the disposal/divestment of
government assets. Section 501 of the said Chapter states:

Sec. 501. Authority or responsibility for property disposal/divestment. – The full and sole authority and responsibility
for the divestment and disposal of property and other assets owned by the national government agencies or
instrumentalities, local government units and government-owned and/or controlled corporations and their subsidiaries
shall be lodged in the heads of the departments, bureaus, and offices of the national government, the local government
units and the governing bodies or managing heads of government-owned or controlled corporations and their
subsidiaries conformably to their respective corporate charters or articles of incorporation, who shall constitute the
appropriate committee or body to undertake the same.

The sale or disposal of the properties of the government is based on their assessed value and not just on a percentage
thereof. Admittedly, and as discussed earlier, the audit guidelines under COA Circular No. 89-296 as reiterated in the
Government Accounting and Auditing Manual are not applicable in the herein case. Nonetheless, consistent with the
objective of public bidding, COA favors the disposal of government properties in the amount most advantageous to
the government. It is noted that the transfer value of 70% of assessed value still falls within the standards set by
government financial institutions which invariably range from 70% to 100% of the appraised value for properties
situated in urban areas. The maximum percentage prescribed in Section 37 of Republic Act No. 8791, the Banking
Law of 2000, provides that loans and other credit accommodations against real estate shall not exceed 75% of the
appraised value of the respective real estate security. Taking this into account and the declared policy that the
authority to dispose its assets is lodged with the head of the entity, COA deems the herein transfer valuation
reasonable.

Page 126
Under the regular procedure involving disposal of government property, COA would have initially conducted an
appraisal of the property to determine its valuation. However, considering the exceptional circumstances in the instant
case, the appraisals performed by the established independent appraisers are allowable. The parties engaged the
services of Royal Asia Appraisal Corporation, Cuervo Appraisers, Inc., Asian Appraisal Co., Inc. and Valencia
Appraisal Corporation which are reputable appraisal firms. Even COA has had occasions to engage the services of the
last three independent appraisers mentioned above to help ensure that the government will not be disadvantaged in
any manner. Hence, COA finds no reason to doubt the reasonableness of their appraisal.

The other terms and conditions of the compromise agreement appear to be fair and above board and COA finds no
compelling grounds to oppose the same. Accordingly, COA recommends the approval of the parties’ compromise
agreement appended in their "Joint Motion for Judgment Based on Compromise." 66

COA Circular No. 89-296 (dated January 27, 1989) relevantly provides:

III. DEFINITION AND SCOPE: - These audit guidelines shall be observed and adhered to in the divestment or
disposal of property and other assets of all government entities/instrumentalities, whether national, local or corporate,
including the subsidiaries thereof but shall not apply to the disposal of merchandise or inventory held for sale in the
regular course of business nor to the disposal by government financial institutions of foreclosed assets or collaterals
acquired in the regular course of business and not transferred to the National Government under Proclamation No.
50. They shall not also cover dation in payment as contemplated under Article 1245 of the New Civil Code. 67

In this regard, it is well to point out that the majority also invoke COA Circular No. 89-296, citing Part V thereof
entitled Modes of Disposal/Divestment.

The cited rule does provide an exception. According to COA’s compliance, supra, the audit guidelines under COA
Circular No. 89-296 did not apply to the compromise agreement due to its being akin to a dacion en pago. Under
Article 1245 of the Civil Code, a dacion en pago or a dation in payment involves the alienation of property to the
creditor in satisfaction of a debt in money. The modern concept of dation in payment considers it as a novation by
change of the object.68 Thus, the compromise agreement was a dacion en pago, in that a novation by a change of the
object took place due to the original obligation of PNCC to pay its liability (adjudged in the amount of
₱13,151,956,528) being thereby converted into another obligation whereby PNCC would transfer the real properties
listed in the compromise agreement to the qualified assignees nominated by Radstock. Regardless of the pegging of
the values of the listed properties at specified amounts, the transfer to Radstock’s assignees would already constitute a
performance of PNCC’s obligations. In other words, the obligation of PNCC to Radstock would be deemed fulfilled,
although Radstock might realize a lesser value from the assignees for the properties.

Verily, the dispositions made in the compromise agreement, being in the nature of a dacion en pago, did not require
public bidding. This conclusion accords with the holding in Uy v. Sandiganbayan,69 where the Court sustained the
argument of PCGG that the dacion en pago transactions were beyond the ambit of COA Circular No. 89-296.

C
Expiration of PNCC’S Legislative Franchise
Did Not Affect the Compromise Agreement

Sison argues that the legislative franchise granted to PNCC already expired on May 1, 2007 and was not extended or
renewed by Congress; that upon the expiration of the legislative franchise of PNCC, all its assets, including those
derived from its operations, reverted to the National Government; and that the disposition of PNCC funds under
the compromise agreement, being beyond the expiration of PNCC’s franchise, would violate the constitutional
provision requiring an appropriation law for the expenditure of National Government funds.

I consider Sison’s submissions not well-taken.

Page 127
Section 5 of Presidential Decree (P.D.) No. 1894,70 amendatory of P.D. No. 1113, PNCC’s legislative franchise,
provides:

Section 5. In consideration of this franchise, the GRANTEE shall:

(a) Construct, operate and maintain at its own expense the Expressways; and

(b) Turn over, without cost, the toll facilities and all equipment, directly related thereto to the Government
upon expiration of the franchise period.71

The law is clear enough. The mandated reversion applied only to the "toll facilities and all equipment directly related
thereto," and did not extend to all the assets of PNCC. Sison’s interpretation was plainly at war with what the law
itself explicitly contemplated. Worse, his interpretation would nullify PNCC’s right to due process as to its other
assets, and even tended to thwart the national policy to encourage the private sector to invest and participate in public
works involving toll operations.

P.D. No. 1894 likewise contemplated the continuance of PNCC’s tollways operations beyond the expiration of its
legislative franchise on May 1, 2007. That is clear from Section 2 of P.D. No. 1894, which states:

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.

If the reversion covered all assets, PNCC would be unable to exist and to continue to operate upon the expiration of
its legislative franchise under P.D. No. 1113.

Yet, the majority pointedly assert that Radstock’s counsel already admitted during the oral argument that all of
PNCC’s assets and properties had reverted to the National Government.

The assertion of the majority is too sweeping. It ignores that the so-called admission of Radstock’s counsel was not,
properly speaking, a judicial admission that bound Radstock on the matter of reversion.

To begin with, the statements in question made by Radstock’s counsel did not relate to facts, but to conclusions of
law. Indeed, a judicial admission is an admission made in the course of the proceeding in the same case, verbal or
written, by a party accepting for the purposes of the suit the truth of some alleged fact, which said party cannot
thereafter disprove.72 Clearly, the rule on admissions does not apply to a wrong interpretation and mistaken
application of the laws, and the Court is not to be bound by a mistaken interpretation of the law made by a counsel,
even if said interpretation is adverse to the client.

Even granting, arguendo, that PNCC’s secondary franchise expired, all the properties and funds of PNCC might not
automatically revert to the National Government, to the detriment and in violation of the right to due process of
PNCC’s private creditors, particularly those that transacted with it when it was still a purely private corporation. We
have always sustained the view that a GOCC has a personality of its own, distinct and separate from that of the
National Government; and has all the powers of the corporation under the Corporation Law pursuant to which it has
been established.73 To accord with our precedent rulings, we should not declare the PNCC’s funds to be beyond reach
for being by nature public funds of the National Government.74

Secondly, the majority thereby sweep aside the principle of parity between contracting parties. We ought to remember
that when the National Government enters into a commercial transaction, it abandons its sovereign capacity and

Page 128
descends to the level of the other party, to be treated like the latter. By engaging in a particular business through the
instrumentality of a corporation (that is, PNCC), therefore, the National Government should be considered as
divesting itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law
governing private corporations.75 This is only fair.

Thirdly, to have all the properties and assets of PNCC deemed reverted to the Government upon expiration of
PNCC’s franchise to operate the tollways would definitely violate the right to due process of PNCC’s private
creditors. Such a sudden change in the characterization of PNCC’s properties and assets from private to public would
leave PNCC’s private creditors with very limited recourses, despite their valid claims.

Incidentally, the compromise agreement listed the properties to be affected by the agreement between PNCC and
Radstock, as follows:

1. PNCC’s right over that parcel of land located in Pasay City with a total area of 129,548 square meters,
more or less, 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;

2. T-452587 (T-23646) – Parañaque (5,123 square meters) subject to the clarification of the PMO claims
thereon. The transfer value is ₱45,000,900.00;

3. T-49499 (529715 including T-68146-G (S-29716) (1,9747-A)-Parañaque (107 square meters) (54 square
meters) subject to the clarification of the PMO claims thereon. The transfer value is ₱1,409,100.00;

4. 5(sic)-29716-Parañaque (27,762 square meters) subject to the clarification of the PMO claims thereon. The
transfer value is ₱242,917,500.00;

5. P-169 – Tagaytay (49,107 square meters). The transfer value is ₱13,749,400.00;

6. P-170 – Tagaytay (49,100 square meters). The transfer value is ₱13,749,400.00;

7. N-3320–Town and Country Estate; Antipolo (10,000 square meters). The transfer value is ₱16,800,000.00;

8. N-7424 – Antipolo (840 square meters). The transfer value is ₱940,800.00;

9. N-7425 – Antipolo (850 square meters) The transfer value is ₱952,000.00;

10. N-7426 – Antipolo (958 square meters). The transfer value is ₱1,073,100.00;

11. T-485276 – Antipolo (741 square meters) The transfer value is ₱830,200.00;

12. T-485277 – Antipolo (741 square meters). The transfer value is ₱761,600.00;

13. T-485278 – Antipolo (701 square meters). The transfer value is ₱785,400.00;

14. T-131500-Bulacan (CDCP Farms Corp.) (4,945 square meters). The transfer value is ₱6,475,000.00;

15. T-131501-Bulacan (678 square meters). The transfer value is ₱887,600.00;

16. T-26,154 (M) – Bocaue, Bulacan (2,841 square meters) The transfer value is ₱3,779,300.00;

17. T-29,308 (M) – Bocaue, Bulacan (733 square meters). The transfer value is ₱974,400.00;

Page 129
 18. T-29,309 (M) – Bocaue, Bulacan (1,141 square meters). The transfer value is ₱1,517,600.00; and

19. T- 260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan (20,000 square meters). The transfer value is
₱25,2000,0000.00.

Rather than generalizing that all the aforecited properties reverted to the National Government upon the expiration of
PNCC’s legislative franchise, Sison should first establish in proceedings appropriate for the purpose a premise for his
jealously argued interpretation that such properties were directly related to the operation and maintenance of the
tollways covered by its expired secondary franchise. Before that is done, it is not reasonable to generalize on the
matter. Consequently, Sison’s insistence that PNCC became a mere trustee of the National Government upon the
expiration of the legislative franchise is dismissed for being unfounded.

D
Toll Operation Certificate from TRB to PNCC
Was Legal Basis for PNCC to Collect and Appropriate
Revenues Generated from PNCC-operated Tollways
and Its Share in Gross Receipts of NLEX Tollway Development

Sison insists that upon the expiration of its legislative franchise, PNCC could not validly dispose of the revenues
collected from its operated tollways and of its share in the gross receipts of the tollway development and operation
contractors, because such revenues and receipts already belonged to the National Government.

However, the fact is that the Manila North Tollway Corporation (MNTC), a joint-venture company between PNCC
and Metro Pacific Group, was granted a toll operation certificate (TOC) by the Toll Regulatory Board (TRB)
authorizing MNTC to operate and maintain the NLEX from 2005 to 2035 through its operations and maintenance
company, the Tollway Management Corporation (TMC).76

Sison counters that the TOC was not the equivalent of and could not replace the legislative franchise of PNCC under
P.D. No. 1849.

Sison’s arguments are not persuasive.

Under P.D. No. 1112,77 TRB has the following powers, among others:

Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers of administration
the following powers and duties:

(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the Republic
of the Philippines with persons, natural or juridical, for the construction, operation and maintenance of toll
facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. Said contract
shall be open to citizens of the Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations;

(b) Determine and decide the kind, type and nature of public improvement that will be constructed and/or
operated as toll facilities;

xxx xxx xxx

(e) To grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation
Certificate"subject to such conditions as shall be imposed by the Board including inter alia the following:78

Page 130
 xxx xxx xxx

Undoubtedly, TRB had the statutory authority to enter in behalf of the National Government into a contract for the
construction, operation and maintenance of toll facilities; to determine and decide the kind, type, and nature of public
improvement to be constructed and operated as toll facilities; and to issue a TOC to authorize a grantee to operate a
toll facility.

In addition, P.D. No. 1894, amending P.D. No. 1113, invested TRB with the jurisdiction and supervision over PNCC
as the grantee with respect to the Expressways, and the toll facilities necessarily appurtenant thereto. Its Section 4
states, viz:

Section 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the GRANTEE with respect to
the Expressways, the toll facilities necessarily appurtenant thereto and, subject to the provisions of Section 8 and 9
hereof, the toll that the GRANTEE will charge the users thereof.

By its issuance of the TOC, therefore, TRB was simply exercising its powers under P.D. No. 1112. It did not thereby
extend PNCC’s legislative franchise, which it could not legally do. Its issuance of the TOC was proper, not ultra vires,
even if the effect was to permit PNCC, through MNTC, to continue to operate the toll facilities.

In this jurisdiction, the power of administrative agencies to issue operating permits or franchises to public utilities has
long been recognized. In Philippine Airlines v. Civil Aeronautics Board,79 for instance, the Court pronounced:

Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of
Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements prescribed by law. Such requirements were
enumerated in Section 21 of R.A. 776.

There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII
recognizes Congress’ control over any franchise, certificate or authority to operate a public utility, it does not mean
Congress has exclusive authority to issue the same. Franchises issued by Congress are not required before each and
every public utility may operate. In many instances, Congress has seen it fit to delegate this function to government
agencies, specialized particularly in their respective areas of public service.

A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate the
issuance of a license to operate domestic air transport services:

SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the
power to regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the
carriers, general sales agents, cargo sales agents, and air freight forwarders as well as their property rights, equipment,
facilities and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act. 80

Likewise, we said in Metropolitan Cebu Water District v. Adala:81

Moreover, this Court, in Philippine Airlines, Inc. vs. Civil Aeronautics Board, has construed the term "franchise"
broadly so as to include, not only authorizations issuing directly from Congress in the form of statute, but also those
granted by administrative agencies to which the power to grant franchises has been delegated by Congress, to wit:

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is constantly growing tendency towards the

Page 131
delegation of greater powers by the legislature, and towards the generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those of legislative in nature. In pursuance of this, it has been
held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the Legislature. 82

For its part, the Executive Department has also recognized the power of TRB to issue the TOC to PNCC
independently of the legislative franchise that was due to expire on May 1, 2007. This recognition was reflected in the
opinion dated November 24, 1995 of then Justice Secretary Teofisto T. Guingona, Jr., to wit:83

Upon re-examination of P.D. No. 1113 (PNCC Charter), as amended by P.D. No. 1894, we reiterate the view
expressed in Opinion No. 45, s. 1995 that TRB has no authority to extend the legislative franchise of PNCC over the
existing NSLE. However, TRB is not precluded under Section 3(e) of P.D. No. 1112 (TRB Charter) to grant PNCC
and its joint venture partner the authority to operate the existing toll facility of the NSLE and to issue therefore the
necessary "Toll Operation Certificate" for a period coinciding with the term of the proposed Metro Manila Skyway.

xxx xxx xxx

It should be noted that the existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives it the
"right, privilege and authority to construct, maintain and operate" the NSLE. The Toll Operation Certificate which
TRB may issue to the PNCC and its joint venture partner after the expiration of its franchise on May 1, 2007 is an
entirely new authorization, this time for the operation and maintenance of the NSLE, which is already an existing toll
facility. In other words, the right of PNCC and its joint venture partner, after May 1, 2007, to operate and maintain the
existing NSLE will no longer be founded on its legislative franchise which is not thereby extended, but on the new
authorization to be granted by the TRB pursuant to Section 3(e), abovequoted, of P.D. 1112. 84

It serves well to note, too, that the TOC was not for the same project covered by PNCC’s legislative franchise under
P.D. No. 1894, but for a new project, the rehabilitation of the NLEX, which was completed in 2005. In the effort to
rehabilitate the NLEX, the MNTC incurred substantial costs. The authority to collect reasonable toll fees from users
of that expressway was the consideration given to the MNTC as the tollway operator to enable it to recoup the
investment.

In this connection, the claim of the majority that Radstock’s counsel admitted during the oral arguments that an
appropriation law was needed to authorize the payment by PNCC out of the toll fees is unwarranted. The supposed
admission was apparently counsel’s response to the query of whether the collection of toll fees went to the general
fund of the National Government. As such, the response was an expression of counsel’s interpretation of the law,
which, albeit sounding like an admission, has no legal significance for purposes of this resolution. It hardly requires
clarification that an opinion on a matter of law given in the course of the proceedings is not binding on the party on
whose behalf it is made, because the question of law is best left to the determination of the court.

Besides, the interpretation that the TRB could not contract out the rehabilitation and expansion of existing
government-owned public works, particularly our national roads and highways, is unacceptable, because it will wreak
havoc to the operations and maintenance not only of the NLEX, but also of other and future public constructions and
developments. Similarly unacceptable is an interpretation that the expiration of the franchise of PNCC vis-à-vis the
NLEX operated to bar PNCC or any other participating private entity from collecting toll fees from the operations of
the NLEX, because it would unfairly outlaw the current operation of the MNTC, a joint-venture company between
PNCC and the Metro Pacific Group, which had spent substantially for the rehabilitation and expansion works of the
NLEX.

At any rate, the majority’s interpretation will hinder the efforts of the National Government, through the TRB, of
effecting improvements in existing national highways through the private sector, which will surely hesitate to involve

Page 132
itself in projects in which it will not be permitted to recoup or recover the substantial costs entailed in construction
and development.

Lastly, Sison’s plea for the nullification of the compromise agreement, on the ground of the invalidity of the
assignment to Radstock of the share of PNCC in the toll operation for the NLEX, has no basis. The right of PNCC,
through MNTC, to the revenues from the operation of the tollways is to be deemed settled for purposes of these cases.
We cannot delve into whether or not the TOC issued to PNCC for the years from 2007 until 2035 was valid or not,
because that is not a proper issue for the Court to consider and decide herein. We should not forget that the issue was
not presented to the CA at the time it considered and approved the compromise agreement. Besides, PNCC continued
to have the right to the revenues from the toll operation by authority of the TOC.

E
Compromise Agreement Is Not In Fraud
of the National Government

Another submission of Sison is that the disposition of PNCC’s assets through the compromise agreement would be in
fraud of the National Government, because Radstock would be thereby preferred to the National Government in
relation to the assets of PNCC, in violation of the credit preference provided in the Civil Code. He avers that "the
satisfaction of the PNCC obligation to the State or the National Government clearly takes preference and has priority
over the satisfaction of the obligation to RADSTOCK"; and that "the terms of the compromise agreement which call
for the transfer of PNCC assets xxx to Radstock is in contravention of the order and preference of credits under the
New Civil Code, hence void."85

However, Sison’s submission does not really show how the compromise agreement would contravene the credit
preference in favor of the National Government.

To begin with, the credit preference set by the Civil Code may not be invoked herein to assail the compromise
agreement, considering that these cases were neither proceedings for bankruptcy or insolvency, nor general judicial
liquidation proceedings. Cogently, the Court explained when preference of credit may be invoked in Development
Bank of the Philippines v. Secretary of Labor,86 thus:

xxx A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead
of other claims which may be established against the debtor. Logically, it becomes material only when the properties
and assets of the debtor are insufficient to pay his debts in full; for if the debtor is amply able to pay his various
creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they
shall be paid out of the proceeds of the sale of the debtor’s specific property? Indubitably, the preferential right of
credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims
held by his various creditors have been established.

In this jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings provide the only proper venue
for the enforcement of a creditor’s preferential right xxx for these are in rem proceedings binding against the whole
world where all persons having interest in the assets of the debtors are given the opportunity to establish their
respective credits.87

Nor will it be automatic for the National Government to be preferred as to the assets of any individual or corporation
in financial straits. In In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc.,
Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue,88 the Court clarifies:

xxx The Government, in this case, cannot generally claim preference of credit, and receive payments ahead of the
other creditors of RBBI. Duties, taxes, and fees due the Government enjoy priority only when they are with reference
to a specific movable property, under Article 2241 (1) of the Civil Code, or immovable property, under Article 2242
(1) of the same Code. However, with reference to the other real and personal property of the debtor, sometimes

Page 133
referred to as "free property," the taxes and assessments due the National Government, other than those in Articles
2241(1) and 2242 (1) of the Civil Code will come only in ninth place in the order of the preference.89

Verily, any creditor who may feel aggrieved by the compromise agreement (such that his rights over PNCC’s assets
may be prejudiced by the compromise agreement) should initiate the proper proceedings to protect his rights. Yet, no
bankruptcy, insolvency, or general judicial liquidation proceedings have been initiated or filed by any of PNCC’s
creditors. With none, including the Government, having done so as yet, it is improper and premature for Sison to cry
fraud against the Government.

Secondly, Sison insists that PNCC was "technically insolvent."90

Sison’s insistence cannot be given any significance in relation to the compromise agreement. The meanings of the
terms insolvent and insolvency have not been fixed, their definitions being dependent upon the business or factual
situation to which the terms are applied.91 Ordinarily, a person is insolvent when all his properties are not sufficient to
pay all of his debts.92 This definition is the general and popular meaning of the term insolvent. In this jurisdiction, the
state of insolvency is governed by special laws to the extent that they are not inconsistent with the Civil Code. 93In
other words, the state of insolvency is primarily governed by the Civil Code and subsidiarily by the Insolvency Law
(Act No. 1956, as amended).94

Under Act No. 1956, there are two distinct proceedings by which to declare a person insolvent, namely: a) the
voluntary or debtor-initiated proceedings;95 and b) the involuntary or creditor-initiated proceedings, which require that
the petition be filed by three or more creditors.96 The judicial declaration that a person (either natural or juridical) is
insolvent produces legal effects, particularly on the disposition of the debtor’s assets.97 Until and unless there is an
insolvency proceeding or a judicial declaration that a person is insolvent, however, any state of insolvency of a debtor
remains legally insignificant as far as his capacity to dispose of his properties is concerned. This capacity to dispose is
not in itself iniquitous or questionable, for the creditor is not meanwhile left without recourse. There are remedies for
the creditor in case any disposition of the debtor’s assets is in fraud of creditors.

Should the creditors not feel that an insolvency or even rehabilitation proceeding (in the case of corporations like
PNCC) is appropriate or beneficial for them, their decision to desist from commencing such proceeding is a business
judgment that fully lies within their discretion. Without any proceeding being initiated by either the debtor or the
creditors, no court has the power to declare that a debtor is insolvent and to bring to bear upon the debtor the legal
consequences of the Insolvency Law. A court that does so risks meddling in business affairs or policies that are best
left to those who know the appropriate actions to take and decide what action or actions to take. A unilateral court
intervention can result in a premature cessation of business that can produce untoward and unexpected effects on
either or both the debtor and the creditors.

The Court may not even try to determine whether PNCC was insolvent or not, considering that the original
jurisdiction to take cognizance of such issue does not pertain to the Court. Neither was such issue properly raised in
the lower courts. For sure, the term technically insolvent as applied to PNCC cannot be competently ascertained in
these cases. It is relevant to note, however, that only the COA report has been made available to show the financial
condition of PNCC to the Court, but even said report favored the approval of the compromise agreement.98

Thirdly, Sison argues that with the compromise agreement, PNCC’s business would wind down to "merely the
operation of the South Luzon Expressway, the holding of shares in investee subsidiaries and affiliates, and the minor
participation in the gross receipt of the tollway development and operation contractors." 99 He then concludes that
the compromise agreement would amount to transferring or disposing of substantially all of the assets of PNCC, in
violation of the requirement under Section 40 of the Corporation Code for stockholders’ approval thereof.

The argument is fallacious, because it is based on a mistaken premise.

Section 40 of the Corporation Code provides:

Page 134
Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon
such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the
payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when
authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in
case of non-stock corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was
incorporated.

After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval
by the stockholders or members.

Nothing in this section is intended to restrict the power of any corporation, without the authorization by the
stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and
assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the
sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.

In non-stock corporations where there are no members with voting rights, the vote of at least a majority of the trustees
in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section. (28
1/2a) 100

The law defines a sale or disposition of substantially all assets and property as one by which the corporation "would
be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated." Any
disposition short of this will not need stockholder action.101 The text and tenor of Section 40, supra, are clear and do
not require interpretation, that the Court must not read any other meaning to the law.

Sison himself admitted that even after the compromise agreement was approved, PNCC still had assets by which to
continue its businesses.102 Thus, because the assets to be covered by the compromise agreement were not substantially
all the assets of PNCC within the context of Section 40, supra, the stockholders’ approval was not required. The
disposition through the compromise agreement, although involving a substantial portion of the total assets, would not
amount to the sale or disposition of substantially all assets and property as to render PNCC incapable of continuing
the business or accomplishing the purpose for which it was incorporated.

Fourthly, Sison contends that PNCC would be reduced to a holding company, which would constitute an
abandonment of the business for which it was organized.

The contention is unfounded.

For one, the records before us show that PNCC is not abandoning the business for which it was organized. PNCC
sought a legislative franchise to operate the NLEX, but it was not granted the franchise. PNCC was granted the TOC
by TRB, which authorized PNCC, through MNTC, to operate the rehabilitated and extended NLEX.103 PNCC
currently operates tollways and plans to enter into other tollways development projects.104

Page 135
It is noteworthy that the COA, in its compliance submitted to the Court,105 recognized the efforts of PNCC to improve
the latter’s operations:

It is the assessment of the Government Corporate Counsel that PNCC has only a 50-50 chance of winning the case,
thus, entering into a compromise agreement will spare the corporation from losing at least P13 billion of its
assets. COA shares the view that with this settlement, the PNCC, armed with its remaining assets can start anew and
pursue its plans to revitalize its operations. 106

Also, the investing corporation assumes risks in every business venture. There may be many factors affecting the
business that may force the corporation to reduce or downsize its operations in the meanwhile. Nonetheless, the
downsizing of the operations does not mean the abandonment of the business for which the corporation has been
organized. Accordingly, the wisdom of the execution of the compromise agreement should not be questioned, absent
any clear and convincing proof establishing that the compromise agreement would truly render PNCC incapable of
continuing its business.

G
Compromise Agreement Does Not Violate
Constitutional Ban on Foreign Ownership of Land

The compromise agreement between PNCC and Radstock provides:

2. This Compromise amount shall be paid by PNCC to 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 assignees shall be duly qualified to own real properties in the Philippines:

xxx

Sison holds that this provision in the compromise agreement would vest in Radstock, a foreign corporation, the rights
of ownership over the 19 parcels of land listed in the compromise agreement and thereby violate the constitutional
provision prohibiting ownership by foreign entities of land in the Philippines; that the right to assign rights and
interests in real property is an attribute of ownership; that Radstock would be, for all intents and purposes, the
beneficial owner of the real properties during the period from the execution of the compromise agreement until the
actual transfer of the ownership of the properties to third parties designated by Radstock; and that in the meantime
PNCC would be holding the properties only in trust.

Section 7, Article XII of the 1987 Constitution reads:

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.

Sison’s submissions are unacceptable.

In interpreting the aforecited provision of the Constitution, the following instruction given in J.M. Tuason & Co. Inc.
v. Land Tenure Administration107 is useful:

We look to the language of the document itself in search for its meaning. We do not of course stop there, but that is
where we begin. It is to be assumed that the words in which constitutional provisions are couched express the
objective sought to be attained. They are to be given their ordinary meaning except where technical terms are
employed in which case the significance thus attached to them prevails. As the Constitution is not primarily a
lawyer’s document, it being essential for the rule of law to obtain that it should ever be present in the people’s

Page 136
consciousness, its language, as much as possible, should be understood in the sense they have in common use. What it
says according to the text of the provision construed compels acceptance and negates the power of the courts to alter
it, based on the postulate that the framers and the people mean what they say. Thus there are cases where the need for
construction is reduced to a minimum.

Well-settled principles of constitutional construction are also firm guides for interpretation. These principles are
reiterated in Francisco v. The House of Representatives,108 to wit:

First, verba legis, that is, wherever possible, the words used in the Constitution must be given their ordinary meaning
except where technical terms are employed. xxx.

xxx xxx xxx

Second, where there is ambiguity, ratio legis et anima. The words of the Constitution should be interpreted in
accordance with the intent of the framers. xxx.

Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole.

A plain reading of the aforecited provision of the Constitution and the compromise agreement does not support the
conclusion that the latter violates the former. The compromise agreement nowhere stated that any lands or real
properties are to be transferred to Radstock, or any non-qualified person. Indeed, the transfer of any lands or real
properties contemplated by the compromise agreement is in favor of a party duly qualified to own and hold real
properties under the Constitution. The arrangement would not give to Radstock any right other than to designate
qualified assignees, who should only be a Filipino citizen, or a corporation organized under the Philippine law, but
with at least 60% Filipino equity. During the time that Radstock would be looking for qualified assignees, ownership
over the real properties subject of the compromise agreement would not be transferred to it, but would remain with
PNCC.

Although it may be argued that the "right to designate the qualified assignee to the property" is an attribute of
ownership, it does not necessarily follow that the presence of such right already means that the person holding the
right has become the owner of the property. There is more to ownership than being able to designate an assignee for
the property. The attributes of ownership are: jus utendi (right to possess and enjoy), jus fruendi (right to the
fruits), jus abutendi (right to abuse or consume), jus disponendi (right to dispose or alienate), and jus vindicandi(right
to recover or vindicate).109 An owner of a thing or property may agree to transfer, assign, or limit the rights attributed
to his ownership, but this does not mean that he loses his ownership over the thing. Accordingly, one may lease his
property to others without affecting his title over it; or he may enter into a contract limiting his enjoyment or use of
the property; or he may bind himself to first offer a thing for sale to a particular person before selling it to another; or
he may agree to let another person designate an assignee to whom the property will be transferred or sold in
consideration of an obligation. In any of such situations, there is no actual or legal transfer of ownership, for
ownership still pertains, legally and for all intents and purposes, to the owner, not to the other person to whom an
attribute of ownership has been transferred.

Nowhere in the compromise agreement is Radstock given any of the attributes of ownership, like the right to control
and use the properties, or the right to benefit from the properties (e.g., rent), or the right to exclude others from the
properties, or, for that matter, any other right of an owner. Neither is Radstock thereby put in any position to demand
or to ask PNCC to lease the properties to an assignee. What it has under the compromise agreement is only the right to
designate a qualified assignee for the property.

It is also wrong for Sison to insist that the compromise agreement would create a trust relationship between PNCC
and Radstock. 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.110 By definition, trust relations between

Page 137
parties are either express or implied.111 Express trusts are created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words evincing an intention to create a trust.112

The compromise agreement would not vest in Radstock any equitable ownership over the property. The required
performance of certain duties by PNCC (mainly the transfer of the real properties to the qualified assignees nominated
by Radstock) under the compromise agreement would not emanate from Radstock’s equitable ownership, which
Radstock would not have. The performance of such duty would not arise either upon the approval of the compromise
agreement, but upon the fulfillment by Radstock of its obligation to nominate the qualified assignees. PNCC and
Radstock had no intention to create a trust, because the circumstances of the transaction negated the formation of a
trust agreement between them resulting from the compromise agreement.

On the assumption, for the sake of argument, that the compromise agreement gives Radstock a right that is an
attribute of ownership, such grant may still be justified nonetheless by the totality of the circumstances as the end
result of the whole operation of the compromise agreement; and, as such, it would still be consistent with, not
violative of, the constitutional ban on foreign ownership of lands. In La Bugal-B’Laan Tribal Association, Inc. v.
Ramos,113 the Court ratiocinated:

Petitioners sniff at the citation of Chavez v. Public Estates Authority, and Halili v. C.A., claiming that the doctrines in
these cases are wholly inapplicable to the instant case.

Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells land to an alien
who later sells land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to a
citizen. Similarly, where the alien who buys the land subsequently acquires Philippine citizenship, the sale is
validated since the purpose of the constitutional ban to limit land ownership to Filipinos has been achieved. In
short, the law disregards the constitutional disqualification of the buyer to hold land if the land is subsequently
transferred to a qualified party, or the buyer himself becomes a qualified party."

In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the land) was not what was
assailed for alleged unconstitutionality. Rather, it was the transaction that was assailed; hence subsequent compliance
with constitutional provisions would cure its infirmity. In contrast, the instant case it is the FTAA itself, the object of
the transfer, that is being assailed as invalid and unconstitutional. So, petitioners claim that the subsequent transfer of
a void FTAA to a Filipino corporation would not cure the defect.

Petitioners are confusing themselves. The present Petition has been filed, precisely because the grantee of the FTAA
was a wholly owned subsidiary of a foreign corporation. It cannot be gainsaid that anyone would have asserted that
the same FTAA was void if it had at the outset been issued to a Filipino corporation. The FTAA, therefore, is not per
se defective or unconstitutional. It was questioned only because it has been issued to an allegedly non-qualified,
foreign-owned corporation.

We believe that this case is clearly analogous to Halili, in which the land acquired by a non-Filipino was re-conveyed
to a qualified vendee and the original transaction was thereby cured. Paraphrasing Halili, the same rationale
applies to the instant case: assuming arguendo the invalidity of its prior grant to a foreign corporation, the
disputed FTAA - being now held by a Filipino corporation - can no longer be assailed; the objective of the
constitutional provision - to keep the exploration, development and utilization of our natural resources in
Filipino hands - has been served.

More accurately speaking, the present situation is one degree better than obtaining in Halili, in which the
original sale to a non-Filipino was clearly and indisputably violative of the constitutional prohibition and
thus void ab initio. In the present case, the issuance/grant of the subject FTAA to the foreign-owned WMCP
was not illegal, void or unconstitutional at the time. The matter had to be brought to court, precisely for
adjudication as to whether the FTAA and the Mining Law had indeed violated the Constitution. Since up to this point,

Page 138
the decision of this Court declaring the FTAA void has yet to become final, to all intents and purposes, the FTAA
must be deemed valid and constitutional.

The situation herein is even more favorable than that in La Bugal. Firstly, the compromise agreement does not attempt
to transfer any of the subject real properties to any non-qualified person. The title or ownership of the lands is to be
transferred only upon designation by Radstock of a qualified assignee, and the transfer is to be effected by PNCC
directly to the assignee, without the title passing to Radstock in the interim. Secondly, the compromise agreement
does not attempt to create any kind of title over the properties in favor of Radstock. It simply allows Radstock to
designate a qualified assignee to whom the properties may be assigned or transferred. It does not give any other right
to Radstock. Thirdly, the arrangement may even be more beneficial to PNCC, considering that PNCC gets to settle its
much lessened obligation for a definite and sure amount of 75% of the assessed values of the subject properties,
regardless of the price that Radstock gets from its designated assignee. Incidentally, this is a better bargain for PNCC
(and ultimately for the Government), compared to a bidding out of the properties in which there are ever-present risks
of recovering a much lower value). Fourthly, the arrangement transfers from PNCC to Radstock the obligation and
task of looking for a qualified assignee of the properties. And, lastly, the present case involves a series of interrelated
and dependent transactions that will always result in a situation not inconsistent with the Constitution, considering
that the assignee will always be a qualified person or entity.

H
The Obligation of PNCC to
Marubeni Was Established

In the RTC, PNCC urged the following grounds as affirmative defenses, namely: 1) that the plaintiff had no capacity
to sue; 2) that the loan obligation had already prescribed, because no valid demand had been made; and 3) that the
letter of guarantee had been signed by a person not authorized by a valid board resolution.

On appeal (C.A.-G.R. SP No. 66654), PNCC raised the same grounds, to wit: 1) that the cause of action was barred by
prescription; 2) that the pleading asserting the claim stated no cause of action; 3) that the condition precedent for the
filing of the instant suit had not been complied with; and 4) that the plaintiff had no legal capacity to sue.

As the excerpts of the Court’s decision in G.R. No. 156887 show,114 the defense of prescription of the claim and the
other defenses of PNCC were passed upon, and the Court upheld the CA’s affirmance of the RTC’s denial of PNCC’s
motion to dismiss based on such defenses. The ruling in G.R. No. 156887 bars the re-litigation in these consolidated
cases of the same issues, particularly a bar by prescription, because of the application of the doctrine of law of the
case.

Law of the case is defined as the opinion delivered on a former appeal. More specifically, it means that whatever is
once irrevocably established as the controlling legal rule between the same parties in the same case continues to be the
law of the case, whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be facts of the case before the court,115 notwithstanding that the rule laid down may have been
reversed in other cases.116 Indeed, after the appellate court has issued a pronouncement on a point presented to it with
a full opportunity to be heard having been accorded to the parties, that pronouncement should be regarded as the law
of the case and should not be reopened on a remand of the case.117

The concept of the law of the case is explained in Mangold v. Bacon,118 thus:

The general rule, nakedly and badly put, is that legal conclusions announced on a first appeal, whether on the general
law or the law as applied to the concrete facts, not only prescribe the duty and limit the power of the trial court to
strict obedience and conformity thereto, but they become and remain the law of the case in all after steps below or
above on subsequent appeal. The rule is grounded on convenience, experience, and reason. Without the rule there
would be no end to criticism, re-agitation, re-examination, and reformulation. In short, there would be endless
litigation. It would be intolerable if parties litigant were allowed to speculate on changes in the personnel of a court, or

Page 139
on the change of our rewriting propositions once gravely ruled on solemn argument and handed down as the law of a
given case. An itch to reopen questions foreclosed on a first appeal would result in the foolishness of the inquisitive
youth who pulled up his corn to see how it grew. Courts are allowed, if they so choose, to act like ordinary sensible
persons. The administration of justice is a practical affair. The rule is a practical and a good one of frequent and
beneficial use.

Resultantly, the liability of PNCC to Radstock was established, rendering the decision to enter into a compromise
agreement a wise move on the part of PNCC. The same result cannot be contemplated if the nullification of the
compromise agreement were decreed herein, because PNCC would probably lose by an adjudgment against it of a
larger liability.

I
The Resolution of PNCC’s Board Recognizing
Its Obligation to Marubeni Bound PNCC

Board Resolution No. BD-092-2000 dated October 20, 2000 proves that PNCC incurred an obligation in favor of
Marubeni. PNCC’s Board of Directors would not have issued the resolution if the obligation was unfounded,
considering that the resolution admitted its liability, to wit:

RESOLUTION NO. BD-09202000

RESOLVED, That the Board recognizes, acknowledges and confirms PNCC’s obligations as of September 30, 1999
with the following entities, exclusive of 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 P36,023,784,751.00; and

b). Marubeni Corporation in the amount of P10,743,103,388.00.

Yet, the majority would have the Court strike down the resolution, and not give it effect, because it was null and void.
They opine that the PNCC Board approved a transaction that was manifestly and grossly disadvantageous to the
National Government, and that such transaction was even a corrupt and unlawful act. They conclude that the
resolution, being unlawful and a criminal act, was void ab initio and could not be implemented or in any way given
effect by the Executive or Judicial Branch of the Government.

I am not persuaded.

That its issuance might have been unwise or disadvantageous to PNCC, which I do not concede, did not invalidate
Resolution No. BD-092-1000. The resolution, being simply a recognition of a prior indebtedness in favor of Marubeni
and the Government, was clearly issued within the corporation’s powers; hence, it was neither illegal nor ultra
vires. Indeed, had PNCC remained a purely private corporation, no issue would be raised against the propriety of its
Board of Directors thereby recognizing an indebtedness.

The majority rely heavily on the transcripts of the Senate Committee hearings to buttress the imputation of bad faith
behind the passage of the board resolution that recognized PNCC’s debts to Marubeni. They copiously quote the
privilege speech of Senator Franklin Drilon delivered during the plenary session of December 21, 2006; and the
transcripts of the Senate Committee hearings held on December 14, 2006.

To me, the reliance on the privilege speech and the transcripts of the Senate Committee hearings is unwarranted and
misplaced.

Page 140
The speeches of legislators delivered on the floor and the testimonies of resource persons given in Congressional
committee hearings, like those quoted in the majority opinion, have no probative value in judicial adjudication, for
they are not recognized as evidence under the Rules of

Court. Even the rule on judicial notice embodied in Section 1,119 Rule 129, of the Rules of Court does not accord
probative value to such speeches and testimonies, because the rule extends only to the official acts of the Legislative
Department. The term official acts, in its general sense, may encompass all activities of the Congress, like the laws
enacted and resolutions adopted, but the statements of the legislators and testimonies cannot be regarded, by any
stretch of legal understanding, as the "official act of the legislative department." At best, the courts can only take
judicial notice of the fact that such statements or speeches were made by such persons, or that such hearings were
conducted.

Although this Court can take cognizance of the proceedings of the Senate, as acts of a department of the National
Government, the testimonies or statements of the persons during the hearings or sessions may not be used to prove
disputed facts in the courts of law. They cannot substitute actual testimony as basis for making findings of fact
necessary for the determination of a controversy by the courts. In other words, they are incompetent for purposes of
judicial proceedings.

Moreover, in Bengzon, Jr. v. Senate Blue Ribbon Committee, 120 the Court defined the limitation on the power of the
Legislative Department to investigate a controversy exclusively pertaining to the Judicial Department, and regarded as
an encroachment into the exclusive domain of judicial jurisdiction any probe or inquiry by the Senate Blue Ribbon
Committee into the same justiciable controversy already before the Sandiganbayan, declaring:

In fine, for the respondent [Senate Blue Ribbon] Committee to probe and inquire into that same justiciable
controversy already before the Sandiganbayan, would be an encroachment into the exclusive domain of judicial
jurisdiction that had much earlier set in. In Baremblatt v. United States, it was held that:

Broad as it is, the power is not, however, without limitations. Since Congress may only investigate into those areas in
which it may potentially legislate or appropriate, it cannot inquire into matters which are within the exclusive
province of one of the other branches of the government. Lacking the judicial power given to the Judiciary, it
cannot inquire into matters that are exclusively the concern of the Judiciary. Neither can it supplant the
Executive in what exclusively belongs to the Executive. xxx.

Indeed, the distinctions between court proceedings, on one hand, and legislative investigations in aid of legislation, on
the other hand, derive from their different purposes. Courts conduct hearings to settle, through the application of law,
actual controversies arising between adverse litigants and involving demandable rights.121 In court proceedings, the
person’s rights to life, liberty and property may be directly and adversely affected. The Rules of Court prescribes
procedural safeguards consistent with the principles of due process and equal protection guaranteed by the
Constitution. The manner in which disputed matters can be proven in judicial proceedings as provided in the Rules of
Court must be followed. In contrast, the legislative bodies conduct their inquiries under less safeguards and
restrictions, because inquiries in aid of legislation are undertaken as tools to gather information, in order to enable the
legislators to act wisely and effectively, and in order to determine whether there is a need to improve existing laws, or
to enact new or remedial legislation.122

In particular, the Senate is not bound by the Rules of Court. Its inquiries permit witnesses to relate matters that are
hearsay, or to give mere opinion, or to transmit information considered incompetent under the Rules of Court. The
witnesses serve as resource persons, often unassisted by counsel, and appear before the legislators, who are the
inquisitors. The latter have no obligation to act as impartial judges during the proceedings. The inquiries do not
include direct examinations and cross-examinations, and leading questions are frequent.

Cogently, the proper treatment of the findings of congressional committees by courts of law became the subject of the
following observations made in Agan, Jr. v. Philippine International Air Terminals Co., Inc.:123

Page 141
Finally, the respondent Congressmen assert that at least two (2) committee reports by the House of Representatives
found the PIATCO contracts valid and contend that this Court, by taking cognizance of the cases at bar, reviewed an
action of a co-equal body. They insist that the Court must respect the findings of the said committees of the House of
Representatives. With due respect, we cannot subscribe to their submission. There is a fundamental difference
between a case in court and an investigation of a congressional committee. The purpose of a judicial proceeding is to
settle the dispute in controversy by adjudicating the legal rights and obligations of the parties to the case. On the other
hand, a congressional investigation is conducted in aid of legislation. Its aim is to assist and recommend to the
legislature a possible action that the body may take with regard to a particular issue, specifically as to whether or not
to enact a new law or amend an existing one. Consequently, this Court cannot treat the findings in a congressional
committee report as binding because the facts elicited in congressional hearings are not subject to the rigors of the
Rules of Court on admissibility of evidence. The Court in assuming jurisdiction over the petitions at bar simply
performed its constitutional duty as the arbiter of legal disputes properly brought before it, especially in this instance
when public interest requires nothing less.

V
Asiavest’s Intervention
Had No Leg to Stand On

Asiavest was a judgment creditor of PNCC by virtue of the Court’s judgment in G.R. No. 110263. After 5 years from
the issuance of a writ of execution in its favor, Asiavest’s judgment award is yet to be satisfied.124

In G.R. No. 178158, Asiavest filed its urgent motion for leave to intervene and to file the attached opposition and
motion-in-intervention, claiming that it had a legal interest as an unpaid judgment creditor of PNCC, nay a superior
right, over the properties subject of the compromise agreement.125 It prayed, if allowed to intervene, that the
compromise agreement be nullified because, otherwise, PNCC might no longer have properties sufficient to satisfy
the judgment in favor of the former.

The Court granted the urgent motion of movant-intervenor Asiavest for leave to intervene and to file opposition and
motion in intervention [re: judgment based on compromise].126 However, Asiavest was not required to file a
comment.

The position of Asiavest cannot be sustained.

To start with, Asiavest has no direct and material interest in the approval (or disapproval) of the compromise
agreement between PNCC and Radstock.

Secondly, Asiavest’s request to intervene was made too late in the proceedings. Under Section 2, Rule 19, 1997 Rules
of Civil Procedure, an intervention, to be permitted, must be sought prior to the rendition of the judgment by the trial
court.

Thirdly, the avowed interest of Asiavest in PNCC’s assets emanated from its being a creditor of PNCC by final
judgment, and was not related to the personal obligations of PNCC in favor of Marubeni (that is, the guarantees for
the loans) that were the subject of the compromise agreement. Such interest did not entitle Asiavest to attack the
compromise agreement between PNCC and Radstock. The interest that entitles a person to intervene in a suit already
commenced between other persons must be in the matter in litigation and of such character that the intervenor will
either gain or lose by direct legal operation and effect of the judgment.127 The conditions for a proper intervention in
relation to Asiavest simply did not exist. Moreover, sustaining Asiavest’s posture may mean allowing other creditors
to intervene in an action involving their debtor brought by another creditor against such debtor upon the broad pretext
that they were thereby prejudiced. The absurdity of Asiavest’s posture, being plain, can never be permitted under the
rules on intervention.128

Page 142
Fourthly, that Asiavest is yet to recover from PNCC under the final judgment rendered in G.R. No. 110263 gave the
former no standing to intervene in the action Radstock brought against PNCC to enforce the latter’s guarantees.
Asiavest was an absolute stranger to the juridical situation arising between Radstock and PNCC. The proper recourse
of Asiavest was, instead, to pursue the execution of the judgment until satisfaction, a remedy that is amply provided
for in Rule 39 of the Rules of Court.

Lastly, Asiavest’s argument that the compromise agreement might be in fraud of it as a judgment creditor of PNCC,
in support of which newspaper reports are cited,129 is unpersuasive. The allegation of fraud remains unsupported by
admissible and credible evidence presented by Asiavest, considering that mere newspaper reports are incompetent and
inadmissible hearsay.130

IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, I vote to dismiss the petitions in G.R. No. 178158 and
G.R. No. 180428; to disallow the intervention of Asiavest Merchant Bankers Berhad; to affirm the decision dated
January 25, 2007, the resolution dated May 31, 2007 promulgated in C.A.-G.R. CV No. 87971, and the resolution
dated June 12, 2007 promulgated in C.A.-G.R. SP No. 97982.

LUCAS P. BERSAMIN
Associate Justice

DIGEST

Facts:

Construction Development Corporation of the Philippines (CDCP) was incorporated in 1966. It was granted a
franchise to construct, operate and maintain toll facilities in the North and South Luzon Tollways and Metro Manila
Expressway.

CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of
Japan (Marubeni). A CDCP official issued letters of guarantee for the loans although there was no CDCP Board
Resolution authorizing the issuance of such letters of guarantee. CDCP Mining secured the Marubeni loans when
CDCP and CDCP Mining were still privately owned and managed.

In 1983, CDCP’s name was changed to Philippine National Construction Corporation (PNCC) in order to reflect that
the Government already owned 90.3% of PNCC and only 9.70% is under private ownership. Meanwhile, the
Marubeni loans to CDCP Mining remained unpaid.

On 20 October 2000 and 22 November 2000, the PNCC Board of Directors (PNCC Board) passed Board Resolutions
admitting PNCC’s liability to Marubeni. Previously, for two decades the PNCC Board consistently refused to admit
any liability for the Marubeni loans.

In January 2001, Marubeni assigned its entire credit to Radstock Securities Limited (Radstock), a foreign corporation.
Radstock immediately sent a notice and demand letter to PNCC.

PNCC and Radstock entered into a Compromise Agreement. Under this agreement, PNCC shall pay Radstock the
reduced amount of P6,185,000,000.00 in full settlement of PNCC’s guarantee of CDCP Mining’s debt allegedly
totaling P17,040,843,968.00 (judgment debt 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

Page 143
properties of PNCC; (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, in the gross toll revenues of the Manila North Tollways Corporation.

Strategic Alliance Development Corporation (STRADEC) moved for reconsideration. STRADEC alleged that it has a
claim against PNCC as a bidder of the National Government’s shares, receivables, securities and interests in PNCC.

Issue:

Whether or not the Compromise Agreement between PNCC and Radstock is valid in relation to the Constitution,
existing laws, and public policy

Held:

The Compromise Agreement is contrary to the Constitution, existing laws and public policy.

PNCC’s toll fees are public funds. PNCC cannot use public funds like toll fees that indisputably form part of the
General Fund, to pay a private debt of CDCP Mining to 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. Considering that there is no appropriation law passed by Congress for the compromise amount, the
Compromise Agreement is void for being contrary to law, specifically Section 29(1), Article VI of the Constitution.
And since the payment pertains to CDCP Mining’s private debt to Radstock, 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.

Radstock is not qualified to own land in the Philippines. Consequently, Radstock is also disqualified to own the rights
to ownership of lands in the Philippines. Radstock cannot own the rights to ownership of any land in the 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 Philippines. In addition, Radstock
cannot transfer the rights to ownership of land in the Philippines if it cannot own the land itself. It is basic that an
assignor or seller cannot assign or sell something he does not own at the time the ownership, or the rights to the
ownership, are to be transferred to the assignee or buyer. The third party assignee under the Compromise Agreement
who will be designated by Radstock can only acquire rights duplicating those which its assignor is entitled by law to
exercise. Thus, the assignee can acquire ownership of the land only if its assignor 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 corporation owning lands in the Philippines. The said
circumvention renders the Compromise Agreement void.

Page 144
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 179987 September 3, 2013

HEIRS OF MARIO MALABANAN, (Represented by Sally A. Malabanan), Petitioners,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

RESOLUTION

BERSAMIN, J.:

For our consideration and resolution are the motions for reconsideration of the parties who both assail the decision
promulgated on April 29, 2009, whereby we upheld the ruling of the Court of Appeals (CA) denying the application
of the petitioners for the registration of a parcel of land situated in Barangay Tibig, Silang, Cavite on the ground that
they had not established by sufficient evidence their right to the registration in accordance with either Section 14(1) or
Section 14(2) of Presidential Decree No. 1529 (Property Registration Decree).

Antecedents

The property subject of the application for registration is a parcel of land situated in Barangay Tibig, Silang Cavite,
more particularly identified as Lot 9864-A, Cad-452-D, with an area of 71,324-square meters. On February 20, 1998,
applicant Mario Malabanan, who had purchased the property from Eduardo Velazco, filed an application for land
registration covering the property in the Regional Trial Court (RTC) in Tagaytay City, Cavite, claiming that the
property formed part of the alienable and disposable land of the public domain, and that he and his predecessors-in-
interest had been in open, continuous, uninterrupted, public and adverse possession and occupation of the land for
more than 30 years, thereby entitling him to the judicial confirmation of his title.1

To prove that the property was an alienable and disposable land of the public domain, Malabanan presented during
trial a certification dated June 11, 2001 issued by the Community Environment and Natural Resources Office
(CENRO) of the Department of Environment and Natural Resources (DENR), which reads:

This is to certify that the parcel of land designated as Lot No. 9864 Cad 452-D, Silang Cadastre as surveyed for Mr.
Virgilio Velasco located at Barangay Tibig, Silang, Cavite containing an area of 249,734 sq. meters as shown and
described on the Plan Ap-04-00952 is verified to be within the Alienable or Disposable land per Land Classification
Map No. 3013 established under Project No. 20-A and approved as such under FAO 4-1656 on March 15, 1982.2

After trial, on December 3, 2002, the RTC rendered judgment granting Malabanan’s application for land registration,
disposing thusly:

WHEREFORE, this Court hereby approves this application for registration and thus places under the operation of Act
141, Act 496 and/or P.D. 1529, otherwise known as Property Registration Law, the lands described in Plan Csd-04-
0173123-D, Lot 9864-A and containing an area of Seventy One Thousand Three Hundred Twenty Four (71,324)
Square Meters, as supported by its technical description now forming part of the record of this case, in addition to
other proofs adduced in the name of MARIO MALABANAN, who is of legal age, Filipino, widower, and with
residence at Munting Ilog, Silang, Cavite.

Page 145
Once this Decision becomes final and executory, the corresponding decree of registration shall forthwith issue.

SO ORDERED.3

The Office of the Solicitor General (OSG) appealed the judgment to the CA, arguing that Malabanan had failed to
prove that the property belonged to the alienable and disposable land of the public domain, and that the RTC erred in
finding that he had been in possession of the property in the manner and for the length of time required by law for
confirmation of imperfect title.

On February 23, 2007, the CA promulgated its decision reversing the RTC and dismissing the application for
registration of Malabanan. Citing the ruling in Republic v. Herbieto (Herbieto),4 the CA declared that under Section
14(1) of the Property Registration Decree, any period of possession prior to the classification of the land as alienable
and disposable was inconsequential and should be excluded from the computation of the period of possession. Noting
that the CENRO-DENR certification stated that the property had been declared alienable and disposable only on
March 15, 1982, Velazco’s possession prior to March 15, 1982 could not be tacked for purposes of computing
Malabanan’s period of possession.

Due to Malabanan’s intervening demise during the appeal in the CA, his heirs elevated the CA’s decision of February
23, 2007 to this Court through a petition for review on certiorari.

The petitioners assert that the ruling in Republic v. Court of Appeals and Corazon Naguit5 (Naguit) remains the
controlling doctrine especially if the property involved is agricultural land. In this regard, Naguit ruled that any
possession of agricultural land prior to its declaration as alienable and disposable could be counted in the reckoning of
the period of possession to perfect title under the Public Land Act (Commonwealth Act No. 141) and the Property
Registration Decree. They point out that the ruling in Herbieto, to the effect that the declaration of the land subject of
the application for registration as alienable and disposable should also date back to June 12, 1945 or earlier, was a
mere obiter dictum considering that the land registration proceedings therein were in fact found and declared void ab
initio for lack of publication of the notice of initial hearing.

The petitioners also rely on the ruling in Republic v. T.A.N. Properties, Inc.6 to support their argument that the
property had been ipso jure converted into private property by reason of the open, continuous, exclusive and notorious
possession by their predecessors-in-interest of an alienable land of the public domain for more than 30 years.
According to them, what was essential was that the property had been "converted" into private property through
prescription at the time of the application without regard to whether the property sought to be registered was
previously classified as agricultural land of the public domain.

As earlier stated, we denied the petition for review on certiorari because Malabanan failed to establish by sufficient
evidence possession and occupation of the property on his part and on the part of his predecessors-in interest since
June 12, 1945, or earlier.

Petitioners’ Motion for Reconsideration

In their motion for reconsideration, the petitioners submit that the mere classification of the land as alienable or
disposable should be deemed sufficient to convert it into patrimonial property of the State. Relying on the rulings in
Spouses De Ocampo v. Arlos,7 Menguito v. Republic8 and Republic v. T.A.N. Properties, Inc.,9 they argue that the
reclassification of the land as alienable or disposable opened it to acquisitive prescription under the Civil Code; that
Malabanan had purchased the property from Eduardo Velazco believing in good faith that Velazco and his
predecessors-in-interest had been the real owners of the land with the right to validly transmit title and ownership
thereof; that consequently, the ten-year period prescribed by Article 1134 of the Civil Code, in relation to Section
14(2) of the Property Registration Decree, applied in their favor; and that when Malabanan filed the application for
registration on February 20, 1998, he had already been in possession of the land for almost 16 years reckoned from
1982, the time when the land was declared alienable and disposable by the State.

Page 146
The Republic’s Motion for Partial Reconsideration

The Republic seeks the partial reconsideration in order to obtain a clarification with reference to the application of the
rulings in Naguit and Herbieto.

Chiefly citing the dissents, the Republic contends that the decision has enlarged, by implication, the interpretation of
Section 14(1) of the Property Registration Decree through judicial legislation. It reiterates its view that an applicant is
entitled to registration only when the land subject of the application had been declared alienable and disposable since
June 12, 1945 or earlier.

Ruling

We deny the motions for reconsideration.

In reviewing the assailed decision, we consider to be imperative to discuss the different classifications of land in
relation to the existing applicable land registration laws of the Philippines.

Classifications of land according to ownership

Land, which is an immovable property,10 may be classified as either of public dominion or of private
ownership.11Land is considered of public dominion if it either: (a) is intended for public use; or (b) belongs to the
State, without being for public use, and is intended for some public service or for the development of the national
wealth.12 Land belonging to the State that is not of such character, or although of such character but no longer
intended for public use or for public service forms part of the patrimonial property of the State. 13 Land that is other
than part of the patrimonial property of the State, provinces, cities and municipalities is of private ownership if it
belongs to a private individual.

Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first introduced into the country from the West by
Spain through the Laws of the Indies and the Royal Cedulas,14 all lands of the public domain belong to the
State.15This means that the State is the source of any asserted right to ownership of land, and is charged with the
conservation of such patrimony.16

All lands not appearing to be clearly under private ownership are presumed to belong to the State. Also, public lands
remain part of the inalienable land of the public domain unless the State is shown to have reclassified or alienated
them to private persons.17

Classifications of public lands

according to alienability

Whether or not land of the public domain is alienable and disposable primarily rests on the classification of public
lands made under the Constitution. Under the 1935 Constitution,18 lands of the public domain were classified into
three, namely, agricultural, timber and mineral.19 Section 10, Article XIV of the 1973 Constitution classified lands of
the public domain into seven, specifically, agricultural, industrial or commercial, residential, resettlement, mineral,
timber or forest, and grazing land, with the reservation that the law might provide other classifications. The 1987
Constitution adopted the classification under the 1935 Constitution into agricultural, forest or timber, and mineral, but
added national parks.20 Agricultural lands may be further classified by law according to the uses to which they may be
devoted.21 The identification of lands according to their legal classification is done exclusively by and through a
positive act of the Executive Department.22

Page 147
Based on the foregoing, the Constitution places a limit on the type of public land that may be alienated. Under Section
2, Article XII of the 1987 Constitution, only agricultural lands of the public domain may be alienated; all other natural
resources may not be.

Alienable and disposable lands of the State fall into two categories, to wit: (a) patrimonial lands of the State, or those
classified as lands of private ownership under Article 425 of the Civil Code,23 without limitation; and (b) lands of the
public domain, or the public lands as provided by the Constitution, but with the limitation that the lands must only be
agricultural. Consequently, lands classified as forest or timber, mineral, or national parks are not susceptible of
alienation or disposition unless they are reclassified as agricultural.24 A positive act of the Government is necessary to
enable such reclassification,25 and the exclusive prerogative to classify public lands under existing laws is vested in
the Executive Department, not in the courts.26 If, however, public land will be classified as neither agricultural, forest
or timber, mineral or national park, or when public land is no longer intended for public service or for the
development of the national wealth, thereby effectively removing the land from the ambit of public dominion, a
declaration of such conversion must be made in the form of a law duly enacted by Congress or by a Presidential
proclamation in cases where the President is duly authorized by law to that effect.27 Thus, until the Executive
Department exercises its prerogative to classify or reclassify lands, or until Congress or the President declares that the
State no longer intends the land to be used for public service or for the development of national wealth, the Regalian
Doctrine is applicable.

Disposition of alienable public lands

Section 11 of the Public Land Act (CA No. 141) provides the manner by which alienable and disposable lands of the
public domain, i.e., agricultural lands, can be disposed of, to wit:

Section 11. Public lands suitable for agricultural purposes can be disposed of only as follows, and not otherwise:

(1) For homestead settlement;

(2) By sale;

(3) By lease; and

(4) By confirmation of imperfect or incomplete titles;

(a) By judicial legalization; or

(b) By administrative legalization (free patent).

The core of the controversy herein lies in the proper interpretation of Section 11(4), in relation to Section 48(b) of the
Public Land Act, which expressly requires possession by a Filipino citizen of the land since June 12, 1945, or earlier,
viz:

Section 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to
own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the
Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a
certificate of title thereafter, under the Land Registration Act, to wit:

xxxx

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim

Page 148
of acquisition of ownership, since June 12, 1945, or earlier, immediately preceding the filing of the applications for
confirmation of title, except when prevented by war or force majeure. These shall be conclusively presumed to have
performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. (Bold emphasis supplied)

Note that Section 48(b) of the Public Land Act used the words "lands of the public domain" or "alienable and
disposable lands of the public domain" to clearly signify that lands otherwise classified, i.e., mineral, forest or timber,
or national parks, and lands of patrimonial or private ownership, are outside the coverage of the Public Land Act.
What the law does not include, it excludes. The use of the descriptive phrase "alienable and disposable" further limits
the coverage of Section 48(b) to only the agricultural lands of the public domain as set forth in Article XII, Section 2
of the 1987 Constitution. Bearing in mind such limitations under the Public Land Act, the applicant must satisfy the
following requirements in order for his application to come under Section 14(1) of the Property Registration
Decree,28 to wit:

1. The applicant, by himself or through his predecessor-in-interest, has been in possession and occupation of
the property subject of the application;

2. The possession and occupation must be open, continuous, exclusive, and notorious;

3. The possession and occupation must be under a bona fide claim of acquisition of ownership;

4. The possession and occupation must have taken place since June 12, 1945, or earlier; and

5. The property subject of the application must be an agricultural land of the public domain.

Taking into consideration that the Executive Department is vested with the authority to classify lands of the public
domain, Section 48(b) of the Public Land Act, in relation to Section 14(1) of the Property Registration Decree,
presupposes that the land subject of the application for registration must have been already classified as agricultural
land of the public domain in order for the provision to apply. Thus, absent proof that the land is already classified as
agricultural land of the public domain, the Regalian Doctrine applies, and overcomes the presumption that the land is
alienable and disposable as laid down in Section 48(b) of the Public Land Act. However, emphasis is placed on the
requirement that the classification required by Section 48(b) of the Public Land Act is classification or reclassification
of a public land as agricultural.

The dissent stresses that the classification or reclassification of the land as alienable and disposable agricultural land
should likewise have been made on June 12, 1945 or earlier, because any possession of the land prior to such
classification or reclassification produced no legal effects. It observes that the fixed date of June 12, 1945 could not be
minimized or glossed over by mere judicial interpretation or by judicial social policy concerns, and insisted that the
full legislative intent be respected.

We find, however, that the choice of June 12, 1945 as the reckoning point of the requisite possession and occupation
was the sole prerogative of Congress, the determination of which should best be left to the wisdom of the lawmakers.
Except that said date qualified the period of possession and occupation, no other legislative intent appears to be
associated with the fixing of the date of June 12, 1945. Accordingly, the Court should interpret only the plain and
literal meaning of the law as written by the legislators.

Moreover, an examination of Section 48(b) of the Public Land Act indicates that Congress prescribed no requirement
that the land subject of the registration should have been classified as agricultural since June 12, 1945, or earlier. As
such, the applicant’s imperfect or incomplete title is derived only from possession and occupation since June 12,
1945, or earlier. This means that the character of the property subject of the application as alienable and disposable
agricultural land of the public domain determines its eligibility for land registration, not the ownership or title over it.

Page 149
Alienable public land held by a possessor, either personally or through his predecessors-in-interest, openly,
continuously and exclusively during the prescribed statutory period is converted to private property by the mere lapse
or completion of the period.29 In fact, by virtue of this doctrine, corporations may now acquire lands of the public
domain for as long as the lands were already converted to private ownership, by operation of law, as a result of
satisfying the requisite period of possession prescribed by the Public Land Act.30 It is for this reason that the property
subject of the application of Malabanan need not be classified as alienable and disposable agricultural land of the
public domain for the entire duration of the requisite period of possession.

To be clear, then, the requirement that the land should have been classified as alienable and disposable agricultural
land at the time of the application for registration is necessary only to dispute the presumption that the land is
inalienable.

The declaration that land is alienable and disposable also serves to determine the point at which prescription may run
against the State. The imperfect or incomplete title being confirmed under Section 48(b) of the Public Land Act is title
that is acquired by reason of the applicant’s possession and occupation of the alienable and disposable agricultural
land of the public domain. Where all the necessary requirements for a grant by the Government are complied with
through actual physical, open, continuous, exclusive and public possession of an alienable and disposable land of the
public domain, the possessor is deemed to have acquired by operation of law not only a right to a grant, but a grant by
the Government, because it is not necessary that a certificate of title be issued in order that such a grant be sanctioned
by the courts.31

If one follows the dissent, the clear objective of the Public Land Act to adjudicate and quiet titles to unregistered lands
in favor of qualified Filipino citizens by reason of their occupation and cultivation thereof for the number of years
prescribed by law32 will be defeated. Indeed, we should always bear in mind that such objective still prevails, as a
fairly recent legislative development bears out, when Congress enacted legislation (Republic Act No. 10023) 33in order
to liberalize stringent requirements and procedures in the adjudication of alienable public land to qualified applicants,
particularly residential lands, subject to area limitations.34

On the other hand, if a public land is classified as no longer intended for public use or for the development of national
wealth by declaration of Congress or the President, thereby converting such land into patrimonial or private land of
the State, the applicable provision concerning disposition and registration is no longer Section 48(b) of the Public
Land Act but the Civil Code, in conjunction with Section 14(2) of the Property Registration Decree.35 As such,
prescription can now run against the State.

To sum up, we now observe the following rules relative to the disposition of public land or lands of the public
domain, namely:

(1) As a general rule and pursuant to the Regalian Doctrine, all lands of the public domain belong to the State
and are inalienable. Lands that are not clearly under private ownership are also presumed to belong to the
State and, therefore, may not be alienated or disposed;

(2) The following are excepted from the general rule, to wit:

(a) Agricultural lands of the public domain are rendered alienable and disposable through any of the
exclusive modes enumerated under Section 11 of the Public Land Act. If the mode is judicial
confirmation of imperfect title under Section 48(b) of the Public Land Act, the agricultural land
subject of the application needs only to be classified as alienable and disposable as of the time of the
application, provided the applicant’s possession and occupation of the land dated back to June 12,
1945, or earlier. Thereby, a conclusive presumption that the applicant has performed all the
conditions essential to a government grant arises,36 and the applicant becomes the owner of the land
by virtue of an imperfect or incomplete title. By legal fiction, the land has already ceased to be part of
the public domain and has become private property.37

Page 150
 (b) Lands of the public domain subsequently classified or declared as no longer intended for public
use or for the development of national wealth are removed from the sphere of public dominion and
are considered converted into patrimonial lands or lands of private ownership that may be alienated or
disposed through any of the modes of acquiring ownership under the Civil Code. If the mode of
acquisition is prescription, whether ordinary or extraordinary, proof that the land has been already
converted to private ownership prior to the requisite acquisitive prescriptive period is a condition sine
qua non in observance of the law (Article 1113, Civil Code) that property of the State not patrimonial
in character shall not be the object of prescription.

To reiterate, then, the petitioners failed to present sufficient evidence to establish that they and their predecessors-in-
interest had been in possession of the land since June 12, 1945. Without satisfying the requisite character and period
of possession - possession and occupation that is open, continuous, exclusive, and notorious since June 12, 1945, or
earlier - the land cannot be considered ipso jure converted to private property even upon the subsequent declaration of
it as alienable and disposable. Prescription never began to run against the State, such that the land has remained
ineligible for registration under Section 14(1) of the Property Registration Decree. Likewise, the land continues to be
ineligible for land registration under Section 14(2) of the Property Registration Decree unless Congress enacts a law
or the President issues a proclamation declaring the land as no longer intended for public service or for the
development of the national wealth.1âwphi1

WHEREFORE, the Court DENIES the petitioners' Motion for Reconsideration and the respondent's Partial Motion
for Reconsideration for their lack of merit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

I submitted my vote joining the Separate Opinion

In the Result: See Separate Opinion
of Justice Brion
ARTURO D. BRION
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
Associate Justice

DIOSDADO M. PERLATA MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

Page 151
 BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE
Associate Justice Associate Justice

See separate concurring and dissenting opinion

MARVIC MARIO VICTOR F. LEONEN
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had
been reached in consultation before the case was assigned to the writer of the opinion of the court.

MARIA LOURDES P. A. SERENO

Chief Justice

DIGEST

Facts:

This is a motions for reconsideration of the parties who both assail the decision promulgated on April 29, 2009,
whereby the Court denied the application for the registration of a parcel of land in Silang, Cavite on the ground that
petitioners (Malabanan) had not established by sufficient evidence their right to the registration in accordance with
either Section 14(1) or Section 14(2) of Presidential Decree No. 1529 (Property Registration Decree).

The applicant Mario Malabanan, who had purchased the property from Eduardo Velazco, claimed that the property
formed part of the alienable and disposable land of the public domain, and that he and his predecessors-in-interest had
been in open, continuous, uninterrupted, public and adverse possession and occupation of the land for more than 30
years, thereby entitling him to the judicial confirmation of his title

To prove that the property was an alienable and disposable land of the public domain, Malabanan presented during
trial a certification dated June 11, 2001 issued by the Community Environment and Natural Resources Office
(CENRO) of the DENR.

The RTC granted Malabanan’s application for land registration. However, on appeal of the OSG, the Court of
Appeals (CA) reversed the ruling of the RTC. Noting that the CENRO-DENR certification stated that the property
had been declared alienable and disposable only on March 15, 1982, the CA, relying on the ruling in Republic vs
Herbieto, declared that Velazco’s possession prior to March 15, 1982 could not be tacked for purposes of computing
Malabanan’s period of possession.

As earlier stated, the Supreme Court denied the petition for review on certiorari because Malabanan failed to establish
possession and occupation of the property on his part and on the part of his predecessors-in interest since June 12,
1945, or earlier. Hence, this MR.

Page 152
Held:

Petitioners failed to present sufficient evidence to establish that they and their predecessors-in-interest had been in
possession of the land since June 12, 1945. Without satisfying the requisite character and period of possession –
possession and occupation that is open, continuous, exclusive, and notorious since June 12, 1945, or earlier – the land
cannot be considered ipso jure converted to private property even upon the subsequent declaration of it as alienable
and disposable. Prescription never began to run against the State, such that the land has remained ineligible for
registration under Section 14(1) of the Property Registration Decree. Likewise, the land continues to be ineligible for
land registration under Section 14(2) of the Property Registration Decree unless Congress enacts a law or the
President issues a proclamation declaring the land as no longer intended for public service or for the development of
the national wealth.

Page 153
 FIRST DIVISION
[G.R. No. L-47847 : July 31, 1981.]
DIRECTOR OF LANDS, Petitioner, vs. COURT OF APPEALS and MANUELA PASTOR, Respondents.

DECISION

MAKASIAR, J.:

By this petition for review on certiorari, the Director of Lands seeks to set aside the decision of the Court of Appeals
in C.A.G.R. No. 59853-R affirming the decision of the Court of First Instance of Batangas in LRC Case No. N-893
granting the application for registration under R.A. 496 of thirteen cranad(13) parcels of land in the name of herein
private respondent Manuela Pastor.
It appears that on May 8, 1974, respondent Manuela Pastor filed with the Court of First Instance of Batangas LRC
Case No. N-893, an application for confirmation of imperfect title over thirteen cranad(13) lots situated in Gulod and
Pallocan, Batangas City.
The application shows that seven cranad(7) of the lots, specifically Lots Nos. 9186-A, 9186-B, 9186-D, 9330-A,
9330-C, 9402-A and 9402-D were allegedly inherited by respondent Manuela Pastor from her parents Rafael Pastor
and Natalia Quinio who died on July 1, 1938 and July 12, 1908, respectively. The other six cranad(6) lots, namely
Lots Nos. 9402-B, 9402-E, 9397-B, 9397-D, 9367 and 9360 were allegedly inherited by respondent from her aunt
Rosario Pastor who died on January 13, 1950 without any surviving heir except respondent herein. In her application,
the respondent claims that she and her predecessors-in-interest had been in continuous, uninterrupted, open, public,
adverse and notorious possession of the lots under claim of ownership for more than thirty cranad(30) years.
On June 24, 1974 the application was amended to correct the description of two lots.
The Director of Lands filed an opposition to the application on the ground that applicant Manuela Pastor and her
predecessors-in-interest neither had title in fee simple nor imperfect title under Section 48 of the Public Land Law, as
amended, over the lots in question.
No other persons filed opposition to the application.
Accordingly, the Court of First Instance of Batangas, acting as a land registration court, issued an order of general
default with the exception of the Director of Lands, and then proceeded to hear the applicant, her witnesses, and
oppositor Director of Lands.
During the hearings, the applicant presented as her witnesses her nephew Antonio M. Pastor, and Geodetic Engineer
Quirino P. Clemeneo. Applicant Manuela Pastor testified on her behalf that she has remained the owner and possessor
of the lots in question; that her possession has been peaceful, public, open, continuous, adverse against the whole
world and in the concept of owner; that she had paid the taxes thereon; and that the said lots were planted to sugar
cane.
Witness Antonio M. Pastor corroborated in all material respects the testimony of his aunt Manuela Pastor.
The Geodetic Engineer, Quirino P. Clemeneo, testified that he conducted the survey of some of the lots and verified
the survey conducted by the Bureau of Lands on the others. He found that the lots did not encroach upon private and
public lands.
As part of her documentary evidence, applicant Manuela Pastor presented the certifications of the Treasurer of
Batangas City showing payments of the real estate tax on the lots from 1965 to 1974 cranad(Exhibits J, J-1, J-2, J-3, J-
4 and J-5) and official receipts of payments of real estate tax on the same lots for 1975 cranad(Exhibits K, K-1 and K-
2).

Page 154
Apart from the foregoing, applicant presented, however, a certification from the Land Registration
Commission cranad(Exhibit L) stating that Lot No. 9330 of the Cadastral Survey of Batangas, Province of Batangas,
was declared public land in Cadastral Case No. 41, LRC Cad. Record No. 1706. She likewise submitted another
certification from the Land Registration Commission cranad(Exhibit L-1) to the effect that Lots Nos. 9186, 9360,
9367, 9397 and 9402 of the Cadastral Survey of Batangas, Province of Batangas, were the subject of a decision in
Cad. Case No. 43, LRC Cad. Record No. 1712, although no decree of registration has as yet been issued.
On August 6, 1975 the Court of First Instance of Batangas rendered a decision pertinent portions of which read as
follows:
“From the evidence presented, it has been established that as early as in the year 1913, the original owners of
the seven cranad(7) parcels of land located in the barrio of Gulod, Batangas City, designated as Lots Nos.
9330-A, 9330-C, 9186-A, 9186-B, 9186-D, 9402-A and 9402-D, as reflected in the plan Csd-12122 Sheet
1 cranad(Exhibit ‘E’), were spouses Rafael Pastor and Natalia Quinio. Natalia Quinio died on July 12, 1908.
Since then, Rafael Pastor possessed the said lots peacefully, openly, continuously, adversely against the whole
world and in the concept of owner up to his death in 1938. After the death of Rafael Pastor on July 1, 1938,
Manuela Pastor, the applicant herein, being the only child and sole heiress, came into possession and
ownership thereof by way of inheritance. From 1938 when the applicant inherited the said lots from her
deceased parents and up to the present, she has remained the owner and possessor thereof; that her possession
over the said lots has been peaceful, public, open, continuous, adverse against the whole world and in the
concept of owner up to the present; that the applicant had paid the estate and inheritance taxes thereon before
the Japanese Occupation; that the said lots were planted with sugar cane, and since the year 1964 there were
no tenants but paid workers were provided with huts for their use therein; that there were no buildings, houses
or other improvements thereon. The other six cranad(6) lots located in the barrio of Pallocan, Batangas City,
designated as Lots Nos. 9397-B, 9397-D, 9367, 9360, 9402-B and 9402-E, as reflected in the plans marked as
Exhibits ‘E’, ‘G’, ‘H’, ‘H-1’, ‘H-1-a’ and ‘H-2’, were originally owned by the applicant’s aunt, Dra. Rosario
Pastor; that the latter possessed the said lots peacefully, openly, continuously, adversely against the whole
world and in the concept of owner up to her death in 1950; that after the death of Dra. Rosario Pastor on
January 13, 1950, the applicant, Manuela Pastor, being the only niece and sole heiress, came into possession
and ownership thereof by way of inheritance. From 1950 when the said applicant inherited the said lots from
her deceased aunt and up to the present, she has remained the owner and possessor thereof; that her
possession over the said lots has been peaceful, public, open, continuous, adverse against the whole world and
in the concept of owner up to the present; that the applicant had paid the estate and inheritance taxes thereon;
that the said lots were planted with sugar cane, and since the year 1964 there were no tenants but paid workers
were provided with huts for their use therein; that there were no buildings, houses or other improvements
thereon.
“Evidence further shows that the late Rafael Pastor and Dra. Rosario Pastor, are brother and sister. Dra. Pastor
died single and without issue; that applicant, Manuela Pastor, together with her predecessors-in-interest since
the year 1913 and up to the present have been in open, public, peaceful, continuous, adverse and uninterrupted
possession over the said thirteen cranad(13) lots in question; that said lots were covered by tax declarations in
the name of herein applicant, as shown in the Assessment Certificate issued by the City Assessor of
Batangascranad(Exhibit ‘1’), and the taxes thereon have been paid by the applicant cranad(Exhibits ‘J’, ‘J-1’,
‘J-5’, ‘K’, ‘K-1’ and ‘K-2’); that there were no lien or incumbrance affecting said lots. Furthermore, applicant
testified that she did not claim any portion of the road which bounded the lots in question, nor the portion of
the creeks or river; that any of the said lots were not within any reservation of any kind.
“As required by this Court, the applicant submitted the following:
“(a) a certification of the Land Registration Commission that Lot No. 9330 of the Cadastral Survey of
Batangas Record No. 1706 was declared ‘public land’ in the decision rendered thereon. It is further certified
that copy of said decision relative to the aforementioned lot is not available in this
Commission cranad(Exhibit ‘L’); cranad(b) a certification of the Land Registration Commission, that no
decrees of registration have as yet been issued to lots Nos. 9186, 9360, 9367 and 9397 and 9402 of the
Cadastral Survey of Batangas cranad(Exh. ‘L-1’); and cranad(c) a certification issued by officer-in-charge

Page 155
 Records Division of the Bureau of Lands to the effect that the thirteen cranad(13) lots situated in Barrios
Gulod and Pallocan, Batangas City, are not covered by any kind of public land, application or
patentcranad(Exh. ‘M’).
“All the documentary exhibits of applicant were submitted in evidence as offered, there being no objection on
the part of the oppositor. Oppositor Director of Lands through City Fiscal of Batangas did not offer any
contradictory evidence.
“Indisputably and by highly credible evidence, the applicant gave more than ample proof of her rights to the
grant of title over the properties in question. By herself and through her predecessors-in-interest, the applicant
has been in open, public, peaceful, continuous, uninterrupted and adverse possession of the
thirteen cranad(13) parcels of land up to the present — all for the requisite period of time and under a bona
fide claim of ownership which entitle her to confirmation of title over the properties subject of this
application.
“. cra . finding the application for confirmation and grant to title under Act 496 as amended, to be well-
founded and fully substantiated by evidence sufficient and requisite under the law, the Court hereby decrees
the registration of:
“x x x
“in favor of applicant, MANUELA PASTOR . cra .” chanroblesvirtualawlibrary(pp. 49-60, Record on
Appeal, p. 45, rec.).
Not, satisfied with the decision of the Court of First Instance, petitioner Director of Lands appealed the same
to the Court of Appeals assigning the following errors:
‘First Assignment of Error
‘THE LOWER COURT ERRED IN GRANTING THE APPLICATION OF MANUELA PASTOR
FOR CONFIRMATION OF HER ALLEGED IMPERFECT TITLE TO LOTS NO. 9330-A AND
9330-C DESPITE EVIDENCE ADDUCED BY APPLICANT HERSELF THAT SAID LOTS
WERE DECLARED PUBLIC LAND IN A PREVIOUS CADASTRAL PROCEEDING.’
‘Second Assignment of Error
‘THE LOWER COURT ERRED IN GRANTING THE APPLICATION OF MANUELA PASTOR
FOR CONFIRMATION OF HER ALLEGED IMPERFECT TITLE TO LOTS NO. 9186-A, 9186-B,
9186-D, 9402-A, 9402-B, 9402-D, 9402-E, 9397-B, 9397-D, 9367 and 9360 DESPITE EVIDENCE
SUBMITTED BY APPLICANT HERSELF THAT A DECISION RESPECTING SAID LOTS HAD
BEEN RENDERED IN A PREVIOUS CADASTRAL PROCEEDING.’
‘Third Assignment of Error
‘THE LOWER COURT ERRED IN HOLDING THAT THERE IS ADEQUATE EVIDENCE OF
THE ALLEGED IMPERFECT TITLE OF MANUELA PASTOR TO THE THIRTEEN cranad(13)
LOTS SUBJECT OF THE APPLICATION’cralaw cranad(pp. 11-12, rec.).
On February 9, 1978 the Court of Appeals rendered judgment affirming in toto the decision of the Court of First
Instance of Batangas.
Hence, this petition.
I
Substantially, the same issues, as raised by petitioner in the Court of Appeals, are brought before US.
Petitioner asserts that the decision rendered in Cadastral Case No. 41 cranad(Exhibit L) declaring Lot No. 9330 —
from which Lots Nos. 9330-A and 9330-C were derived — constitutes res adjudicata as to the nature of the lots in
question and therefore, a bar to appellee’s application.
Additionally, petitioner also argued that:

Page 156
 “Lots Nos. 9186-A, 9186-B and 9186-D of the Cadastral Survey of Batangas, were derived from Lot No.
9186. Lots Nos. 9402-A, 9402-B, 9402-D and 9402-E were derived from Lot No. 9402. Lots Nos. 9397-B
and 9397-D were derived from Lot No. 9397.
“As shown by applicant’s Exhibit L-1, Lots Nos. 9186, 9360, 9367, 9397 and 9402 were the subject of a
decision rendered in Cad. Case No. 43, LRC Cad. Record No. 1712, although no decree of registration has as
yet been issued therein.
“The certificate, Exhibit L-1, is dated June 4, 1975. The decision of the lower court was rendered more than
two months later, on August 6, 1975. Thus, on the basis of Exhibit L, the decision of the cadastral court might
already be final when the appealed decision was rendered. If such be the case, the decision of the cadastral
court constitutes res adjudicata and it is a bar to the present land registration proceeding under Act No.
496 cranad(Lopez v. Director of Lands, 48 Phil. 589; Section 1. paragraph cranad(f), Rule 16, Rules of
Court).
“Assuming that the decision of the cadastral court was not yet final when the appealed decision was rendered,
it was nevertheless, litis pendentia which, under Section 1, paragraph cranad(e), Rule 16 of the Rules of
Court, is likewise a bar to the present proceeding for land registration case under Act No. 496.
“Either way, whether the decision of the cadastral court in Cad. Case No. 43 had become final or not, the
present proceeding for land registration under Act No. 496 cannot prosper because of the principles of res
adjudicata and litis pendentia” chanroblesvirtualawlibrary(pp. 15-16, rec.).
WE find no legal basis to uphold the foregoing contentions of petitioner. It is clear from the evidence on record that in
the proceedings had before the Court of First Instance of Batangas, acting as a land registration court, the oppositor
Director of Lands, petitioner herein, did not interpose any objection nor set up the defense of res adjudicata with
respect to the lots in question. Such failure on the part of oppositor Director of Lands, to OUR mind, is a procedural
infirmity which cannot be cured on appeal. Section 2, Rule 9, Revised Rules of Court of 1964, in no uncertain
language, provides that:
“SEC. 2. Defenses and objections not pleaded deemed waived. — Defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived; . cra .”
All defenses therefore not interposed in a motion to dismiss or in an answer are deemed waived cranad(Santiago, et al.
vs. Ramirez, et al., L-15237, May 31, 1963, 8 SCRA 157, 162; Torreda vs. Boncaros, L-39832, January 30, 1976, 69
SCRA 247, 253).
Thus, the defense of res adjudicata when not set up either in a motion to dismiss or in an answer, is deemed waived. It
cannot be pleaded for the first time at the trial or on appeal cranad(Phil. Coal Miner’s Union vs. CEPOC, et al., L-
19007, April 30, 1964, 10 SCRA 784, 789).
But granting for a moment, that the defenses, of res adjudicata was properly raised by petitioner herein, WE still hold
that, factually, there is no prior final judgment at all to speak of. The decision in Cadastral Case No. 41 does not
constitute a bar to the application of respondent Manuela Pastor; because a decision in a cadastral proceeding
declaring a lot public land is not the final decree contemplated in Sections 38 and 40 of the Land Registration Act.
A judicial declaration that a parcel of land is public, does not preclude even the same applicant from subsequently
seeking a judicial confirmation of his title to the same land, provided he thereafter complies with the provisions of
Section 48 of Commonwealth Act No. 141, as amended, and as long as said public land remains alienable and
disposable cranad(now sections 3 and 4, P.D. No. 1073).
With respect to Cadastral Case No. 43, the evidence on record is too scanty to sustain the view of the petitioner that
the decision rendered therein constitutes res adjudicata, or in the absence of finality thereof, litis pendentia. On the
contrary, private respondent has amply shown that no final decree whatsoever was issued in connection with said
cadastral case, even as it is not known in whose favor said decision was rendered. As found by the Court of Appeals:
“Again, we sustain the appellee. There is an ambiguity as to what was adjudicated in Case No. 43. If the lots in
question were in that case awarded to a third party, the latter should have intervened in this case. But no private party
has challenged the application for registration” chanroblesvirtualawlibrary(p. 30, rec.).

Page 157
 II
Finally, petitioner argues for the first time on appeal that “there is no substantial evidence to show that
she cranad(private respondent Manuela Pastor) and her predecessors-in-interest have been in possession of the lots
sought to be titled for a period of at least thirty cranad(30) years and in the manner provided in Section 48, as
amended, of the Public Land Law.”
WE find no merit in the foregoing argument of petitioner. The uncontradicted testimony of private respondent
Manuela Pastor, which was further corroborated by the testimony of Antonio Pastor, conclusively established beyond
doubt that the respondent, together with her predecessors-in-interest since the year 1913 and up to the present, had
been in open, continuous, exclusive, and notorious possession and occupation of the lots in question under a bona fide
claim of ownership. Moreover, the documentary evidence submitted by private respondent also show that the lots
have been declared for taxation purposes in the name of respondent Manuela Pastor cranad(Exhibit ‘I’), and the taxes
thereon have been paid by said respondent herein cranad(Exhibits ‘J’, ‘J-1’ to ‘J-5’, ‘K’, ‘K-1’ and ‘K-2’). And
finally, Geodetic Engineer Quirino Clemeneo, who conducted the survey of some of the lots and verified the survey
conducted by the Bureau of Lands, testified that the thirteen cranad(13) lots in question did not encroach upon public
or private lands. All these are unmistakable indicia that respondent Manuela Pastor has performed and complied with
all the conditions essential to entitle her to a confirmation of her imperfect title over the thirteen cranad(13) lots
subject of her application.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS IS AFFIRMED, AND THE PETITION IS
HEREBY DISMISSED. NO COSTS.
SO ORDERED.

NO CASE DIGEST

Page 158
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 73002 December 29, 1986

THE DIRECTOR OF LANDS, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC., ETC., respondents.

D. Nacion Law Office for private respondent.

NARVASA, J.:

The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate Appellate Court
affirming a decision of the Court of First Instance of Isabela, which ordered registration in favor of Acme Plywood &
Veneer Co., Inc. of five parcels of land measuring 481, 390 square meters, more or less, acquired by it from Mariano
and Acer Infiel, members of the Dumagat tribe.

The registration proceedings were for confirmation of title under Section 48 of Commonwealth Act No. 141 (The
Public Land Act). as amended: and the appealed judgment sums up the findings of the trial court in said proceedings
in this wise:

1. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario is a corporation duly
organized in accordance with the laws of the Republic of the Philippines and registered with the Securities
and Exchange Commission on December 23, 1959;

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can acquire real properties
pursuant to the provisions of the Articles of Incorporation particularly on the provision of its secondary
purposes (paragraph (9), Exhibit 'M-l');

3. That the land subject of the Land Registration proceeding was ancestrally acquired by Acme Plywood &
Veneer Co., Inc., on October 29, 1962, from Mariano Infiel and Acer Infiel, both members of the Dumagat
tribe and as such are cultural minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as the sale took place on
October 29, 1962;

5. That the possession of the Infiels over the land relinquished or sold to Acme Plywood & Veneer Co., Inc.,
dates back before the Philippines was discovered by Magellan as the ancestors of the Infiels have possessed
and occupied the land from generation to generation until the same came into the possession of Mariano Infiel
and Acer Infiel;

6. That the possession of the applicant Acme Plywood & Veneer Co., Inc., is continuous, adverse and public
from 1962 to the present and tacking the possession of the Infiels who were granted from whom the applicant
bought said land on October 29, 1962, hence the possession is already considered from time immemorial.

Page 159
 7. That the land sought to be registered is a private land pursuant to the provisions of Republic Act No. 3872
granting absolute ownership to members of the non-Christian Tribes on land occupied by them or their
ancestral lands, whether with the alienable or disposable public land or within the public domain;

8. That applicant Acme Plywood & Veneer Co. Inc., has introduced more than Forty-Five Million
(P45,000,000.00) Pesos worth of improvements, said improvements were seen by the Court during its ocular
investigation of the land sought to be registered on September 18, 1982;

9. That the ownership and possession of the land sought to be registered by the applicant was duly recognized
by the government when the Municipal Officials of Maconacon, Isabela, have negotiated for the donation of
the townsite from Acme Plywood & Veneer Co., Inc., and this negotiation came to reality when the Board of
Directors of the Acme Plywood & Veneer Co., Inc., had donated a part of the land bought by the Company
from the Infiels for the townsite of Maconacon Isabela (Exh. 'N') on November 15, 1979, and which donation
was accepted by the Municipal Government of Maconacon, Isabela (Exh. 'N-l'), during their special session
on November 22, 1979.

The Director of Lands takes no issue with any of these findings except as to the applicability of the 1935 Constitution
to the matter at hand. Concerning this, he asserts that, the registration proceedings have been commenced only on July
17, 1981, or long after the 1973 Constitution had gone into effect, the latter is the correctly applicable law; and since
section 11 of its Article XIV prohibits private corporations or associations from holding alienable lands of the public
domain, except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935 Constitution which was in
force in 1962 when Acme purchased the lands in question from the Infiels), it was reversible error to decree
registration in favor of Acme Section 48, paragraphs (b) and (c), of Commonwealth Act No. 141, as amended, reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province where the land is located for confirmation of their
claims, and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter.

(c) Members of the National Cultural minorities who by themselves or through their predecessors-in-interest
have been in open. continuous, exclusive and notorious possession and occupation of lands of the public
domain suitable to agriculture, whether disposable or not, under a bona fide claim of ownership for at least 30
years shall be entitled to the rights granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court which were cited and
affirmed by the Intermediate Appellate Court, it can no longer controvert before this Court-the fact that Mariano and
Acer Infiel, from whom Acme purchased the lands in question on October 29, 1962, are members of the national
cultural minorities who had, by themselves and through their progenitors, possessed and occupied those lands since
time immemorial, or for more than the required 30-year period and were, by reason thereof, entitled to exercise the
right granted in Section 48 of the Public Land Act to have their title judicially confirmed. Nor is there any pretension
that Acme, as the successor-in-interest of the Infiels, is disqualified to acquire and register ownership of said lands
under any provisions of the 1973 Constitution other than Section 11 of its Article XIV already referred to.

Page 160
Given the foregoing, the question before this Court is whether or not the title that the Infiels had transferred to Acme
in 1962 could be confirmed in favor of the latter in proceedings instituted by it in 1981 when the 1973 Constitution
was already in effect, having in mind the prohibition therein against private corporations holding lands of the public
domain except in lease not exceeding 1,000 hectares.

The question turns upon a determination of the character of the lands at the time of institution of the registration
proceedings in 1981. If they were then still part of the public domain, it must be answered in the negative. If, on the
other hand, they were then already private lands, the constitutional prohibition against their acquisition by private
corporations or associations obviously does not apply.

In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et al, 1 where a similar set
of facts prevailed. In that case, Manila Electric Company, a domestic corporation more than 60% of the capital stock
of which is Filipino-owned, had purchased in 1947 two lots in Tanay, Rizal from the Piguing spouses. The lots had
been possessed by the vendors and, before them, by their predecessor-in-interest, Olimpia Ramos, since prior to the
outbreak of the Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First Instance of Rizal,
Makati Branch, for confirmation of title to said lots. The court, assuming that the lots were public land, dismissed the
application on the ground that Meralco, a juridical person, was not qualified to apply for registration under Section
48(b) of the Public Land Act which allows only Filipino citizens or natural persons to apply for judicial confirmation
of imperfect titles to public land. Meralco appealed, and a majority of this Court upheld the dismissal. It was held that:

..., the said land is still public land. It would cease to be public land only upon the issuance of the certificate
of title to any Filipino citizen claiming it under section 48(b). Because it is still public land and the Meralco,
as a juridical person, is disqualified to apply for its registration under section 48(b), Meralco's application
cannot be given due course or has to be dismissed.

Finally, it may be observed that the constitutional prohibition makes no distinction between (on the one hand)
alienable agricultural public lands as to which no occupant has an imperfect title and (on the other hand)
alienable lands of the public domain as to which an occupant has on imperfect title subject to judicial
confirmation.

Since section 11 of Article XIV does not distinguish, we should not make any distinction or qualification. The
prohibition applies to alienable public lands as to which a Torrens title may be secured under section 48(b).
The proceeding under section 48(b) 'presupposes that the land is public' (Mindanao vs. Director of Lands, L-
19535, July 30, 1967, 20 SCRA 641, 644).

The present Chief Justice entered a vigorous dissent, tracing the line of cases beginning with Carino in
1909 2 thru Susi in 1925 3 down to Herico in 1980, 4 which developed, affirmed and reaffirmed the doctrine that open,
exclusive and undisputed possession of alienable public land for the period prescribed by law creates the legal fiction
whereby the land, upon completion of the requisite period ipso jure and without the need of judicial or other sanction,
ceases to be public land and becomes private property. That said dissent expressed what is the better — and, indeed,
the correct, view-becomes evident from a consideration of some of the principal rulings cited therein,

The main theme was given birth, so to speak, in Carino involving the Decree/Regulations of June 25, 1880 for
adjustment of royal lands wrongfully occupied by private individuals in the Philippine Islands. It was ruled that:

It is true that the language of articles 4 and 5 5 attributes title to those 'who may prove' possession for the
necessary time and we do not overlook the argument that this means may prove in registration proceedings. It
may be that an English conveyancer would have recommended an application under the foregoing decree, but
certainly it was not calculated to convey to the mind of an Igorot chief the notion that ancient family
possessions were in danger, if he had read every word of it. The words 'may prove' (acrediten) as well or
better, in view of the other provisions, might be taken to mean when called upon to do so in any litigation.
There are indications that registration was expected from all but none sufficient to show that, for want of it,

Page 161
 ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but
simply to establish it, as already conferred by the decree, if not by earlier law. ...

That ruling assumed a more doctrinal character because expressed in more categorical language, in Susi:

.... In favor of Valentin Susi, there is, moreover, the presumption juris et de jure established in paragraph (b)
of section 45 of Act No. 2874, amending Act No. 926, that all the necessary requirements for a grant by the
Government were complied with, for he has been in actual and physical possession, personally and through
his predecessors, of an agricultural land of the public domain openly, continuously, exclusively and publicly
since July 26, 1984, with a right to a certificate of title to said land under the provisions of Chapter VIII of
said Act. So that when Angela Razon applied for the grant in her favor, Valentin Susi had already acquired,
by operation of law not only a right to a grant, but a grant of the Government, for it is not necessary that a
certificate of title should be issued in order that said grant may be sanctioned by the courts, an application
therefore is sufficient, under the provisions of section 47 of Act No. 2874. If by a legal fiction, Valentin Susi
had acquired the land in question by a grant of the State, it had already ceased to be of the public domain and
had become private property, at least by presumption, of Valentin Susi, beyond the control of the Director of
Lands. Consequently, in selling the land in question of Angela Razon, the Director of Lands disposed of a
land over which he had no longer any title or control, and the sale thus made was void and of no effect, and
Angela Razon did not thereby acquire any right. 6

Succeeding cases, of which only some need be mentioned, likeof Lacaste vs. Director of Lands, 7 Mesina vs. Vda. de
Sonza, 8 Manarpac vs. Cabanatuan, 9 Miguel vs. Court of Appeals 10 and Herico vs. Dar, supra, by invoking and
affirming the Susi doctrine have firmly rooted it in jurisprudence.

Herico, in particular, appears to be squarely affirmative: 11

.... Secondly, under the provisions of Republic Act No. 1942, which the respondent Court held to be
inapplicable to the petitioner's case, with the latter's proven occupation and cultivation for more than 30 years
since 1914, by himself and by his predecessors-in-interest, title over the land has vested on petitioner so as to
segregate the land from the mass of public land. Thereafter, it is no longer disposable under the Public Land
Act as by free patent. ....

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing provision are complied with,
the possessor is deemed to have acquired, by operation of law, a right to a grant, a government grant, without
the necessity of a certificate of title being issued. The land, therefore, ceases to be of the public domain and
beyond the authority of the Director of Lands to dispose of. The application for confirmation is mere
formality, the lack of which does not affect the legal sufficiency of the title as would be evidenced by the
patent and the Torrens title to be issued upon the strength of said patent. 12

Nothing can more clearly demonstrate the logical inevitability of considering possession of public land which is of the
character and duration prescribed by statute as the equivalent of an express grant from the State than the dictum of the
statute itself 13 that the possessor(s) "... shall be conclusively presumed to have performed all the conditions essential
to a Government grant and shall be entitled to a certificate of title .... " No proof being admissible to overcome a
conclusive presumption, confirmation proceedings would, in truth be little more than a formality, at the most limited
to ascertaining whether the possession claimed is of the required character and length of time; and registration
thereunder would not confer title, but simply recognize a title already vested. The proceedings would
not originally convert the land from public to private land, but only confirm such a conversion already affected by
operation of law from the moment the required period of possession became complete. As was so well put
in Carino, "... (T)here are indications that registration was expected from all, but none sufficient to show that, for

Page 162
want of it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title,
but simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a legally sufficient and
transferable title on October 29, 1962 when Acme acquired it from said owners, it must also be conceded that Acme
had a perfect right to make such acquisition, there being nothing in the 1935 Constitution then in force (or, for that
matter, in the 1973 Constitution which came into effect later) prohibiting corporations from acquiring and owning
private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial possession of the Infiels
and their ancestors, until title in their favor was actually confirmed in appropriate proceedings under the Public Land
Act, there can be no serious question of Acmes right to acquire the land at the time it did, there also being nothing in
the 1935 Constitution that might be construed to prohibit corporations from purchasing or acquiring interests in public
land to which the vendor had already acquired that type of so-called "incomplete" or "imperfect" title. The only
limitation then extant was that corporations could not acquire, hold or lease public agricultural lands in excess of
1,024 hectares. The purely accidental circumstance that confirmation proceedings were brought under the aegis of the
1973 Constitution which forbids corporations from owning lands of the public domain cannot defeat a right already
vested before that law came into effect, or invalidate transactions then perfectly valid and proper. This Court has
already held, in analogous circumstances, that the Constitution cannot impair vested rights.

We hold that the said constitutional prohibition 14 has no retroactive application to the sales application of
Binan Development Co., Inc. because it had already acquired a vested right to the land applied for at the time
the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution. Section 2, Article
XIII of the 1935 Constitution allows private corporations to purchase public agricultural lands not exceeding
one thousand and twenty-four hectares. Petitioner' prohibition action is barred by the doctrine of vested rights
in constitutional law.

xxx xxx xxx

The due process clause prohibits the annihilation of vested rights. 'A state may not impair vested rights by
legislative enactment, by the enactment or by the subsequent repeal of a municipal ordinance, or by a change
in the constitution of the State, except in a legitimate exercise of the police power'(16 C.J.S. 1177-78).

xxx xxx xxx

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the right of the
corporation to purchase the land in question had become fixed and established and was no longer open to
doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had the effect of
segregating the said land from the public domain. The corporation's right to obtain a patent for the land is
protected by law. It cannot be deprived of that right without due process (Director of Lands vs. CA, 123 Phil.
919).<äre||anº•1àw> 15

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name must be regarded as
simply another accidental circumstance, productive of a defect hardly more than procedural and in nowise affecting
the substance and merits of the right of ownership sought to be confirmed in said proceedings, there being no doubt of
Acme's entitlement to the land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under either
the 1935 or the 1973 Constitution, could have had title in themselves confirmed and registered, only a rigid

Page 163
subservience to the letter of the law would deny the same benefit to their lawful successor-in-interest by valid
conveyance which violates no constitutional mandate.

The Court, in the light of the foregoing, is of the view, and so holds, that the majority ruling in Meralco must be
reconsidered and no longer deemed to be binding precedent. The correct rule, as enunciated in the line of cases
already referred to, is that alienable public land held by a possessor, personally or through his predecessors-in-interest,
openly, continuously and exclusively for the prescribed statutory period (30 years under The Public Land Act, as
amended) is converted to private property by the mere lapse or completion of said period, ipso jure. Following that
rule and on the basis of the undisputed facts, the land subject of this appeal was already private property at the time it
was acquired from the Infiels by Acme. Acme thereby acquired a registrable title, there being at the time no
prohibition against said corporation's holding or owning private land. The objection that, as a juridical person, Acme
is not qualified to apply for judicial confirmation of title under section 48(b) of the Public Land Act is technical,
rather than substantial and, again, finds its answer in the dissent in Meralco:

6. To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act
allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would
be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical
error not having filed the application for registration in the name of the Piguing spouses as the original owners
and vendors, still it is conceded that there is no prohibition against their sale of the land to the applicant
Meralco and neither is there any prohibition against the application being refiled with retroactive effect in the
name of the original owners and vendors (as such natural persons) with the end result of their application
being granted, because of their indisputable acquisition of ownership by operation of law and the conclusive
presumption therein provided in their favor. It should not be necessary to go through all the rituals at the great
cost of refiling of all such applications in their names and adding to the overcrowded court dockets when the
Court can after all these years dispose of it here and now. (See Francisco vs. City of Davao)

The ends of justice would best be served, therefore, by considering the applications for confirmation as
amended to conform to the evidence, i.e. as filed in the names of the original persons who as natural persons
are duly qualified to apply for formal confirmation of the title that they had acquired by conclusive
presumption and mandate of the Public Land Act and who thereafter duly sold to the herein corporations
(both admittedly Filipino corporations duly qualified to hold and own private lands) and granting the
applications for confirmation of title to the private lands so acquired and sold or exchanged.

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter from themselves
applying for confirmation of title and, after issuance of the certificate/s of title in their names, deeding the lands back
to Acme. But this would be merely indulging in empty charades, whereas the same result is more efficaciously and
speedily obtained, with no prejudice to anyone, by a liberal application of the rule on amendment to conform to the
evidence suggested in the dissent in Meralco.

While this opinion seemingly reverses an earlier ruling of comparatively recent vintage, in a real sense, it breaks no
precedent, but only reaffirms and re-established, as it were, doctrines the soundness of which has passed the test of
searching examination and inquiry in many past cases. Indeed, it is worth noting that the majority opinion, as well as
the concurring opinions of Chief Justice Fernando and Justice Abad Santos, in Meralco rested chiefly on the
proposition that the petitioner therein, a juridical person, was disqualified from applying for confirmation of an
imperfect title to public land under Section 48(b) of the Public Land Act. Reference to the 1973 Constitution and its
Article XIV, Section 11, was only tangential limited to a brief paragraph in the main opinion, and may, in that
context, be considered as essentially obiter. Meralco, in short, decided no constitutional question.

WHEREFORE, there being no reversible error in the appealed judgment of the Intermediate Appellate Court, the
same is hereby affirmed, without costs in this instance.

SO ORDERED.

Page 164
Feria, Yap, Fernan, Alampay, Cruz, Paras and Feliciano, JJ., concur.

Separate Opinions

GUTIERREZ, JR., J., concurring:

I reiterate my concurrence in Meralco v. Castro-Bartolome, and, therefore, dissent here.

TEEHANKEE, C.J., concurring:

I am honored by my brethren's judgment at bar that my dissenting opinion in the June, 1982 Meralco and Iglesia ni
Cristo cases, 1 which is herein upheld, "expressed what is the better. . . . and indeed the correct view." My dissent was
anchored on the landmark 1909 case of Carino 2 through the 1925 case of Susi 3 and the long line of cases cited
therein to the latest 1980 case of Herico 4 that "it is established doctrine....... that an open, continuous, adverse and
public possession of a land of the public domain for the period provided in the Public Land Act provision in force at
the time (from July 26, 1894 in Susi under the old law [this period was reduced to 'at least thirty years immediately
preceding the filing of the application for confirmation of title' by amendment of Commonwealth Act No. 141,
equivalent to the period of acquisitive prescription 5 ]) by a private individual personally and through his predecessors
confers an effective title on said possessor, whereby the land ceases to be land of the public domain and becomes
private property." I hereby reproduce the same by reference for brevity's sake. But since we are reverting to the old
above-cited established doctrine and precedents and discarding the Meralco and Iglesia ni Cristocases which departed
therefrom in the recent past, I feel constrained to write this concurrence in amplification of my views and ratio
decidendi.

Under the express text and mandate of the cited Act, such possessors "shall be conclusively presumed to have
performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. "

The Court thus held in Susi that under the presumption juris et de jure established in the Act, the rightful possessor of
the public land for the statutory period "already acquired, by operation of law, not only a right to a grant, but a grant
of the Government, for it is not necessary that certificate of title should be issued an order that said grant may be
sanctioned by the courts, an application therefore is sufficient . . . . If by a legal fiction, Valentin Susi had acquiredthe
land in question by a grant of the State, it had already ceased to be of the public domain and had become private
property, at least by presumption, of Valentin Susi, beyond the control of the Director of Lands [and beyond his
authority to sell to any other person]. " 6

The root of the doctrine goes back to the pronouncement of Justice Oliver Wendell Holmes for the U.S. Supreme
Court in the 1909 case of Carino (the Igorot chief who would have been deprived of ancestral family lands by the
dismissal of his application for registration) which reversed the dismissal of the registration court (as affirmed by the
Supreme Court) and adopted the liberal view that under the decree and regulations of June 25, 1880, "The words 'may
prove' (acrediten), as well, or better, in view of the other provisions, might be taken to mean when called upon to do
so in any litigation. There are indications that registration was expected from all, but none sufficient to show that, for
want of it, ownership actually gained would be lost. The effect of the proof, whenever made, was not to confer
title, but simply to establish it, as already conferred by the decree, if not by earlier law."

The Court's decision at bar now expressly overturns the Meralco and related cases subsequent thereto which failed to
adhere to the aforecited established doctrine dating back to 1909 and was consistently applied up to June 29, 1982
(when the Meralco decision was promulgated). We reaffirm the established doctrine that such acquisitive prescription

Page 165
of alienable public lands takes place ipso jure or by operation of law without the necessity of a prior issuance of a
certificate of title. The land ipso jure ceases to be of the public domain and becomes private property, which may be
lawfully sold to and acquired by qualified corporations such as respondent corporation. (As stressed in Herico supra,
"the application for confirmation is a mere formality, the lack of which does not affect the legal sufficiency of the
title.")

Such ipso jure conversion into private property of public lands publicly held under a bona fide claim of acquisition or
ownership is the public policy of the Act and is so expressly stated therein. By virtue of such conversion into private
property, qualified corporations may lawfully acquire them and there is no "alteration or defeating" of the 1973
Constitution's prohibition against corporations holding or acquiring title to lands of the public domain, as claimed in
the dissenting opinion, for the simple reason that no public lands are involved.

It should be noted that respondent corporation purchased the land from the Infiels on October 16, 1962 under the aegis
of the 1935 Constitution which contained no prohibition against corporations holding public lands (except a limit of
1,024 hectares) unlike the later 1973 Constitution which imposed an absolute prohibition. Even on the erroneous
assumption that the land remained public land despite the Infiels' open possession thereof as owners from time
immemorial, respondent corporation's lawful purchase from them of the land in 1962 and P 45million investments
redounding presumably to the welfare and progress of the community, particularly the municipality of Maconacon,
Isabela to which it donated part of the land for the townsite created a vested right which could not be impaired by the
prohibition adopted eleven years later. But as sufficiently stressed, the land of the Infiels had been ipso jure converted
into private land and they had a legally sufficient and transferable title conferred by the conclusive presumption of the
Public Land Act (which needed only to be established in confirmation of title proceedings for formalization and
issuance of the certificate of title) which they lawfully and validly transferred to respondent corporation.

In fact, the many amendments to the Act extending the period for the filing of such applications for judicial
confirmation of imperfect and incomplete titles to alienable and disposable public lands expressly reiterate that it has
always been the "policy of the State to hasten the settlement, adjudication and quieting of titles to [such] unregistered
lands," i.e. to recognize that such lands publicly and notoriously occupied and cultivated under bona fide claim of
acquisition or ownership have ipso jure been converted into private property and grant the possessors the opportunity
to establish and record such fact. Thus, the deadline for the filing of such application which would have originally
expired first on December 31, 1938 was successively extended to December 31, 1941, then extended to December 31,
1957, then to December 31, 1968, further extended to December 31, 1976 and lastly extended to December 31,
1987. 7

The cited Act's provision that only natural persons may apply thereunder for confirmation of title is in effect a
technicality of procedure and not of substance. My submittal in Meralco, mutatis mutandis, is properly applicable:
"The ends of justice would best be served, therefore, by considering the applications for confirmation as amended to
conform to the evidence, i.e. as filed in the names of the original persons who as natural persons are duly qualified to
apply for formal confirmation of the title that they had acquired by conclusive presumption and mandate of the Public
Land Act and who thereafter duly sold to the herein corporations (both admittedly Filipino corporations duly qualified
to hold and own private lands) and granting the applications for confirmation of title to the private lands so acquired
and sold or exchanged." 8 Indeed, then Chief Justice Enrique M. Fernando likewise dissented along the same line from
the majority ruling therein and held: "I dissent insofar as the opinion of the Court would characterize such
jurisdictional defect that the applicant was Meralco, a juridical person rather than the natural persons-transferors,
under the particular circumstances of this case, as an insurmountable obstacle to the relief sought. I would apply by
analogy, although the facts could be distinguished, the approach followed by us in Francisco v. City of Davao, where
the legal question raised, instead of being deferred and possibly taken up in another case, was resolved. By legal
fiction and in the exercise of our equitable jurisdiction, I feel that the realistic solution would be to decide the matter
as if the application under Section 48(b) were filed by the Piguing spouses, who I assume suffer from no such
disability." 9 Justice Vicente Abad Santos, now retired, while concurring in the procedural result, likewise, in effect
dissented from the therein majority ruling on the question of substance, and stated his opinion that "the lots which are
sought to be registered have ceased to be lands of the public domain at the time they were acquired by the petitioner

Page 166
corporation. They are already private lands because of acquisitive prescription by the predecessors of the petitioner
and all that is needed is the confirmation of the title. Accordingly, the constitutional provision that no private
corporation or association may hold alienable lands of the public domain is inapplicable. " 10

To my mind, the reason why the Act limits the filing of such applications to natural citizens who may prove their
undisputed and open possession of public lands for the required statutory thirty-year period, tacking on their
predecessors'-in-interest possession is that only natural persons, to the exclusion of juridical persons such as
corporations, can actually, physically and in reality possess public lands for the required statutory 30-year period.
That juridical persons or corporations cannot do so is obvious. But when the natural persons have fulfilled the
required statutory period of possession, the Act confers on them a legally sufficient and transferable title. It is
preferable to follow the letter of the law that they file the applications for confirmation of their title, although they
have lawfully transferred their title to the land. But such procedural failure cannot and should not defeat the substance
of the law, as stressed in the above-cited opinions, that the lands are already private lands because of acquisitive
prescription by the corporation's predecessors and the realistic solution would be to consider the application for
confirmation as filed by the natural persons-transferors, and in accordance with the evidence, confirm their title to the
private lands so converted by operation of law and lawfully transferred by them to the corporation. The law, after all,
recognizes the validity of the transfer and sale of the private land to the corporation. It should not be necessary to go
in a round-about way and have the corporation reassign its rights to the private land to natural persons-(as I
understand), was done after the decision in the Meralco and Iglesia ni Cristo cases) just for the purpose of complying
on paper with the technicality of having natural persons file the application for confirmation of title to
the private land.

MELENCIO-HERRERA, J., dissenting:

Section 48 of the Public Land Act, in part, provides:

SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province where the land is located for confirmation of their
claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

(a) ...

(b) Those who by themselves or through their predecessors in interest have been in open, continuous,
exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed are the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter.

(c) ...

Article XIV, Section 11, of the 1973 Constitution, in part, provides:

SEC. 11. .... No private corporation or association may hold alienable lands of the public domain except by
lease not to exceed one thousand hectares in area; nor may any citizen hold such lands by lease in excess of
five hundred hectares ....

It has to be conceded that, literally, statutory law and constitutional provision prevent a corporation from directly
applying to the Courts for the issuance of Original Certificates of Title to lands of the public domain (Manila Electric

Page 167
Company vs. Castro-Bartolome, 114 SCRA 799; Republic vs. Villanueva, 114 SCRA 875; Republic vs. Court of
Appeals, 119 SCRA 449; Iglesia ni Cristo vs. Hon. Judge, CFI of Nueva Ecija, Br. 1). It is my opinion that the
literalism should be adhered to in this case.

The reasoning of the majority can be restated in simple terms as follows:

(a) The INFIELS can successfully file an application for a certificate of title over the land involved in the case.

(b) After the INFIELS secure a certificate of title, they can sell the land to ACME.

(c) As ACME can eventually own the certificate of title, it should be allowed to directly apply to the Courts for the
Certificate of Title, thus avoiding the circuituous "literal" requirement that the INFIELS should first apply to the
courts for the titles, and afterwards transfer the title to ACME.

The majority opinion, in effect, adopted the following excerpt from a dissent in Manila Electric Company vs. Castro-
Bartolome (114 SCRA 799, 823 [1982]).

To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act
allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would
be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical
error in not having filed the application for registration in the name of the Piguing spouses as the original
owners and vendors,

still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco

and neither is there any prohibition against the application being refiled with retroactive effect in the name of
the original owners and vendors (as such natural persons) with the end result of their application being
granted, because of their indisputable acquisition of ownership by operation of law and the conclusive
presumption therein provided in their favor.

It should not be necessary to go through all the rituals at the great cost of refiling of all such applications in their
names and adding to the overcrowded court dockets when the Court can after all these years dispose of it here and
now." (Paragraphing supplied)

The effect is that the majority opinion now nullifies the statutory provision that only citizens (natural persons) can
apply for certificates of title under Section 48(b) of the Public Land Act, as well as the constitutional provision
(Article XIV, Section 11) which prohibits corporations from acquiring title to lands of the public domain. That
interpretation or construction adopted by the majority cannot be justified. "A construction adopted should not be such
as to nullify, destroy or defeat the intention of the legislature" (New York State Dept. of Social Services v. Dublino
[UST 37 L. Ed 2d 688, 93 S Ct 2507; United States v. Alpers 338 US 680, 94 L Ed 457, 70 S Ct 352; cited in 73 Am
Jur. 2nd., p. 351).

It has also been said that:

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an
effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute.
Hence, it is a general principle that the courts should, if reasonably possible to do so interpret the statute, or
the provision being construed, so as to give it efficient operation and effect as a whole. An interpretation
should, if possible, be avoided, under which the statute or provision being construed is defeated, or as
otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory. If a statute is fairly susceptible of two constructions, one of which will

Page 168
 give effect to the act, while the other will defeat it, the former construction is preferred. One part of a statute
may not be construed so as to render another part nugatory or of no effect. Moreover, notwithstanding the
general rule against the enlargement of extension of a statute by construction, the meaning of a statute may be
extended beyond the precise words used in the law, and words or phrases may be altered or supplied, where
this is necessary to prevent a law from becoming a nullity. Wherever the provision of a statute is general
everything which is necessary to make such provision effectual is supplied by implication. (Pliakos vs.
Illinois Liquor Control Com. 11 III 2d 456, 143 NE2d 47; cited in 73 AM Jur. 2d pp. 422-423)

The statutory provision and the constitutional prohibition express a public policy. The proper course for the Court to
take is to promote in the fullest manner the policy thus laid down and to avoid a construction which would alter or
defeat that policy.

In fine, I confirm my adherence to the ruling of this Court in Meralco vs. Hon. Castro-Bartolome, 114 SCRA 799
[1982] and related cases.

Separate Opinions

GUTIERREZ, JR., J., concurring:

I reiterate my concurrence in Meralco v. Castro-Bartolome, and, therefore, dissent here.

TEEHANKEE, C.J., concurring:

I am honored by my brethren's judgment at bar that my dissenting opinion in the June, 1982 Meralco and Iglesia ni
Cristo cases, 1 which is herein upheld, "expressed what is the better. . . . and indeed the correct view." My dissent was
anchored on the landmark 1909 case of Carino 2 through the 1925 case of Susi 3 and the long line of cases cited
therein to the latest 1980 case of Herico 4 that "it is established doctrine....... that an open, continuous, adverse and
public possession of a land of the public domain for the period provided in the Public Land Act provision in force at
the time (from July 26, 1894 in Susi under the old law [this period was reduced to 'at least thirty years immediately
preceding the filing of the application for confirmation of title' by amendment of Commonwealth Act No. 141,
equivalent to the period of acquisitive prescription 5 ]) by a private individual personally and through his predecessors
confers an effective title on said possessor, whereby the land ceases to be land of the public domain and becomes
private property." I hereby reproduce the same by reference for brevity's sake. But since we are reverting to the old
above-cited established doctrine and precedents and discarding the Meralco and Iglesia ni Cristocases which departed
therefrom in the recent past, I feel constrained to write this concurrence in amplification of my views and ratio
decidendi.

Under the express text and mandate of the cited Act, such possessors "shall be conclusively presumed to have
performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. "

The Court thus held in Susi that under the presumption juris et de jure established in the Act, the rightful possessor of
the public land for the statutory period "already acquired, by operation of law, not only a right to a grant, but a grant
of the Government, for it is not necessary that certificate of title should be issued an order that said grant may be
sanctioned by the courts, an application therefore is sufficient . . . . If by a legal fiction, Valentin Susi had acquiredthe
land in question by a grant of the State, it had already ceased to be of the public domain and had become private
property, at least by presumption, of Valentin Susi, beyond the control of the Director of Lands [and beyond his
authority to sell to any other person]. " 6

Page 169
The root of the doctrine goes back to the pronouncement of Justice Oliver Wendell Holmes for the U.S. Supreme
Court in the 1909 case of Carino (the Igorot chief who would have been deprived of ancestral family lands by the
dismissal of his application for registration) which reversed the dismissal of the registration court (as affirmed by the
Supreme Court) and adopted the liberal view that under the decree and regulations of June 25, 1880, "The words 'may
prove' (acrediten), as well, or better, in view of the other provisions, might be taken to mean when called upon to do
so in any litigation. There are indications that registration was expected from all, but none sufficient to show that, for
want of it, ownership actually gained would be lost. The effect of the proof, whenever made, was not to confer
title, but simply to establish it, as already conferred by the decree, if not by earlier law."

The Court's decision at bar now expressly overturns the Meralco and related cases subsequent thereto which failed to
adhere to the aforecited established doctrine dating back to 1909 and was consistently applied up to June 29, 1982
(when the Meralco decision was promulgated).<äre||anº•1àw> We reaffirm the established doctrine that such
acquisitive prescription of alienable public lands takes place ipso jure or by operation of law without the necessity of a
prior issuance of a certificate of title. The land ipso jure ceases to be of the public domain and becomes private
property, which may be lawfully sold to and acquired by qualified corporations such as respondent corporation. (As
stressed in Herico supra, "the application for confirmation is a mere formality, the lack of which does not affect
the legal sufficiency of the title.")

Such ipso jure conversion into private property of public lands publicly held under a bona fide claim of acquisition or
ownership is the public policy of the Act and is so expressly stated therein. By virtue of such conversion into private
property, qualified corporations may lawfully acquire them and there is no "alteration or defeating" of the 1973
Constitution's prohibition against corporations holding or acquiring title to lands of the public domain, as claimed in
the dissenting opinion, for the simple reason that no public lands are involved.

It should be noted that respondent corporation purchased the land from the Infiels on October 16, 1962 under the aegis
of the 1935 Constitution which contained no prohibition against corporations holding public lands (except a limit of
1,024 hectares) unlike the later 1973 Constitution which imposed an absolute prohibition. Even on the erroneous
assumption that the land remained public land despite the Infiels' open possession thereof as owners from time
immemorial, respondent corporation's lawful purchase from them of the land in 1962 and P 45million investments
redounding presumably to the welfare and progress of the community, particularly the municipality of Maconacon,
Isabela to which it donated part of the land for the townsite created a vested right which could not be impaired by the
prohibition adopted eleven years later. But as sufficiently stressed, the land of the Infiels had been ipso jure converted
into private land and they had a legally sufficient and transferable title conferred by the conclusive presumption of the
Public Land Act (which needed only to be established in confirmation of title proceedings for formalization and
issuance of the certificate of title) which they lawfully and validly transferred to respondent corporation.

In fact, the many amendments to the Act extending the period for the filing of such applications for judicial
confirmation of imperfect and incomplete titles to alienable and disposable public lands expressly reiterate that it has
always been the "policy of the State to hasten the settlement, adjudication and quieting of titles to [such] unregistered
lands," i.e. to recognize that such lands publicly and notoriously occupied and cultivated under bona fide claim of
acquisition or ownership have ipso jure been converted into private property and grant the possessors the opportunity
to establish and record such fact. Thus, the deadline for the filing of such application which would have originally
expired first on December 31, 1938 was successively extended to December 31, 1941, then extended to December 31,
1957, then to December 31, 1968, further extended to December 31, 1976 and lastly extended to December 31,
1987. 7

The cited Act's provision that only natural persons may apply thereunder for confirmation of title is in effect a
technicality of procedure and not of substance. My submittal in Meralco, mutatis mutandis, is properly applicable:
"The ends of justice would best be served, therefore, by considering the applications for confirmation as amended to
conform to the evidence, i.e. as filed in the names of the original persons who as natural persons are duly qualified to
apply for formal confirmation of the title that they had acquired by conclusive presumption and mandate of the Public
Land Act and who thereafter duly sold to the herein corporations (both admittedly Filipino corporations duly qualified

Page 170
to hold and own private lands) and granting the applications for confirmation of title to the private lands so acquired
and sold or exchanged." 8 Indeed, then Chief Justice Enrique M. Fernando likewise dissented along the same line from
the majority ruling therein and held: "I dissent insofar as the opinion of the Court would characterize such
jurisdictional defect that the applicant was Meralco, a juridical person rather than the natural persons-transferors,
under the particular circumstances of this case, as an insurmountable obstacle to the relief sought. I would apply by
analogy, although the facts could be distinguished, the approach followed by us in Francisco v. City of Davao, where
the legal question raised, instead of being deferred and possibly taken up in another case, was resolved. By legal
fiction and in the exercise of our equitable jurisdiction, I feel that the realistic solution would be to decide the matter
as if the application under Section 48(b) were filed by the Piguing spouses, who I assume suffer from no such
disability." 9 Justice Vicente Abad Santos, now retired, while concurring in the procedural result, likewise, in effect
dissented from the therein majority ruling on the question of substance, and stated his opinion that "the lots which are
sought to be registered have ceased to be lands of the public domain at the time they were acquired by the petitioner
corporation. They are already private lands because of acquisitive prescription by the predecessors of the petitioner
and all that is needed is the confirmation of the title. Accordingly, the constitutional provision that no private
corporation or association may hold alienable lands of the public domain is inapplicable. " 10

To my mind, the reason why the Act limits the filing of such applications to natural citizens who may prove their
undisputed and open possession of public lands for the required statutory thirty-year period, tacking on their
predecessors'-in-interest possession is that only natural persons, to the exclusion of juridical persons such as
corporations, can actually, physically and in reality possess public lands for the required statutory 30-year period.
That juridical persons or corporations cannot do so is obvious. But when the natural persons have fulfilled the
required statutory period of possession, the Act confers on them a legally sufficient and transferable title. It is
preferable to follow the letter of the law that they file the applications for confirmation of their title, although they
have lawfully transferred their title to the land. But such procedural failure cannot and should not defeat the substance
of the law, as stressed in the above-cited opinions, that the lands are already private lands because of acquisitive
prescription by the corporation's predecessors and the realistic solution would be to consider the application for
confirmation as filed by the natural persons-transferors, and in accordance with the evidence, confirm their title to the
private lands so converted by operation of law and lawfully transferred by them to the corporation. The law, after all,
recognizes the validity of the transfer and sale of the private land to the corporation. It should not be necessary to go
in a round-about way and have the corporation reassign its rights to the private land to natural persons-(as I
understand), was done after the decision in the Meralco and Iglesia ni Cristo cases) just for the purpose of complying
on paper with the technicality of having natural persons file the application for confirmation of title to
the private land.

MELENCIO-HERRERA, J., dissenting:

Section 48 of the Public Land Act, in part, provides:

SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province where the land is located for confirmation of their
claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

(a) ...

(b) Those who by themselves or through their predecessors in interest have been in open, continuous,
exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title except when prevented by war or force majeure. These shall be

Page 171
 conclusively presumed to have performed are the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter.

(c) ...

Article XIV, Section 11, of the 1973 Constitution, in part, provides:

SEC. 11. .... No private corporation or association may hold alienable lands of the public domain except by
lease not to exceed one thousand hectares in area; nor may any citizen hold such lands by lease in excess of
five hundred hectares ....

It has to be conceded that, literally, statutory law and constitutional provision prevent a corporation from directly
applying to the Courts for the issuance of Original Certificates of Title to lands of the public domain (Manila Electric
Company vs. Castro-Bartolome, 114 SCRA 799; Republic vs. Villanueva, 114 SCRA 875; Republic vs. Court of
Appeals, 119 SCRA 449; Iglesia ni Cristo vs. Hon. Judge, CFI of Nueva Ecija, Br. 1). It is my opinion that the
literalism should be adhered to in this case.

The reasoning of the majority can be restated in simple terms as follows:

(a) The INFIELS can successfully file an application for a certificate of title over the land involved in the case.

(b) After the INFIELS secure a certificate of title, they can sell the land to ACME.

(c) As ACME can eventually own the certificate of title, it should be allowed to directly apply to the Courts for the
Certificate of Title, thus avoiding the circuituous "literal" requirement that the INFIELS should first apply to the
courts for the titles, and afterwards transfer the title to ACME.

The majority opinion, in effect, adopted the following excerpt from a dissent in Manila Electric Company vs. Castro-
Bartolome (114 SCRA 799, 823 [1982]).

To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act
allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would
be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical
error in not having filed the application for registration in the name of the Piguing spouses as the original
owners and vendors,

still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco

and neither is there any prohibition against the application being refiled with retroactive effect in the name of
the original owners and vendors (as such natural persons) with the end result of their application being
granted, because of their indisputable acquisition of ownership by operation of law and the conclusive
presumption therein provided in their favor.

It should not be necessary to go through all the rituals at the great cost of refiling of all such applications in their
names and adding to the overcrowded court dockets when the Court can after all these years dispose of it here and
now." (Emphasis supplied)

The effect is that the majority opinion now nullifies the statutory provision that only citizens (natural persons) can
apply for certificates of title under Section 48(b) of the Public Land Act, as well as the constitutional provision
(Article XIV, Section 11) which prohibits corporations from acquiring title to lands of the public domain. That
interpretation or construction adopted by the majority cannot be justified. "A construction adopted should not be such

Page 172
as to nullify, destroy or defeat the intention of the legislature" (New York State Dept. of Social Services v. Dublino
[UST 37 L. Ed 2d 688, 93 S Ct 2507; United States v. Alpers 338 US 680, 94 L Ed 457, 70 S Ct 352; cited in 73 Am
Jur. 2nd., p. 351).

It has also been said that:

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an
effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute.
Hence, it is a general principle that the courts should, if reasonably possible to do so interpret the statute, or
the provision being construed, so as to give it efficient operation and effect as a whole. An interpretation
should, if possible, be avoided, under which the statute or provision being construed is defeated, or as
otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory. If a statute is fairly susceptible of two constructions, one of which will
give effect to the act, while the other will defeat it, the former construction is preferred. One part of a statute
may not be construed so as to render another part nugatory or of no effect. Moreover, notwithstanding the
general rule against the enlargement of extension of a statute by construction, the meaning of a statute may be
extended beyond the precise words used in the law, and words or phrases may be altered or supplied, where
this is necessary to prevent a law from becoming a nullity. Wherever the provision of a statute is general
everything which is necessary to make such provision effectual is supplied by implication. (Pliakos vs.
Illinois Liquor Control Com. 11 III 2d 456, 143 NE2d 47; cited in 73 AM Jur. 2d pp. 422-423)

The statutory provision and the constitutional prohibition express a public policy. The proper course for the Court to
take is to promote in the fullest manner the policy thus laid down and to avoid a construction which would alter or
defeat that policy.

In fine, I confirm my adherence to the ruling of this Court in Meralco vs. Hon. Castro-Bartolome, 114 SCRA 799
[1982] and related cases.

Page 173
 DIGEST

FACTS:

 Acme Plywood & Veneer Co., Inc., a corp. represented by Mr. Rodolfo Nazario, acquired from Mariano and Acer
Infiel, members of the Dumagat tribe 5 parcels of land
 possession of the Infiels over the landdates back before the Philippines was discovered by Magellan
 land sought to be registered is a private land pursuant to RA 3872 granting absolute ownership to members of the
non-Christian Tribes on land occupied by them or their ancestral lands, whether with the alienable or disposable
public land or within the public domain
 Acme Plywood & Veneer Co. Inc., has introduced more than P45M worth of improvements
 ownership and possession of the land sought to be registered was duly recognized by the government when the
Municipal Officials of Maconacon, Isabela
 donated part of the land as the townsite of Maconacon Isabela
 IAC affirmed CFI: in favor of

ISSUES:

1. W/N the land is already a private land - YES

2. W/N the constitutional prohibition against their acquisition by private corporations or associations applies- NO

HELD: IAC affirmed Acme Plywood & Veneer Co., Inc

1. YES

 already acquired, by operation of law not only a right to a grant, but a grant of the Government, for it is not
necessary that a certificate of title should be issued in order that said grant may be sanctioned by the courts, an
application therefore is sufficient
 it had already ceased to be of the public domain and had become private property, at least by presumption
 The application for confirmation is mere formality, the lack of which does not affect the legal sufficiency of the
title as would be evidenced by the patent and the Torrens title to be issued upon the strength of said patent.
 The effect of the proof, wherever made, was not to confer title, but simply to establish it, as already conferred by
the decree, if not by earlier law

2. NO

 If it is accepted-as it must be-that the land was already private land to which the Infiels had a legally sufficient
and transferable title on October 29, 1962 when Acme acquired it from said owners, it must also be conceded that
Acme had a perfect right to make such acquisition
 The only limitation then extant was that corporations could not acquire, hold or lease public agricultural lands in
excess of 1,024 hectares

Page 174
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-56483 May 29, 1984

SOSTENES CAMPILLO, petitioner,

vs.
HON. COURT OF APPEALS and ZENAIDA DIAZ VDA. DE SANTOS, in her capacity as Administratrix of
the Intestate Estate of the late SIMPLICIO S. SANTOS, respondents.

Rosendo J. Tansinsin for petitioner.

Buenaventura Evangelista for private respondent.

DE CASTRO, J.:

In this petition for review on certiorari of the decision of the defunct Court of Appeals in CA-G.R. No. 62842-R
issued on March 9, 1981, the only issue is whether who has a better right or title to the herein disputed two (2) parcels
of land — Simplicio Santos who earlier purchased them in a private sale but failed to register his sale, or petitioner
Sostenes Campillo who subsequently purchased them at an execution sale and obtained a certificate of title.

The pertinent undisputed facts, may be summarized as follows: On February 27, 1961, Tomas de Vera and his wife
Felisa Serafico sold two (2) parcels of land located in Tondo, Manila, designated as Lots 1 and 2 of the consolidation
and subdivision plan (LRC) Pcs. 888 and segregated from Transfer Certificate of Title No. 37277 under Transfer
Certificate of Title No. 63559, to Simplicio Santos, now deceased and is represented by his administratrix, Zenaida
Diaz Vda. de Santos, the herein private respondent. Said sale was however never presented for registration in the
office of the Registry of Deeds of Manila nor noted in the title covering the property.

On January 27, 1962, petitioner Sostenes Campillo obtained a judgment for a sum of money against Tomas de Vera in
Civil Case No. 49060 of the Court of First Instance of Manila. That judgment became final and executory, and
petitioner obtained an order for the issuance of a writ of execution. The writ was issued on April 4, 1962 and pursuant
thereto, the City Sheriff levied on three (3) parcels of land covered by TCT No. 63559 in the name of Tomas de Vera,
including the two (2) parcels of land which the latter previously sold to Simplicio Santos.

On June 26, 1962, notice of the sale of said lots was issued by the Sheriff and published in the "Daily Record" and La
Nueva Era."

On July 25, 1962, the three parcels of land were sold at public auction for P17,550.81 in favor of petitioner who was
issued the corresponding certificate of sale. After the lapse of one year, the City Sheriff executed the final deed of sale
in favor of petitioner over the three (3) parcels of land levied and sold on execution. On February 4, 1964, TCT No.
63559 was cancelled and in lieu thereof, TCT No. 73969 was issued by the Registry of Deeds of Manila in the name
of petitioner Sostenes Campillo. Upon petition by the latter, the Registry of Deeds cancelled TCT No. 73969 and
issued in hell thereof TCT Nos. 74019 and 74020 over the disputed Lots 1 and 2, respectively.

Claiming to be the owner of the two parcels of land by reason of the previous sale to him by Tomas de Vera,
Simplicio Santos filed an action to annul the levy, notice of sale, sale at public auction and final deed of sale of Lots 1

Page 175
and 2 in favor of petitioner Campillo, with damages. In resisting the complaint, the herein petitioner as one of the
defendants below, alleged that he is an innocent purchaser for value and that the supposed previous sale could not be
preferred over the levy and sale at public action because it was not registered.

After due trial, the lower court rendered judgment sustaining the validity of the levy and sale at public auction
primarily because at the time of the levy and sale, the disputed properties were still registered in the name of the
judgment debtor, Tomas de Vera. Besides, the trial court ruled, the sale to Simplicio Santos which was not registered
nor noted in the title of the subject lots, cannot bind third persons.

On appeal at the instance of the herein private respondent, the respondent appellate court modified the decision of the
lower court, as follows:

WHEREFORE, the judgment of the trial court is hereby modified as follows:

(1) The dismissal of the amended complaint as against defendant Sostenes Campillo only and
ordering the plaintiff to pay the costs of suit are set aside;

(2) Declaring the levy, sheriff's sale and sheriff's certificate in favor of defendant Sostenes Campillo
null and void and of no effect;

(3) Declaring plaintiff Simplicio Santos, now his estate, to be the owner of the two parcels of land
under litigation and embraced in Transfer Certificate of Title No. 63559; and

(4) Ordering the Register of Deeds of Manila to cancel Transfer Certificate of Title Nos. 74019 and
74020 in the name of defendant Sostenes Campillo and to issue the proper certificate of title in the
name of the estate of Simplicio Santos.

The rest of the judgment appealed from is hereby affirmed. (p. 45, Rollo)

Rationalizing its stand, the appellate court said that the subject lots could not be legally levied upon to satisfy the
judgment debt of the de Veras in favor of petitioner because at the time of the execution sale, the judgment debtor,
having previously sold said properties, was no longer the owner thereof; that since the judgment debtor had no more
right to or interest on the said properties, then the purchaser at the auction sale acquires nothing considering that a
judgment creditor only acquires the Identical interest possessed by the judgment debtor in the property which is the
subject of the auction sale, and he takes the property subject to all existing equities to which the property would have
been subject in the hands of the debtor; and, while it may be true that Simplicio Santos did not record or register the
sale of the disputed lots, the levy on execution does not take precedence over the unrecorded deed of sale to the same
property made by the judgment debtor anterior to the said levy since the judgment creditor is not a third party within
the meaning of the law and could not therefore be considered as purchaser for value in good faith.

After a conscientious review and scrutiny of the records of this case as well as existing legislations and jurisprudence
on the matter, We are constrained to reverse the judgment of the respondent appellate court and rule in favor of the
herein petitioner.

It is settled in this jurisdiction that a sale of real estate, whether made as a result of a private transaction or of a
foreclosure or execution sale, becomes legally effective against third persons only from the date of its
registration. 1Consequently, and considering that the properties subject matter hereof were actually attached and
levied upon at a time when said properties stood in the official records of the Registry of Deeds as still owned by and
registered in the name of the judgment debtor, Tomas de Vera, the attachment, levy and subsequent sale of said
properties are proper and legal. The net result is that the execution sale made in favor of the herein petitioner
transferred to him all the rights, interest and participation of the judgment debtor in the aforestated properties as
actually appearing in the certificate of title, unaffected by any transfer or encumbrance not so recorded therein.

Page 176
Section 51, PD No. 1529, otherwise known as the Property Registration Decree, provides as follows:

Section 51. Conveyance and other dealings by registered owner. — An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He
may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in
law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey
or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a
contract between the parties and as evidence of authority to the Register of Deeds to make
registration.

The act of registration shall be the operative act to convey or affect the land insofar as third persons
are concerned, and in all cases under this Decree, the registration shall be made in the office of the
Register of Deeds for the province or city where the land lies. (Italics for emphasis)

As succinctly stated in the case of Philippine National Bank vs. Court of Appeals, 98 SCRA 207:

Whatever might have been generally or unqualifiedly stated in the cases heretofore decided by this
Court, We hold that under the Torrens System registration is the operative act that gives validity to
the transfer or creates a hen upon the land. A person dealing with registered land is not required to go
behind the register to determine the condition of the property. He is only charged with notice of the
burdens on the property which are noted on the face of the register or the certificate of title. To
require him to do more is to defeat one of the primary objects of the Torrens system. A bona fide
purchaser for value of such property at an auction sale acquires good title as against a prior
transferee of same property if such transfer was unrecorded at the time of the auction sale. (Italics for
emphasis)

The case of Leyson vs. Tanada, 2 invoked by the private respondent is not in point. In that case, a notice of lis
pendens was inscribed at the back of the certificate of title of the land subject therein before it was sold at public
auction. Necessarily, the purchaser at public auction is bound by the outcome of the pending case referred to therein.
Since it turned out that the judgment debtor is merely a co-owner of the property sold at public auction, then the
puchaser thereat is not entitled to the entirety of the land. As the Court held: "The interest acquired by a purchaser in
an execution sale is limited to that which is possessed by the debtor. If there is more than one person owning property
in common and an execution against one only is levied thereon, the sale effected by the Sheriff under such execution
operates exclusively upon the interest of the execution debtor, without being in any wise prejudicial to the interest of
the other owners. The result in such case merely is that one new owner in common is substituted for the owner whose
interest is alienated by process of law."

While it may be true as stated in the aforesaid case of Leyson vs. Tanada, that purchasers at execution sales should
bear in mind that the rule of caveat emptor applies to such sales, that the sheriff does not warrant the title to real
property sold by him as sheriff, and that it is not incumbent on him to place the purchaser in possession of such
property, still the rule applies that a person dealing with registered land is not required to go behind the register to
determine the condition of the property and he is merely charged with notice of the burdens on the property which are
noted on the face of the register or the certificate of title. Hence, the petitioner herein, as the purchaser in the
execution sale of the registered land in suit, acquires such right and interest as appears in the certificate of title
unaffected by prior lien or encumbrances not noted therein. This must be so in order to preserve the efficacy and
conclusiveness of the certificate of title which is sanctified under our Torrens system of land registration.

WHEREFORE, the questioned decision of the respondent appellate court is hereby reversed and set aside, and the
judgment of the lower court is reinstated. Without pronouncement as to costs.

SO ORDERED.

Page 177
Guerrero, J., concur.

Escolin, J., concurs in the result.

Concepcion Jr., J., is on leave.

Separate Opinions

AQUINO, J., concurring:

In case of double sale of realty, the ownership passes to the vendee who in good faith first recorded it in the Registry
of Property (Art. 1544, Civil Code). Hence, the petitioner has the better right to the disputed parcels of land because
the sale in his favor was recorded.

ABAD SANTOS, J., concurring:

The question posed in this case is which of the two sales of the two parcels of registered lands should be accorded
legal protection.

The voluntary sale to Simplicio Santos was made in 1961. The sale was not registered in the Registry of Property.

The involuntary sale to Sostenes Campillo was made in 1962. The sale was registered in the Registry of Property. In
fact, Campillo was issued a transfer certificate of title and later two transfer certificates of title for each of the parcels.

The contract of sale is a consensual contract, i.e. it is perfected by mere consent. But ownership of the thing sold shall
be transferred to the vendee only upon the actual or constitutive delivery thereof. (Art. 1477, Civil Code). In other
words, there must be tradition.

In the case of lands registered under Act No. 496, as amended, said law provides for a special kind of tradition. Sec.
50 provides:

Sec. 50. An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the
same as fully as if it had not been registered. He may use forms of deeds, mortgages, leases, or other
voluntary instruments like those now in use and sufficient in law for the purpose intended. But no
deed, mortgage, lease, or other voluntary instrument, except a will, purporting to convey or affect
registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract
between the parties 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 the registration shall be made in the office of the register of deeds of the province or
provinces or city where the land lies.

Since the sale made in favor of the first vendee did not comply with the above-quoted provision, the transaction was
ineffectual as to third persons. And since the sale made in favor of the second vendee complied with the relevant
provision, the sale to him was good and should be protected.

Page 178
Makasiar, J., (Chairman)

Separate Opinions

AQUINO, J., concurring:

In case of double sale of realty, the ownership passes to the vendee who in good faith first recorded it in the Registry
of Property (Art. 1544, Civil Code). Hence, the petitioner has the better right to the disputed parcels of land because
the sale in his favor was recorded.

ABAD SANTOS, J., concurring:

The question posed in this case is which of the two sales of the two parcels of registered lands should be accorded
legal protection.

The voluntary sale to Simplicio Santos was made in 1961. The sale was not registered in the Registry of Property.

The involuntary sale to Sostenes Campillo was made in 1962. The sale was registered in the Registry of Property. In
fact, Campillo was issued a transfer certificate of title and later two transfer certificates of title for each of the parcels.

The contract of sale is a consensual contract, i.e. it is perfected by mere consent. But ownership of the thing sold shall
be transferred to the vendee only upon the actual or constitutive delivery thereof. (Art. 1477, Civil Code). In other
words, there must be tradition.

In the case of lands registered under Act No. 496, as amended, said law provides for a special kind of tradition. Sec.
50 provides:

Sec. 50. An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the
same as fully as if it had not been registered. He may use forms of deeds, mortgages, leases, or other
voluntary instruments like those now in use and sufficient in law for the purpose intended. But no
deed, mortgage, lease, or other voluntary instrument, except a will, purporting to convey or affect
registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract
between the parties 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 the registration shall be made in the office of the register of deeds of the province or
provinces or city where the land lies.

Since the sale made in favor of the first vendee did not comply with the above-quoted provision, the transaction was
ineffectual as to third persons. And since the sale made in favor of the second vendee complied with the relevant
provision, the sale to him was good and should be protected.

Makasiar, J., (Chairman)

Page 179
 DIGEST

FACT:
Tomas de Vera was the owner of two parcels of land in Tondo, Manila. In 1961, de Vera sold the lands to Simplicio
Santos. Santos however did not register the sale in the Registry of Deeds, which means that the land was still under de
Vera’s name.

On the other hand, de Vera was indebted to Sostenes Campillo. Campillo obtained a favorable judgment for sum of
money against de Vera. De Vera’s 3 parcels of land, including those sold to Santos, were levied in 1962 in favor of
Campillo. Campillo acquired the land and he was able to have the lands be registered under his name.

ISSUE:
Who has better right over the property: Santos who first bought it withouto registering it or Campillo who
subsequently purchased it at a public auction and have it registered under his name?

HELD:
Campillo has the right over the said properties. It is settled in this jurisdiction that a sale of real estate, whether made
as a result of a private transaction or of a foreclosure or execution sale, becomes legally effective against third persons
only from the date of its registration. Santos purchase of the two parcels of land may be valid but it is not enforceable
against third persons for he failed to have it registered.

Campillo is a purchaser in good faith as he was not aware of any previous sale for Santos never caused the annotation
of the sale.

Section 51, PD No. 1529, otherwise known as the Property Registration Decree, provides as follows:

Section 51. Conveyance and other dealings by registered owner. – An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may
use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no
deed, mortgage, lease or other voluntary instrument except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the
parties and as evidence of authority to the Register of Deeds to make registration.

“The act of registration shall be the operative act to convey or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies.

The purchaser (Campillo) in the execution sale of the registered land in suit, acquires such right and interest as
appears in the certificate of title unaffected by prior lien or encumbrances not noted therein. This must be so in order
to preserve the efficacy and conclusiveness of the certificate of title which is sanctified under our Torrens system of
land registration.

Page 180
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-29831 March 29, 1972

GUILLERMO VIACRUCIS, LUISA DE VIACRUCIS, CLAROS MARQUEZ, and RUSTICA AREVALO

MARQUEZ, petitioners,
vs.
THE COURT OF APPEALS, ANASTACIO ORAIS and CELESTINA MALAZARTE, respondents.

Carlos Monzon Ortega for petitioners.

Leonardo C. Dejaño for respondents.

CONCEPCION, C.J.:p

Private respondents, Anastacio Orais and his wife Celestina Malazarte brought this action, in the Court of First
Instance of Leyte, to establish their title to a land of about four (4) hectares, located in the sitio of Candilomot, barrio
of Santo Rosario, formerly Palompon, now Matag-ob Leyte, and more particularly described in the complaint —
alleging that it is part of a bigger lot sold to them, on June 8, 1936, by its registered owner, Pedro Sanchez, by virtue
of a deed of sale, copy of which was attached to said pleading, as Annex A and later marked as Exhibit B — as well
as to recover, from petitioners herein — defendants in the aforesaid court — Guillermo Viacrucis and Luisa de
Viacrucis the possession of said land and damages.

In their answer to said complaint, Mr. and Mrs. Viacrucis averred that they are the owners of said 4-hectare land; that
the deed of sale, Exhibit B, in favor of Anastacio Orais, on which private respondents — plaintiffs in the court of first
instance — rely, attests merely to a simulated transaction; and that this action is barred by the statute of limitations.
Alleging that the rights of Mr. and Mrs. Viacrucis had been assigned to them, Claros Marquez and his wife Rustica
Arevalo subsequently intervened in the case, reiterating, in a way, the stand taken by Mr. and Mrs. Viacrucis although
with a variation to be pointed out later on.

After appropriate proceedings, the trial court rendered a decision, in favor of the plaintiffs therein — respondent
herein — and against the defendants and the intervenors — petitioners herein — rejecting their defenses of
prescription of action and simulation of contract (Exhibit B), and declaring that the whole land conveyed thereby
belongs to Mr. and Mrs. Orais, as well as ordering Mr. and Mrs. Viacrucis to vacate said land and awarding damages
to Mr. and Mrs. Orais. The dispositive part of said decision reads:

WHEREFORE, decision is hereby rendered in favor of the plaintiffs and against the defendants and
intervenors: (1) declaring the following parcel of land to wit:

"A tract of agricultural land situated in the Sitio of Barrio of Balagtas (now Santo
Rosario), Municipality of Palompon (now Matag-ob), Province of Leyte. Bounded on
the North, by property claimed by Serapio Dicio; on the East, by property claimed by
Bartolome Asayas; on the South, by property claimed by Pablo Sanchez; on the West

Page 181
 by properties claimed by Borgas Merin and Canuto Loreño, containing an area of 14
hectares, 63 ares and 03 centares, embraced and covered by Original Certificate of
Title No. 243, Patent No. 7335, Bu. of Lands No. H-11803."

as the property of the plaintiffs and hereby ordering the defendants to immediately vacate the
premises; (2) to jointly and severally pay the plaintiffs the sum of Five Thousand Pesos (P5,000.00)
for and as moral damages, plus Three Thousand Five Hundred Ten Pesos (P3,510.00) for and as
actual damages from 1947 up to 1960; plus the further sum of Two Hundred Seventy Pesos (P270.00)
annually from November 15, 1960 until the land in question shall have been delivered to the plaintiffs
and the further sum of One Thousand Pesos (P1,000.00) for and as attorney's fees, with costs against
the defendants and intervenors.

On appeal taken by Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez, said decision, against them and in favor of
Mr. and Mrs. Orais, was affirmed by the Court of Appeals, with the following "modifications":

...; the portion of four (4) hectares claimed in the complaint and described in paragraph 3 thereof is
declared to belong to plaintiffs-appellees; defendants and intervenors are condemned to surrender the
same unto plaintiffs; and to account for their possession, defendants from 26 January, 1959 and
intervenors from 3 September, 1962 until the property should have been finally delivered to the
plaintiffs; costs against defendants and intervenors.

Hence the present petition, for review on certiorari, of Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez, against the
Court of Appeals and Mr. and Mrs. Orais, to which petition We gave due course. Thereafter, Mr. and Mrs. Orais
moved to dismiss said petition upon the ground that the questions raised therein "are of facts and not of law and/or too
unsubstantial to require consideration" and that "the petition is prosecuted manifestly for delay." Upon consideration
of the motion and the opposition thereto of petitioners herein, the Court resolved to defer action thereon until the case
is taken up on the merits.

It appears that the land of about four (4) hectares involved in this case is part of a bigger lot of about 14.6303 hectares,
covered by Original Certificate of Title No. 243 (Exhibit A)1 in the name of Pedro Sanchez; that, on June 8, 1936,
Sanchez executed the deed, Exhibit B, selling said lot of 14.6303 hectares to Anastacio Orais; that said Exhibit B was,
on September 10, 1936, filed with the Office of the Register of Deeds of Leyte, and recorded in the memorandum of
incumbrances of Homestead OCT No. 243; that, on July 7, 1941, Sanchez executed another deed, Exhibit 10,
conveying the disputed portion, of four (4) hectares to Balentin Ruizo who, in turn, sold it, on October 10, 1945, to
Guillermo Viacrucis (Exhibit II); that, on January 12, 1959, Anastacio Orais — who claimed to have made oral
demands — formally demanded from Viacrucis that he vacate said portion and surrender its possession to him (Orais)
that this demand was not heeded by Viacrucis who, instead, executed, on March 19, 1959, the deed, Exhibit 9,
confirming the sale of said portion, allegedly made by him, on January 12, 1954, in favor of his brother-in-law Claros
Marquez; and that the deeds of sale, Exhibits 10, 11 and 9, in favor of Ruizo, Viacrucis and Marquez, respectively,
have not been registered in the Office of the Register of Deeds of Leyte.

Petitioners herein maintained in the court of first instance and the Court of Appeals that, although the deed of sale,
Exhibit B, in favor of Orais is earlier, by over five (5) years, than that executed, in favor of their predecessor in
interest, Balentin, Ruizo, by the original owner, Pedro Sanchez, they (petitioners) have a better right to the land in
question, said Exhibit B having been executed merely to simulate a sale, in order that Orais could "secure a loan from
a bank"; but this pretense was overruled by said courts, which, likewise, rejected petitioners' plea; of prescription of
action.

In their brief before Us, petitioners do not assail the findings of fact and the conclusions reached by the Court of
Appeals in connection with the aforementioned defenses of simulation of Exhibit B and prescription of action. They
merely contend that the Court of Appeals has erred: (1) "in confusing the doctrine of laches with estoppel" and in
considering "misrepresentation as of the essence thereof"; (2) in "confusing laches with estoppel" and "rejecting the

Page 182
defense of laches in this case where all essential requisites thereof are fully met and (3) in deciding this case in
violation of sections 22, 23 and 25, Rule 130 of the New Rules of Court.

In support of the first assignment of error, petitioners maintain that the Court of Appeals had disposed of their plea of
laches "without the least reference to the legal requisites of laches in relation to the uncontroverted facts of this case,"
whereas, under their second assignment of error, it is urged that the essential elements of the equitable defense of
laches are present in the case at bar.

Regardless of the merits of these two (2) assignments of error, well settled is the rule that laches is a defense that must
be pleaded especially, and that, otherwise, it is deemed waived, so that it can not be set up for the first time on appeal.

The record discloses that the defenses of laches and prescription are being raised for the first time in
this appeal. They were not invoked in the proceedings before the Hearing Officer nor later on before
Associate Commissioner Sanchez and the Workmen's Compensation Commission. As said defenses
do not affect the jurisdiction of the latter, they cannot now be entertained and must be deemed to have
been waived (Regalado vs. Visayan Shipping Company, Inc., G.R. No. L-42855, May 21, 1939;
Victorias Milling Company, Inc. vs. Compensation Commissioner, et al., G.R. No.
L-10533, May 31, 1957; Manila Yatch Club, Inc. vs. Workmen's Compensation Commission, et al.,
G.R. No. L-19258, May 31, 1963).2

Laches not having been invoked as a defense in the court below, the same can not be gone into at this
stage of the proceedings, ...3

... Neither prescription of appellee's claim or bar of the action for recovery due to laches was averred
in appellant's defenses. Appellant cannot raise them now for the first time on appeal. Verily the
failure to raise the issue of prescription and laches, amounts to a waiver of such defenses (Sec. 10,
Rule 9; Maxilim v. Tabotabo, 9 Phil. 390; Domingo v. Osorio, 7 Phil. 405). Moreover, the right of the
appellee to file an action to recover possession based on its Torrens Title is imprescriptible and not
barred under doctrine of laches (Art. 348, Civil Code; Francisco, et al. v. Cruz, et al., 43 O.G. 5105).
...4

Petitioners Mr. and Mrs. Viacrucis, as defendants in the court of first instance, and petitioners Mr. and Mrs. Marquez
as intervenors therein, filed their respective answer and answer in intervention alleging no other defenses than that of
prescription of action and that the deed of conveyance Exhibit B merely simulated a sale. Laches was invoked by
herein petitioners for the first time in the Court of Appeals, which could not properly entertain it, said, defense having
been deemed waived in consequence of petitioner's failure to allege it in the trial court. The first and second
assignments of error are, therefore, clearly untenable.

With respect to the third assignment of error, petitioners maintain that the Court of Appeals had erred in considering
that the failure of Orais to bring the present action earlier was mere "laziness," instead of an omission that "may be
given in evidence against him," as provided in section 22 of Rule 130 of the Rules of Court and as "strongly
persuasive of lack of merit" of the claim of said respondent, and that when he tried to obtain a loan from the
Philippine National Bank in 1936 and offered OCT No. 243 as collateral security, the bank did not accept said offer
upon the ground that the land in question is not his property, in reply to which Orais said nothing, which is an
admission by silence, pursuant to section 23 of the same Rule 130. Moreover, petitioners bewail that the Court of
Appeals, like the trial court, considered in favor of Orais — allegedly in violation of section 25 of said Rule 130 —
the admission of Mrs. Beatriz Costelo, to the effect that, although the land in dispute was physically in the possession
of her now deceased husband, Pelagio Costelo, he and she recognized Orais as the owner of said land.

It should be noted, however, that said testimony of Mrs. Costelo and this recognition by the now deceased Pelagio
Castelo — which were confirmed by the public document Exh. G — constitute a declaration of Mr. and Mrs.
Castelo adverse to their interest, which is admissible in evidence, pursuant to section 32 of said Rule 130. Petitioners

Page 183
have no reason whatsoever to object to the consideration in favor of Orais of said admission, the same having been
made in 1936, more than five (5) years before their (petitioners) predecessor in interest, Balentin Ruizo, had entered
into the picture, when Orais and Castelo were the only parties who had any interest in the object of said admission.
Pursuant to said legal provision, such admission "may be received in evidence," not only against the party who made
it "or his successors in interest," but, also, "against third persons."5

As regards the alleged failure of Orais to say anything when the bank refused to accept OCT No. 243 as collateral for
the loan applied for by Orais, upon the ground that the land covered by said certificate of title was not his property,
there is no competent evidence on whether or not Orais had said anything in response to said statement. Moreover,
OCT No. 243 was in the name of Pedro Sanchez, and no matter how real the sale by the latter to Orais may be, the
bank would not accept the land in question as security for said loan, unless and until OCT No. 243 shall have been
cancelled and a transfer certificate of title issued to Orais. This, however, could not take place before the filing of his
loan application, because the owner's duplicate of said certificate of title — admittedly delivered by Sanchez to Orais
— had been lost in the possession of the latter's counsel, to whom he (Orais) had turned it over in connection with a
given criminal case.

As regards the effect or import of the failure of Orais to file the present action until November 15, 1960, this is a
matter relevant to the issue whether the sale attested to by Exh. B is simulated, as contended by petitioners herein, or a
true and authentic sale, as Orais maintains. The decision of the Court of Appeals, affirming that of the trial court and
sustaining the claim of Orais, constitutes a finding of fact, which is final in this proceeding for review on
certiorari.6 In any event, said finding is fully borne out by the record.

Indeed, petitioners' main argument, apart from the aforementioned inaction of Orais, is that he had never been in
possession of the land in question, and that the same had remained in the name of Pedro Sanchez for tax purposes. It
should be noted, however, that, although the disputed land was actually held by Pelagio Costelo, from 1936 to 1941,
Costelo executed, on July 30, 1936, Exh. G, whereby he, in effect, acknowledged Orais as owner of the land an Orais
granted him (Costelo) the right to possess it until the year 1941. And this was confirmed by Mrs. Costelo on the
witness stand. As a consequence, Orais came to be in constructive possession of said land, from July 30, 1936. As a
matter of fact, petitioners eventually admitted that Orais had been in actual possession, although they claim of another
portion of the land covered by OCT No. 243.

Then, again, the following circumstances militate agains the simulation alleged by petitioners herein, namely:

1. Exhibit B was not only notarized on the very date of its execution. It was, also, filed, soon thereafter — or on
September 10, 1936 — with the Office of the Register of Deeds of Leyte and recorded in the memorandum of
incumbrances of Homestead OCT No. 243. It is noteworthy that according to Viacrucis' deposition,7 and the
testimony of Calixta Suganub, widow of Balentin Ruizo, as witness for petitioners herein, Pedro Sanchez delivered
his owner's duplicate of said OCT No. 243 to Anastacio Orais, which is clearly indicative of the intent of Sanchez to
give full force and effect to said deed of sale.

Upon the other hand, Exhibits 9, 10 and 11, on which herein petitioners rely, have not been registered — either under
the provisions of the Land Registration Act or under those of Act No. 3344 — despite the provision in said deeds to
the effect that the same should be or would be registered, by agreement of the parties. Likewise significant is a
provision, in the deed Exhibit 10, in favor of Ruizo, that the land thus conveyed is part of a lot covered by a
(certificate of) title, the space intended for the number of which was left blank, and that, this notwithstanding, it was
stipulated in said instrument that it would be registered pursuant to Act No. 3344, which refers to lands notregistered
under the provisions of Act No. 496. Worse still, apart from including the latter stipulation,8 Mr. and Mrs. Viacrucis
declared in the deed, Exhibit 9, in favor of Claros Marquez, that said land is not registered under the Land
Registration Act, which is not true.

Apparently, petitioners knew they could not register Exhibits 9, 10 and 11, under the provisions of the Land
Registration Act, without their rights under said instruments becoming officially subordinated to those of Anastacio

Page 184
Orais. In fact, Viacrucis stated, in his aforementioned deposition, that he had "lost no time in going to Tacloban,
Leyte, to have the Deed of Sale" — presumably Exhibit 11, in his favor — "registered with the office of the Register
of Deeds." We have every reason to believe, therefore, that petitioners had actual knowledge of the existence of
Exhibit B and of the fact that it had been filed with the office of the register of deeds, and entered in the memorandum
of incumbrances of Homestead OCT No. 243.

2. In their "Amended Answer in Intervention," dated December 10, 1962, Mr. and Mrs. Marquez admitted that
Sanchez had really made a sale in favor of Orais, although said intervenors alleged that the land thus acquired by him
was only 6.6303 hectares; but, petitioners have not even tried to explain why Exhibit B — the only deed executed by
Pedro Sanchez in favor of Anastacio Orais — conveys the entire lot of 14.6303 covered by OCT No. 243.

Petitioners make much of a deed — marked as Exhibit 4,9 executed by Anastacio Orais, on May 25, 1939, whereby he
sold one-half (1/2) of a lot of 6.6303 hectares, covered by OCT No. 243, to Alfredo Parrilla, Pastor Zaragoza, Pedro
Gorumba and Eugenio A. Evangelista. Said Exhibit 4 does not say, however, that the land sold by Pedro Sanchez to
Anastacio Orais was limited to said area of 6.6303 hectares. What is more, it contains an indication to the contrary,
for, in describing the object of the sale, Exhibit 4 states that it is one-half (1/2) of a lot bounded on the South by a land
of Anastacio Orais. In other words, said lot of 6.6303 was not all that he owned. This might explain why petitioners
— after producing, marking and identifying Exhibit 4 — did not introduce the same in evidence, although copy
thereof is attached to the Amended Answer in Intervention of Mr. and Mrs. Claros Marquez as Annex 5.

It should be noted, also, that, at the time of the execution of said Exhibit 4, on May 25, 1939, a portion of about four
(4) hectares of the land of 14.6303 hectares sold by Sanchez to Orais, was still held by Pelagio Costelo, to guarantee
the payment of a debt of Sanchez, in view of which Orais conceded — in Exhibit G — Costelo's right to possess the
land from 1936 to 1941 — evidently, so that he could apply the fruits or products thereof to the satisfaction of his
credit — and Costelo acknowledged the dominical rights of Orais.

Furthermore, it appears that on July 10, 1936, or over a month after the sale by Sanchez to Orais, a deed, Exhibit 1,
dated April 19, 1934, and bearing the signature of Sanchez, was notarized. Exhibit 1 purports to convey to one
Crecente Marquez a portion, of about four (4) hectares, of the lot covered by OCT No. 243, which portion
is notinvolved in the case at bar. There is evidence to the effect that Exhibit 1 was filed with the Office of the Register
of Deeds of Leyte, on August 3, 1936, and recorded in the Memorandum of the Incumbrances of OCT No. 243. This
must have been made without producing the owner's duplicate of said OCT No. 243, inasmuch as the same was in the
possession of Orais, according to the above-mentioned deposition of Viacrucis, since, apparently the execution of
Exhibit B, on June 8, 1936. Under the circumstances, Orais may have felt that it was neither necessary nor advisable
to make any reference, in Exhibit 4, either to said portion of four (4) hectares, ostensibly conveyed to Crecente
Marquez by virtue of Exhibit 1, or to the similar area held by Pelagio Costelo — an aggregate of eight (8) hectares,
which, deducted from the land of 14.6303 hectares covered by OCT No. 243, left approximately the 6.6303 hectares
mentioned in said deed Exhibit 1.

3. Although the entire lot of 14.6303 hectares purchased by Orais from Sanchez, pursuant to Exhibit B, remained for
tax purposes in the latter's name, Orais paid the taxes due thereon." 10

At this juncture, it may not be amiss to advert to the fact that, since Exhibit B had filed with the office of the register
of deeds and recorded therein as above stated, Ruizo Viacrucis and Marquez are deemed to have constructive
notice of the sale in favor of Orais, apart from the circumstances — heretofore adverted to — that, since Viacrucis had
gone to said office soon after the execution in his favor, on October 10, 1945, of the deed of sale Exhibit 11 for the
purpose of registering the same, said petitioner must have had actual knowledge of the previous sale to Orais. And
this explains why, despite the fact that Viacrucis had gone to the office of the register of deeds for the aforementioned
purpose, he did not carry out the same. Viacrucis did not even try to explain why he failed to do so.

Page 185
Petitioners herein, likewise, failed to explain why neither Ruizo nor Claros Marquez had filed with said office the
deeds of sale Exhibits 10 and 9 in their favor, respectively, despite the provision in both documents for the registration
thereof.

Indeed, the parties in Exh. 10 — Sanchez and Ruizo — had stipulated therein:

Que el terreno objeto de esta venta es parte del titulo No. —, del vendedor y que es nuestro deseo sin
embargo que la presente se register bajo la Ley No.
3344. 11

What is more, as witness for petitioners herein, Jose R. Pastor — the notary public who prepared Exh. 10 and before
whom it was acknowledged — testified positively that Sanchez had explicitly told him, on that occasion, and in the
presence of Ruizo, that the 4-hectare land thereby conveyed to Ruizo is covered by a certificate of title, which was not
produced then.

Likewise, the deed of sale Exh. 11, executed by Ruizo in favor of Viacrucis, provides:

That ... it is our will that this document be registered under the provisions of Act 3344.

Similarly, the deed Exh. 9, executed by Mr. and Mrs. Viacrucis in favor of Claros Marquez, states:

The the above-mentioned parcel is not registered under Act No. 496, otherwise known as the Land
Registration Act nor under the Spanish Mortgage Law; and the parties hereto agree to register this
instrument in the office of the Registry of Deeds of the Province of Leyte in accordance with the
provisions of the Revised Administrative Code, as amended by Act No. 3344. 12

Considering that Exhibit 10 had been delivered by Ruizo to Viacrucis, who, later, turned over Exhibits 10 and 11 to
Claros Marquez, We are fully persuaded that, aware of the registered status of the land in question, petitioners herein
had advisedly chosen to treat the same as an unregistered land. None of them claims to have relied upon OCT No. 243
in the name of Pedro Sanchez. They cannot invoke, therefore, the rights of a purchaser for value in good faith under
the provisions of the Land Registration Act.

Upon the other hand, Orais had purchased said land, and taken possession thereof — at first, constructively, in
consequence of the deed of sale in his favor, incorporated in the public document, Exhibit B, and, also, of the
agreement Exh. G, between Orais and Costelo, and, then, actually, upon the expiration of Castelo's right of
possession, under said Exh. G — apart from filing said Exh. B with the office of the Register of Deeds and having it
recorded therein.

As between Pedro Sanchez, Orais and petitioners herein, the title to said land — if treated as an unregistered one —
passed, therefore, to Orais either on June 8, 1936, the date of Exhibit B, or, on July 30, 1936, the date of Exhibit G, or,
at the latest, on September 10, 1936, when Exhibit B was recorded in the office of the register of
deeds. 13Accordingly, Sanchez was no longer its owner when he sold it, on July 7, 1941, to Balentin Ruizo who, as a
consequence, acquired no title to said land, and conveyed none, on October 10, 1945, to Viacrucis, who, in turn, could
not have transmitted any to Claros Marquez. 14

Furthermore, petitioners could not possibly have acquired title to said land, as one registered under Act No. 496,
inasmuch as the deeds of conveyance Exhibits 9, 10 and 11 in their favor and in that of their predecessor in interest,
Balentin Ruizo have not been registered, and, pursuant to the provisions of said Act, "the act of registration shall be
the operative act to convey and affect the land ...." 15 Neither could the petitioners have acquired title by prescription,
for "no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse
possession." 16 Hence, petitioners have given up the plea of prescription, on which they relied heavily in the court of

Page 186
first instance and the Court of Appeals, and now merely press the defense of laches, belatedly invoked, for the first
time, in the Court of Appeals and properly rejected by the same.

In short, whether the property in question is treated as a registered land or as one not registered under the provisions
of Act No. 496, Orais has, therefore, a better right than petitioners herein, and the third assignment of error cannot be
sustained.

WHEREFORE, the appealed decision of the Court of Appeals should be, as it is hereby affirmed, with costs against
herein petitioners Mr. and Mrs. Viacrucis and Mr. and Mrs. Marquez. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

NO CASE DIGEST

Page 187
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 204369 September 17, 2014

ENRIQUETA M. LOCSIN, Petitioner,

vs.
BERNARDO HIZON, CARLOS HIZON, SPS. JOSE MANUEL & LOURDES GUEVARA, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before Us is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 and Resolution of the Court of
Appeals (CA), dated June 6, 2012 and October 30, 2012, respectively, in CA-G.R. CV No. 96659 entitled Enriqueta
M Locsin v. Marylou Bolos, et al. In reversing the ruling of the trial court, the CA held that respondents are innocent
purchasers in good faith and for value of the subject property.

The Facts

Petitioner Enriqueta M. Locsin (Locsin) was the registered owner of a 760-sq.m. lot covered by Transfer Certificate of
Title (TCT) No. 235094, located at 49 Don Vicente St., Don Antonio Heights Subdivision, Brgy. Holy Spirit, Capitol,
Quezon City. In 1992, she filed an ejectment case, Civil Case No. 38-6633,2 against one Billy Aceron (Aceron) before
the Metropolitan Trial Court, Branch 3 8 in Quezon City (MTC) to recover possession over the land in issue.
Eventually, the two entered into a compromise agreement, which the MTC approved on August 6, 1993.3

Locsin later went to the United States without knowing whether Aceron has complied with his part of the bargain
under the compromise agreement. In spite of her absence, however, she continued to pay the real property taxes on the
subject lot.

In 1994, after discovering thather copy of TCT No. 235094 was missing, Locsin filed a petition for administrative
reconstruction in order to secure a new one, TCT No. RT-97467. Sometime in early 2002, she then requested her
counsel to check the status of the subject lot. It was then that they discovered the following:

1. One Marylou Bolos (Bolos) had TCT No. RT-97467 cancelled on February 11, 1999, and then secured a
new one, TCT No. N-200074, in her favor by registering a Deed of Absolute Sale dated November 3, 1979
allegedly executed by Locsin with the Registry of Deeds;

2. Bolos later sold the subject lot to Bernardo Hizon (Bernardo) for PhP 1.5 million, but it was titled under
Carlos Hizon’s (Carlos’) name on August 12, 1999. Carlos is Bernardo’s son;

3. On October 1, 1999, Bernardo, claiming to be the owner of the property, filed a Motion for Issuance of
Writ of Execution for the enforcement of the court-approved compromise agreement in Civil Case No. 38-
6633;

4. The property was already occupied and was, in fact, up for sale.

Page 188
On May 9, 2002, Locsin, through counsel, sent Carlos a letter requesting the return of the property since her signature
in the purported deed of sale in favor of Bolos was a forgery. In a letter-reply dated May 20, 2002, Carlos denied
Locsin’s request, claiming that he was unaware of any defect or flaw in Bolos’ title and he is, thus, an innocent
purchaser for value and good faith. On June 13, 2002,4 Bernardo met with Locsin’s counsel and discussed the
possibility of a compromise. He ended the meeting with a promise to come up with a win-win situation for his son and
Locsin, a promise which turned out to be deceitful, for, on July 15, 2002, Locsin learned that Carlos had already sold
the property for PhP 1.5 million to his sister and her husband, herein respondents Lourdes and Jose Manuel Guevara
(spouses Guevara), respectively, who, as early as May 24, 2002, had a new certificate of title, TCT No. N-237083,
issued in their names. The spouses Guevara then immediately mortgaged the said property to secure a PhP 2.5 million
loan/credit facility with Damar Credit Corporation (DCC).

It was against the foregoing backdrop of events that Locsin filed an action for reconveyance, annulment ofTCT No.
N-237083, the cancellation of the mortgage lien annotated thereon, and damages, against Bolos, Bernardo, Carlos, the
Sps. Guevara, DCC, and the Register of Deeds, Quezon City, docketed as Civil Case No. Q-02-47925, which was
tried by the Regional Trial Court, Branch 77 in Quezon City (RTC). The charges against DCC, however, weredropped
on joint motion ofthe parties. This is in view of the cancellation of the mortgage for failure of the spouses Guevara to
avail of the loan/credit facility DCC extended in their favor.5

Ruling of the Trial Court

On November 19, 2010, the RTC rendered a Decision6 dismissing the complaint and finding for respondents,as
defendants thereat, holding that: (a) there is insufficient evidence to showthat Locsin’s signature in the Deed of
Absolute Sale between her and Bolos is a forgery; (b) the questioned deed is a public document, having been
notarized; thus, it has, in its favor, the presumption of regularity; (c) Locsin cannot simply rely on the apparent
difference of the signatures in the deed and in the documents presented by her to prove her allegation of forgery; (d)
the transfers of title from Bolos to Carlos and from Carlos to the spouses Guevara are valid and regular; (e) Bernardo,
Carlos, and the spouses Guevara are all buyers in good faith. Aggrieved, petitioner appealed the case to the CA.

Ruling of the Court of Appeals

The CA, in its assailed Decision, ruled that it was erroneous for the RTC to hold that Locsin failed to prove that her
signature was forged. In its appreciation of the evidence, the CA found that, indeed, Locsin’s signature in the Deed of
Absolute Sale in favor of Bolos differs from her signatures in the other documents offered as evidence.

The CA, however, affirmed the RTC’s finding that herein respondents are innocent purchasers for value. Citing
Casimiro Development Corp. v. Renato L. Mateo,7 the appellate court held that respondents, having dealt with
property registered under the Torrens System, need not go beyond the certificate of title, but only has to rely on the
said certificate. Moreover, as the CA added, any notice of defect or flaw in the title of the vendor should encompass
facts and circumstances that would impel a reasonably prudent man to inquire into the status of the title of the
property in order to amount to bad faith.

Accordingly, the CA ruled that Locsin can no longer recover the subject lot.8 Hence, the insant petition.

Arguments

Petitioner Locsin insists that Bernardo was well aware, at the time he purchased the subject property, of a possible
defect in Bolos’ title since he knew that another person, Aceron, was then occupying the lot in issue.9 As a matter of
fact, Bernardo even moved for the execution of the compromise agreement between Locsin and Aceron inCivil Case
No. 38-6633 in order to enforce to oust Aceron of his possession over the property.10

Thus, petitioner maintains that Bernardo, knowing as he did the incidents involving the subject property,should have
acted as a reasonably diligent buyer in verifying the authenticity of Bolos’title instead of closing his eyes to the

Page 189
possibility of a defecttherein. Essentially, petitioner argues that Bernardo’s stubborn refusal to make an inquiry
beyond the face of Bolos’ title is indicative of his lack of prudence in protecting himself from possible defects or
flaws therein, and consequently bars him from interposing the protection accorded toan innocent purchaser for value.

As regards Carlos and the Sps. Guevara’s admissions and testimonies, petitioner points out that when these are placed
side-by-side with the concurrent circumstances in the case, it is readily revealed that the transfer from the former to
the latter was only simulated and intended to keep the property out of petitioner’s reach.

For their part, respondents maintain that they had the right to rely solely upon the face of Bolos’ clean title,
considering that it was free from any lien or encumbrance. They are not even required, so they claim, to check on the
validity of the sale from which they derived their title.11 Too, respondents claim that their knowledge of Aceron’s
possession cannot be the basis for an allegation of bad faith, for the property was purchased on an "asis where-is"
basis. The Issue

Considering that the finding of the CAthat Locsin’s signature in the Deed of Absolute Sale in favor of Bolos was
indeed bogus commands itself for concurrence, the resolution of the present petition lies on this singular issue––
whether or not respondents are innocent purchasers for value.12

The Court’s Ruling

The petition is meritorious.

Procedural issue

As a general rule, only questions of law may be raised in a petition for review on certiorari.13 This Court is not a trier
offacts; and in the exercise of the power of review, we do not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case.14 This rule, however, admits of exceptions.For one, the
findings of fact of the CA will not bind the parties in cases where the inference made on the evidence is mistaken, as
here.15

That being said, we now proceed to the core of the controversy.

Precautionary measures for buyers of real property

An innocent purchaser for value is one who buys the property of another without notice that some other person has a
right to or interest in it, and who pays a full and fair price atthe time of the purchase or before receiving any notice of
another person’s claim.16 As such, a defective title–– or one the procurement of which is tainted with fraud and
misrepresentation––may be the source of a completely legal and valid title, provided that the buyer is an innocent
third person who, in good faith, relied on the correctness of the certificate of title, or an innocent purchaser for value. 17

Complementing this is the mirror doctrine which echoes the doctrinal rule that every person dealing with registered
land may safely rely on the correctness of the certificate of title issued therefor and is in no way obliged to go beyond
the certificate to determine the condition of the property.18 The recognized exceptions to this rule are stated as
follows:

[A] person dealing with registeredland has a right to rely on the Torrens certificate of title and to dispense with the
need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in
his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the
property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to
look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. One who

Page 190
falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith
and, hence, does not merit the protection of the law.19 (emphasis added)

Thus, in Domingo Realty, Inc. v. CA,20 we emphasized the need for prospective parties to a contract involving titled
lands to exercise the diligence of a reasonably prudent person in ensuring the legality of the title, and the accuracy of
the metes and bounds of the lot embraced therein, by undertaking precautionary measures, such as:

1. Verifying the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds
and the Land Registration Authority;

2. Engaging the services of a competent and reliable geodetic engineer to verify the boundary,metes, and
bounds of the lot subject of said title based on the technical description in the said title and the approved
survey plan in the Land Management Bureau;

3. Conducting an actual ocular inspection of the lot;

4. Inquiring from the owners and possessors of adjoining lots with respect to the true and legal ownership of
the lot in question;

5. Putting up of signs that said lot is being purchased, leased, or encumbered; and

6. Undertaking such other measures to make the general public aware that said lot will be subject to
alienation, lease, or encumbrance by the parties.

In the case at bar, Bolos’ certificate of title was concededly free from liens and encumbrances on its face. However,
the failure of Carlos and the spouses Guevara to exercise the necessary level ofcaution in light of the factual milieu
surrounding the sequence of transfers from Bolos to respondents bars the application of the mirror doctrine and
inspires the Court’s concurrence withpetitioner’s proposition.

Carlos is not an innocent purchaser for value

Foremost, the Court is of the view that Bernardo negotiated with Bolos for the property as Carlos’ agent. This is
bolstered by the fact that he was the one who arranged for the saleand eventual registration of the property in Carlos’
favor. Carlos testified during the May 27, 2009 hearing:21

Q: Are you privy with the negotiations between your father, Mr. Bernardo Hizon, and your co-defendant, Marylou
Bolos, the alleged seller?

A: No, Ma’am.

Q: Do you remember having signed a Deed of Absolute Sale, dated August 12, 1999?

A: Yes, Ma’am.

Q: And, at that time that you have signed the Deed, was Marylou Bolos present?

A: No, Ma’am.

Q: Who negotiated and arranged for the sale of the property between Marylou Bolos and you? A: It was my father.
(emphasis ours)

Page 191
Consistent with the rule that the principal is chargeable and bound by the knowledge of, or notice to, his agent
received in that capacity,22 any information available and known to Bernardo is deemed similarly available and known
to Carlos, including the following:

1. Bernardo knew that Bolos, from whom he purchased the subject property, never acquired possession over
the lot. As a matter of fact, in his March 11, 2009 direct testimony,23 Bernardo admitted having knowledge of
Aceron’s lot possession as well as the compromise agreement between petitioner and Aceron.

2. Bolos’ purported Deed of Sale was executed on November 3, 1979 but the ejectment case commenced by
Locsin against Aceron was in 1992, or thirteen (13)years after the property was supposedly transferred to
Bolos.

3. The August 6, 1993 Judgment,24 issued by the MTC on the compromise agreement between Locsin and
Aceron, clearly stated therein that "[o]n August 2, 1993,the parties [Aceron and Locsin] submitted to [the
MTC] for approval a Compromise Agreement dated July 28, 1993." It further indicated that "[Aceron]
acknowledges [Locsin’s] right of possessionto [the subject property], being the registered owner thereof."

Having knowledge of the foregoing facts, Bernardo and Carlos, to our mind, should have been impelled to investigate
the reason behind the arrangement. They should have been pressed to inquire into the status of the title of the property
in litigation in order to protect Carlos’ interest. It should have struck them as odd that it was Locsin, not Bolos, who
sought the recovery of possession by commencing an ejectment case against Aceron, and even entered into a
compromiseagreement with the latter years afterthe purported sale in Bolos’ favor. Instead, Bernardo and Carlos took
inconsistent positions when they argued for the validity of the transfer of the property in favor of Bolos, but in the
same breath prayed for the enforcement of the compromise agreement entered into by Locsin.

At this point it is well to emphasize that entering into a compromise agreement is an act of strict dominion.25 If Bolos
already acquired ownership of the property as early as 1979, it should have been her who entered into a compromise
agreement with Aceron in 1993, not her predecessor-in-interest, Locsin, who, theoretically, had already divested
herself of ownership thereof.

The spouses Guevara are not innocent purchasers for value

As regards the transfer of the property from Carlos to the spouses Guevara, We find the existence of the sale highly
suspicious. For one, there is a dearth of evidence to support the respondent spouses’ position that the sale was a bona
fide transaction. Evenif we repeatedly sift through the evidence on record, still we cannot findany document, contract,
or deed evidencing the sale in favor of the spouses Guevara. The same goes for the purported payment of the purchase
price of the property in the amount of PhP 1.5 million in favor of Carlos. As a matter of fact, the only documentary
evidence that they presented were as follows:

1. Deed of Sale between Locsin and Bolos;

2. TCT No. 200074 issued in Bolos’ name;

3. TCT No. N-205332 in Carlos’ name;

4. TCT No. N-237083 in the nameof the Sps. Guevara.

To bridge the gap in their documentary evidence, respondents proffer their own testimonies explaining the
circumstances surrounding the alleged sale.26 However, basic is the rule that bare and self-serving allegations,
unsubstantiated by evidence, are not equivalent to proof under the Rules.27 As such, we cannot give credence to their
representations that the sale between them actually transpired.

Page 192
Furthermore, and noticeably enough,the transfer from Carlos to the spouses Guevara was effected only fifteen(15)
days after Locsin demanded the surrender of the property fromCarlos. Reviewing the timeline:

May 9, 2002: Locsin’s counsel sent a letter to Carlos, requesting that he return the property to Locsin since the latter’s
signature in the purported deed of sale between her and Bolos was a forgery.

May 20, 2002:Carlos’ counsel replied to Locsin’s May 9, 2002 letter, claiming that Carlos was unaware of any defect
or flaw in Bolos’ title, making him an innocent purchaserof the subject property.

May 24, 2002: The Sps. Guevara allegedly purchased the property from Carlos.

When Bernardo met with Locsin’scounsel on June 13, 2002, and personally made a commitment to comeup with a
win-win situation for his son and Locsin, he knew fully well, too,that the property had already been purportedly
transferred to his daughter and son-in-law, the spouses Guevara, for he, no less, facilitated the same. This, to us,
isglaring evidence of bad faith and an apparent intention to mislead Locsin into believing that she could no longer
recover the subject property.

Also, the fact that Lourdes Guevara and Carlos are siblings, and that Carlos’ agent in his dealings concerning the
property is his own father, renders incredible the argument thatLourdes had no knowledge whatsoever of Locsin’s
claim of ownership atthe time of the purported sale.

Indeed, the fact that the spouses Guevara never intended to be the owner in good faith and for value of the lot is
further made manifest by their lack of interest in protecting themselvesin the case. It does not even appear in their
testimonies that they, at the very least, intended to vigilantly protect their claim over the property and prevent Locsin
take it away from them. What they did was to simply appoint Bernardo as their attorney-in-fact to handle the situation
and never bothered acquainting themselves with the developments in the case.28 To be sure, respondent Jose Manuel
Guevara was not even presented asa witness in the case.

There is also strong reason to believethat even the mortgage in favor of DCC was a mere ploy tomake it appear that
the Sps. Guevara exercised acts of dominion over the subject property. This is so considering the proximity between
the property’s registration in their names and its being subjected to the mortgage. Most telling is that the credit line
secured by the mortgage was never used by the spouses, resulting in the mortgage’s cancellation and the exclusion of
DCC as a party in Civil Case No. Q-02-47925.1âwphi1

These circumstances, taken altogether, strongly indicate that Carlos and the spouses Guevara failed to exercise the
necessary level of caution expected of a bona fide buyer and even performed acts that are highly suspect.
Consequently, this Court could not give respondents the protection accorded to innocent purchasers in good faith and
for value.

Locsin is entitled to nominal damages

We now delve into petitioner’s prayer for exemplary damages, attorney’s fees, and costs of suit. Here, the Court notes
that petitioner failed to specifically pray that moral damages be awarded. Additionally, she never invoked any of the
grounds that would have warranted the award of moral damages. As can be gleaned from the records, lacking from
her testimony is any claim that she suffered any form of physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, or any other similar circumstance.29 Thus,
we are constrained to refrain from awarding moral damages in favor of petitioner.

In the same vein, exemplary damages cannot be awarded in favor of petitioner. Well-settled that this species of
damages is allowed only in addition to moral damages such that no exemplary damages can be awarded unless the
claimant first establishes his clear right to moral damages.30 Consequently, despite our finding that respondents acted
in a fraudulent manner, petitioner’s claim for exemplary damages is unavailing at this point.

Page 193
Nevertheless, we find an award for nominal damages to be in order. Under prevailing jurisprudence, nominal damages
are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind or where there has been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be shown."31 As expounded in Almeda v. Cariño,32 a violation of the
plaintiff’s right, even if only technical, is sufficient to support an award of nominal damages. So long as there is a
showing of a violation of the right of the plaintiff, as herein petitioner, an award of nominal damages is proper.33

In the case at bar, this Court recognizes that petitioner was unduly deprived of her ownership rights overthe property,
and was compelled to litigate for its recovery, for almost ten (10) years. Clearly, this could have entitled her to actual
or compensatory damages had she quantified and proved, during trial, the amounts which could have accrued in her
favor, including commercial fruits such as reasonable rent covering the pendency of the case. Nonetheless,
petitioner’s failure to prove actual or compensatory damages does not erase the fact that her property rights were
unlawfully invaded by respondents, entitling her to nominal damages.

As to the amount to be awarded, it bears stressing that the same is addressed to the sound discretion ofthe court,
taking into account the relevant circumstances.34 Considering the length of time petitioner was deprived of her
property and the bad faith attending respondents’ actuations in the extant case, we find the amount of seventy-five
thousand pesos (PhP 75,000) as sufficient nominal damages. Moreover, respondents should be held jointly and
severally liable for the said amount, attorney’s fees in the amount of an additional seventy-fivethousand pesos (PhP
75,000), and the costs of the suit.

WHEREFORE, in light of the foregoing, the Petition is hereby GRANTED. The assailed Decision of the Court of
Appeals dated June 6, 2012 in CA-G.R. CV No. 96659 affirming the Decision of the Regional Trial Court, Branch 77,
Quezon City, in Civil Case No. Q-02-47925; as well as its Resolution dated October 30, 2012, denying
reconsideration thereof, are hereby REVERSED and SET ASIDE. TCT No. N-200074 in the name of Marylou Bolos,
and the titles descending therefrom, namely, TCT Nos. N-205332 and N-237083 in the name of Carlos Hizon, and the
Spouses Jose Manuel & Lourdes Guevara, respectively, are hereby declared NULL and VOID. Respondents and all
other persons acting under their authority are hereby DIRECTED to surrender possession of the subject property in
favor of petitioner. Respondents Bernardo Hizon, Carlos Hizon, and the spouses Jose Manuel and Lourdes Guevara
shall jointly and severally pay petitioner PhP 75,000 as nominal damages, PhP 75,000 as attorney's fees, and costs of
suit.

The Register of Deeds of Quezon City is hereby ORDERED to (1) cancel TCT No. N-237083; (2) reinstate TCT No.
RT-97467; and (3) reissue TCT No. RT-97467 in favor of petitioner, without requiring from petitioner payment for
any and all expenses in performing the three acts.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
Associate Justice

MARTIN S. VILLARAMA, JR. BIENVENIDO L. REYES

Associate Justice Associate Justice

FRANCIS H. JARDELEZA
Associate Justice

Page 194
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

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

MARIA LOURDES P. A. SERENO

Chief Justice

NO CASE DIGEST

Page 195