PARA?AQUE KINGS ENTERPRISES, INCORPORATED, petitioner vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-
in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. G.R. No. 111538 | 1997-02-26
D E C I S I O N
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be offered the same terms and conditions as those given to a third party who eventually bought such properties? In short, is such right of first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of theRules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled "Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the general power of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Paraaque, Metro Manila withtransfer certificate of title nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. Xerox copy of the deed of assignment is hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Paraaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
"9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo, the said letter was personally handed by the attorney-in- fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said period expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their exchange of communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist (sic) between the defendants.
19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased properties was her brother-in-law David Santos and when it was transferred to defendant Raymundo the collector was still David Santos up to the month of June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes "X" to "HH", respectively.
20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and make it appear that the price of the leased property is much higher than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a higher price.
21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6) doors commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement was made on the belief that eventually the said premises shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as such defendants should be charged of the same amount for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent to the commission of similar acts, they should be made to answer for exemplary damages, the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands. Xerox copies of the demand letters are hereto attached as Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiff's claim, and was constrained to engaged (sic) the services of undersigned counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees, exclusive of cost and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the plaintiff in the amount of P5,000,000.00; b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages; c. Defendants pay the sum of P5,000,000.00 as moral damages; d. Defendants pay exemplary damages left to the discretion of the Court; e. Defendants pay the sum of not less than P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . . . .
Xxx xxx xxx
This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself by its subsequent averments which erased or extinguished its earlier allegations of an impending wrong. Consequently, absent any actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. . . . .
The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually does not contain any valid cause of action and should therefore be as it is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she later resold the leased properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering the total absence of any stipulation or agreement as to the price or as to how the price should be computed under paragraph 9 of the lease contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the contractual right of "first option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not raising a question of law as the issue involved is purely factual whether respondent Santos complied with paragraph 9 of the lease agreement and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed by petitioner before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its claim that the lower courts decided the same "in a way not in accord with law and applicable decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from the accepted and usual course of judicial proceedings" so as to merit the exercise by this Court of the power of review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that petitioner's payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not include the assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to FileSufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on mere technicalities in cases where appeal is a matter of right may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved is purely factual. The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right." But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected.
According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period".
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
No cause of actionunder P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its structures" since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would have occupied the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has previously ruled that under Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that the complaint did fail to state a cause of action on this ground.
Deed of Assignment includedthe option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-described, . . . . 20
And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, . . . . 21
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and obligations contained in the contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privyto the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon the question of whether the complaint states a cause of action for damages or whether the complaint is barred by estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to rebut the allegations in the complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof by an appellate court have the effect of stifling such right. 23 So too, the trial court should be given the opportunity to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand the instant case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further proceedings.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur. ESTATE OF ROGELIO G. ONG, Petitioner, versus Minor JOANNE RODJIN DIAZ, Represented by Her Mother and Guardian, Jinky C. Diaz, Respondent. G.R. No. 171713 | 2007-12-17
D E C I S I O N
CHICO-NAZARIO, J.:
This is a petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure assailing (1) the Decision[1] of the Court of Appeals dated 23 November 2005 and (2) the Resolution[2] of the same court dated 1 March 2006 denying petitioner's Motion for Reconsideration in CA-G.R. CV No. 70125.
A Complaint[3] for compulsory recognition with prayer for support pending litigation was filed by minor Joanne Rodjin Diaz (Joanne), represented by her mother and guardian, Jinky C. Diaz (Jinky), against Rogelio G. Ong (Rogelio) before the Regional Trial Court (RTC) of Tarlac City. In her Complaint, Jinky prayed that judgment be rendered:
(a) Ordering defendant to recognize plaintiff Joanne Rodjin Diaz as his daughter.
(b) Ordering defendant to give plaintiff monthly support of P20,000.00 pendente lite and thereafter to fix monthly support.
(c) Ordering the defendant to pay plaintiff attorney's fees in the sum of P100,000.00.
(d) Granting plaintiff such other measure of relief as maybe just and equitable in the premises.[4]
As alleged by Jinky in her Complaint in November 1993 in Tarlac City, she and Rogelio got acquainted. This developed into friendship and later blossomed into love. At this time, Jinky was already married to a Japanese national, Hasegawa Katsuo, in a civil wedding solemnized on 19 February 1993 by Municipal Trial Court Judge Panfilo V. Valdez.[5]
From January 1994 to September 1998, Jinky and Rogelio cohabited and lived together at Fairlane Subdivision, and later at Capitol Garden, Tarlac City.
From this live-in relationship, minor Joanne Rodjin Diaz was conceived and on 25 February 1998 was born at the Central Luzon Doctors' Hospital, Tarlac City.
Rogelio brought Jinky to the hospital and took minor Joanne and Jinky home after delivery. Rogelio paid all the hospital bills and the baptismal expenses and provided for all of minor Joanne's needs - recognizing the child as his.
In September 1998, Rogelio abandoned minor Joanne and Jinky, and stopped supporting minor Joanne, falsely alleging that he is not the father of the child.
Rogelio, despite Jinky's remonstrance, failed and refused and continued failing and refusing to give support for the child and to acknowledge her as his daughter, thus leading to the filing of the heretofore adverted complaint.
After summons had been duly served upon Rogelio, the latter failed to file any responsive pleading despite repeated motions for extension, prompting the trial court to declare him in default in its Order dated 7 April 1999. Rogelio's Answer with Counterclaim and Special and Affirmative Defenses was received by the trial court only on 15 April 1999. Jinky was allowed to present her evidence ex parte on the basis of which the trial court on 23 April 1999 rendered a decision granting the reliefs prayed for in the complaint.
In its Decision[6] dated 23 April 1999, the RTC held:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendant to recognize plaintiff as his natural child;
2. Ordering defendant to provide plaintiff with a monthly support of P10,000.00 and further
3. Ordering defendant to pay reasonable attorney's fees in the amount of P5,000.00 and the cost of the suit.
On 28 April 1999, Rogelio filed a motion to lift the order of default and a motion for reconsideration seeking the court's understanding, as he was then in a quandary on what to do to find a solution to a very difficult problem of his life.[7]
On 29 April 1999, Rogelio filed a motion for new trial with prayer that the decision of the trial court dated 23 April 1999 be vacated and the case be considered for trial de novo pursuant to the provisions of Section 6, Rule 37 of the 1997 Rules of Civil Procedure.[8]
On 16 June 1999, the RTC issued an Order granting Rogelio's Motion for New Trial:
WHEREFORE, finding defendant's motion for new trial to be impressed with merit, the same is hereby granted.
The Order of this court declaring defendant in default and the decision is this court dated April 23, 1999 are hereby set aside but the evidence adduced shall remain in record, subject to cross- examination by defendant at the appropriate stage of the proceedings.
In the meantime defendant's answer is hereby admitted, subject to the right of plaintiff to file a reply and/or answer to defendant's counterclaim within the period fixed by the Rules of Court.
Acting on plaintiff's application for support pendente lite which this court finds to be warranted, defendant is hereby ordered to pay to plaintiff immediately the sum of P2,000.00 a month from January 15, 1999 to May 1999 as support pendente lite in arrears and the amount of P4,000.00 every month thereafter as regular support pendente lite during the pendency of this case.[9]
The RTC finally held:
The only issue to be resolved is whether or not the defendant is the father of the plaintiff Joanne Rodjin Diaz.
Since it was duly established that plaintiff's mother Jinky Diaz was married at the time of the birth of Joanne Rodjin Diaz, the law presumes that Joanne is a legitimate child of the spouses Hasegawa Katsuo and Jinky Diaz (Article 164, Family Code). The child is still presumed legitimate even if the mother may have declared against her legitimacy (Article 167, Ibid).
The legitimacy of a child may be impugned only on the following grounds provided for in Article 166 of the same Code. Paragraph 1 of the said Article provides that there must be physical impossibility for the husband to have sexual intercourse with the wife within the first 120 days of the 300 days following the birth of the child because of -
a) physical incapacity of the husband to have sexual intercourse with his wife;
b) husband and wife were living separately in such a way that sexual intercourse was not possible;
c) serious illness of the husband which prevented sexual intercourse.
It was established by evidence that the husband is a Japanese national and that he was living outside of the country (TSN, Aug. 27, 1999, page 5) and he comes home only once a year. Both evidence of the parties proved that the husband was outside the country and no evidence was shown that he ever arrived in the country in the year 1997 preceding the birth of plaintiff Joanne Rodjin Diaz.
While it may also be argued that plaintiff Jinky had a relationship with another man before she met the defendant, there is no evidence that she also had sexual relations with other men on or about the conception of Joanne Rodjin. Joanne Rodjin was her second child (see Exh. "A"), so her first child, a certain Nicole (according to defendant) must have a different father or may be the son of Hasegawa K[u]tsuo.
The defendant admitted having been the one who shouldered the hospital bills representing the expenses in connection with the birth of plaintiff. It is an evidence of admission that he is the real father of plaintiff. Defendant also admitted that even when he stopped going out with Jinky, he and Jinky used to go to motels even after 1996. Defendant also admitted that on some instances, he still used to see Jinky after the birth of Joanne Rodjin. Defendant was even the one who fetched Jinky after she gave birth to Joanne.
On the strength of this evidence, the Court finds that Joanne Rodjin is the child of Jinky and defendant Rogelio Ong and it is but just that the latter should support plaintiff.[10]
On 15 December 2000, the RTC rendered a decision and disposed:
WHEREFORE, judgment is hereby rendered declaring Joanne Rodjin Diaz to be the illegitimate child of defendant Rogelio Ong with plaintiff Jinky Diaz. The Order of this Court awarding support pendente lite dated June 15, 1999, is hereby affirmed and that the support should continue until Joanne Rodjin Diaz shall have reached majority age.[11]
Rogelio filed a Motion for Reconsideration, which was denied for lack of merit in an Order of the trial court dated 19 January 2001.[12] From the denial of his Motion for Reconsideration, Rogelio appealed to the Court of Appeals. After all the responsive pleadings had been filed, the case was submitted for decision and ordered re-raffled to another Justice for study and report as early as 12 July 2002.[13]
During the pendency of the case with the Court of Appeals, Rogelio's counsel filed a manifestation informing the Court that Rogelio died on 21 February 2005; hence, a Notice of Substitution was filed by said counsel praying that Rogelio be substituted in the case by the Estate of Rogelio Ong,[14] which motion was accordingly granted by the Court of Appeals.[15]
In a Decision dated 23 November 2005, the Court of Appeals held:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed Decision dated December 15, 2000 of the Regional Trial Court of Tarlac, Tarlac, Branch 63 in Civil Case No. 8799 is hereby SET ASIDE. The case is hereby REMANDED to the court a quo for the issuance of an order directing the parties to make arrangements for DNA analysis for the purpose of determining the paternity of plaintiff minor Joanne Rodjin Diaz, upon consultation and in coordination with laboratories and experts on the field of DNA analysis.
No pronouncement as to costs.[16]
Petitioner filed a Motion for Reconsideration which was denied by the Court of Appeals in a Resolution dated 1 March 2006.
In disposing as it did, the Court of Appeals justified its Decision as follows:
In this case, records showed that the late defendant-appellant Rogelio G. Ong, in the early stage of the proceedings volunteered and suggested that he and plaintiff's mother submit themselves to a DNA or blood testing to settle the issue of paternity, as a sign of good faith. However, the trial court did not consider resorting to this modern scientific procedure notwithstanding the repeated denials of defendant that he is the biological father of the plaintiff even as he admitted having actual sexual relations with plaintiff's mother. We believe that DNA paternity testing, as current jurisprudence affirms, would be the most reliable and effective method of settling the present paternity dispute. Considering, however, the untimely demise of defendant-appellant during the pendency of this appeal, the trial court, in consultation with out laboratories and experts on the field of DNA analysis, can possibly avail of such procedure with whatever remaining DNA samples from the deceased defendant alleged to be the putative father of plaintiff minor whose illegitimate filiations is the subject of this action for support.[17]
Hence, this petition which raises the following issues for resolution:
I WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DID NOT DISMISS RESPONDENT'S COMPLAINT FOR COMPULSORY RECOGNITION DESPITE ITS FINDING THAT THE EVIDENCE PRESENTED FAILED TO PROVE THAT ROGELIO G. ONG WAS HER FATHER.
II WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DID NOT DECLARE RESPONDENT AS THE LEGITIMATE CHILD OF JINKY C. DIAZ AND HER JAPANESE HUSBAND, CONSIDERING THAT RESPONDENT FAILED TO REBUT THE PRESUMPTION OF HER LEGITIMACY.
III WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT REMANDED THE CASE TO THE COURT A QUO FOR DNA ANALYSIS DESPITE THE FACT THAT IT IS NO LONGER FEASIBLE DUE TO THE DEATH OF ROGELIO G. ONG.[18]
Petitioner prays that the present petition be given due course and the Decision of the Court of Appeals dated November 23, 2005 be modified, by setting aside the judgment remanding the case to the trial court for DNA testing analysis, by dismissing the complaint of minor Joanne for compulsory recognition, and by declaring the minor as the legitimate child of Jinky and Hasegawa Katsuo.[19]
From among the issues presented for our disposition, this Court finds it prudent to concentrate its attention on the third one, the propriety of the appellate court's decision remanding the case to the trial court for the conduct of DNA testing. Considering that a definitive result of the DNA testing will decisively lay to rest the issue of the filiation of minor Joanne, we see no reason to resolve the first two issues raised by the petitioner as they will be rendered moot by the result of the DNA testing.
As a whole, the present petition calls for the determination of filiation of minor Joanne for purposes of support in favor of the said minor.
Filiation proceedings are usually filed not just to adjudicate paternity but also to secure a legal right associated with paternity, such as citizenship, support (as in the present case), or inheritance. The burden of proving paternity is on the person who alleges that the putative father is the biological father of the child. There are four significant procedural aspects of a traditional paternity action which parties have to face: a prima facie case, affirmative defenses, presumption of legitimacy, and physical resemblance between the putative father and child.[20]
A child born to a husband and wife during a valid marriage is presumed legitimate.[21] As a guaranty in favor of the child and to protect his status of legitimacy, Article 167 of the Family Code provides:
Article 167. The children shall be considered legitimate although the mother may have declared against its legitimacy or may have been sentenced as an adulteress.
The law requires that every reasonable presumption be made in favor of legitimacy. We explained the rationale of this rule in the recent case of Cabatania v. Court of Appeals[22]:
The presumption of legitimacy does not only flow out of a declaration in the statute but is based on the broad principles of natural justice and the supposed virtue of the mother. The presumption is grounded on the policy to protect the innocent offspring from the odium of illegitimacy.
The presumption of legitimacy of the child, however, is not conclusive and consequently, may be overthrown by evidence to the contrary. Hence, Article 255 of the New Civil Code[23] provides:
Article 255. Children born after one hundred and eighty days following the celebration of the marriage, and before three hundred days following its dissolution or the separation of the spouses shall be presumed to be legitimate.
Against this presumption no evidence shall be admitted other than that of the physical impossibility of the husband's having access to his wife within the first one hundred and twenty days of the three hundred which preceded the birth of the child.
This physical impossibility may be caused:
1) By the impotence of the husband;
2) By the fact that husband and wife were living separately in such a way that access was not possible;
3) By the serious illness of the husband.[24]
The relevant provisions of the Family Code provide as follows:
ART. 172. The filiation of legitimate children is established by any of the following:
(1) The record of birth appearing in the civil register or a final judgment; or
(2) An admission of legitimate filiation in a public document or a private handwritten instrument and signed by the parent concerned.
In the absence of the foregoing evidence, the legitimate filiation shall be proved by:
(1) The open and continuous possession of the status of a legitimate child; or
(2) Any other means allowed by the Rules of Court and special laws.
ART. 175. Illegitimate children may establish their illegitimate filiation in the same way and on the same evidence as legitimate children.
There had been divergent and incongruent statements and assertions bandied about by the parties to the present petition. But with the advancement in the field of genetics, and the availability of new technology, it can now be determined with reasonable certainty whether Rogelio is the biological father of the minor, through DNA testing.
DNA is the fundamental building block of a person's entire genetic make-up. DNA is found in all human cells and is the same in every cell of the same person. Genetic identity is unique. Hence, a person's DNA profile can determine his identity.[25]
DNA analysis is a procedure in which DNA extracted from a biological sample obtained from an individual is examined. The DNA is processed to generate a pattern, or a DNA profile, for the individual from whom the sample is taken. This DNA profile is unique for each person, except for identical twins.
Everyone is born with a distinct genetic blueprint called DNA (deoxyribonucleic acid). It is exclusive to an individual (except in the rare occurrence of identical twins that share a single, fertilized egg), and DNA is unchanging throughout life. Being a component of every cell in the human body, the DNA of an individual's blood is the very DNA in his or her skin cells, hair follicles, muscles, semen, samples from buccal swabs, saliva, or other body parts.
The chemical structure of DNA has four bases. They are known as A (Adenine), G (guanine), C (cystosine) and T (thymine). The order in which the four bases appear in an individual's DNA determines his or her physical make up. And since DNA is a double stranded molecule, it is composed of two specific paired bases, A-T or T-A and G-C or C-G. These are called "genes."
Every gene has a certain number of the above base pairs distributed in a particular sequence. This gives a person his or her genetic code. Somewhere in the DNA framework, nonetheless, are sections that differ. They are known as "polymorphic loci," which are the areas analyzed in DNA typing (profiling, tests, fingerprinting). In other words, DNA typing simply means determining the "polymorphic loci."
How is DNA typing performed? From a DNA sample obtained or extracted, a molecular biologist may proceed to analyze it in several ways. There are five (5) techniques to conduct DNA typing. They are: the RFLP (restriction fragment length polymorphism); "reverse dot blot" or HLA DQ a/Pm loci which was used in 287 cases that were admitted as evidence by 37 courts in the U.S. as of November 1994; DNA process; VNTR (variable number tandem repeats); and the most recent which is known as the PCR-([polymerase] chain reaction) based STR (short tandem repeats) method which, as of 1996, was availed of by most forensic laboratories in the world. PCR is the process of replicating or copying DNA in an evidence sample a million times through repeated cycling of a reaction involving the so-called DNA polymerize enzyme. STR, on the other hand, takes measurements in 13 separate places and can match two (2) samples with a reported theoretical error rate of less than one (1) in a trillion.
Just like in fingerprint analysis, in DNA typing, "matches" are determined. To illustrate, when DNA or fingerprint tests are done to identify a suspect in a criminal case, the evidence collected from the crime scene is compared with the "known" print. If a substantial amount of the identifying features are the same, the DNA or fingerprint is deemed to be a match. But then, even if only one feature of the DNA or fingerprint is different, it is deemed not to have come from the suspect.
As earlier stated, certain regions of human DNA show variations between people. In each of these regions, a person possesses two genetic types called "allele," one inherited from each parent. In [a] paternity test, the forensic scientist looks at a number of these variable regions in an individual to produce a DNA profile. Comparing next the DNA profiles of the mother and child, it is possible to determine which half of the child's DNA was inherited from the mother. The other half must have been inherited from the biological father. The alleged father's profile is then examined to ascertain whether he has the DNA types in his profile, which match the paternal types in the child. If the man's DNA types do not match that of the child, the man is excluded as the father. If the DNA types match, then he is not excluded as the father.[26]
In the newly promulgated rules on DNA evidence it is provided:
SEC. 3 Definition of Terms. - For purposes of this Rule, the following terms shall be defined as follows:
x x x x
(c) "DNA evidence" constitutes the totality of the DNA profiles, results and other genetic information directly generated from DNA testing of biological samples;
(d) "DNA profile" means genetic information derived from DNA testing of a biological sample obtained from a person, which biological sample is clearly identifiable as originating from that person;
(e) "DNA testing" means verified and credible scientific methods which include the extraction of DNA from biological samples, the generation of DNA profiles and the comparison of the information obtained from the DNA testing of biological samples for the purpose of determining, with reasonable certainty, whether or not the DNA obtained from two or more distinct biological samples originates from the same person (direct identification) or if the biological samples originate from related persons (kinship analysis); and
(f) "Probability of Parentage" means the numerical estimate for the likelihood of parentage of a putative parent compared with the probability of a random match of two unrelated individuals in a given population.
Amidst the protestation of petitioner against the DNA analysis, the resolution thereof may provide the definitive key to the resolution of the issue of support for minor Joanne. Our articulation in Agustin v. Court of Appeals[27] is particularly relevant, thus:
Our faith in DNA testing, however, was not quite so steadfast in the previous decade. In Pe Lim v. Court of Appeals (336 Phil. 741, 270 SCRA 1), promulgated in 1997, we cautioned against the use of DNA because "DNA, being a relatively new science, (had) not as yet been accorded official recognition by our courts. Paternity (would) still have to be resolved by such conventional evidence as the relevant incriminating acts,verbal and written, by the putative father."
In 2001, however, we opened the possibility of admitting DNA as evidence of parentage, as enunciated in Tijing v. Court of Appeals [G.R. No. 125901, 8 March 2001, 354 SCRA 17]:
x x x Parentage will still be resolved using conventional methods unless we adopt the modern and scientific ways available. Fortunately, we have now the facility and expertise in using DNA test for identification and parentage testing. The University of the Philippines Natural Science Research Institute (UP-NSRI) DNA Analysis Laboratory has now the capability to conduct DNA typing using short tandem repeat (STR) analysis. The analysis is based on the fact that the DNA of a child/person has two (2) copies, one copy from the mother and the other from the father. The DNA from the mother, the alleged father and child are analyzed to establish parentage. Of course, being a novel scientific technique, the use of DNA test as evidence is still open to challenge. Eventually, as the appropriate case comes, courts should not hesitate to rule on the admissibility of DNA evidence. For it was said, that courts should apply the results of science when competently obtained in aid of situations presented, since to reject said results is to deny progress.
The first real breakthrough of DNA as admissible and authoritative evidence in Philippine jurisprudence came in 2002 with out en banc decision in People v. Vallejo [G.R. No. 144656, 9 May 2002, 382 SCRA 192] where the rape and murder victim's DNA samples from the bloodstained clothes of the accused were admitted in evidence. We reasoned that "the purpose of DNA testing (was) to ascertain whether an association exist(ed) between the evidence sample and the reference sample. The samples collected (were) subjected to various chemical processes to establish their profile.
A year later, in People v. Janson [G.R. No. 125938, 4 April 2003, 400 SCRA 584], we acquitted the accused charged with rape for lack of evidence because "doubts persist(ed) in our mind as to who (were) the real malefactors. Yes, a complex offense (had) been perpetrated but who (were) the perpetrators? How we wish we had DNA or other scientific evidence to still our doubts."
In 2004, in Tecson, et al. v. COMELEC [G.R. Nos. 161434, 161634 and 161824, 3 March 2004, 424 SCRA 277], where the Court en banc was faced with the issue of filiation of then presidential candidate Fernando Poe, Jr., we stated:
In case proof of filiation or paternity would be unlikely to satisfactorily establish or would be difficult to obtain, DNA testing, which examines genetic codes obtained from body cells of the illegitimate child and any physical residue of the long dead parent could be resorted to. A positive match would clear up filiation or paternity. In Tijing v. Court of Appeals, this Court has acknowledged the strong weight of DNA testing...
Moreover, in our en banc decision in People v. Yatar [G.R. No. 150224, 19 May 2004, 428 SCRA 504], we affirmed the conviction of the accused for rape with homicide, the principal evidence for which included DNA test results. x x x.
Coming now to the issue of remand of the case to the trial court, petitioner questions the appropriateness of the order by the Court of Appeals directing the remand of the case to the RTC for DNA testing given that petitioner has already died. Petitioner argues that a remand of the case to the RTC for DNA analysis is no longer feasible due to the death of Rogelio. To our mind, the alleged impossibility of complying with the order of remand for purposes of DNA testing is more ostensible than real. Petitioner's argument is without basis especially as the New Rules on DNA Evidence[28] allows the conduct of DNA testing, either motu proprio or upon application of any person who has a legal interest in the matter in litigation, thus:
SEC. 4. Application for DNA Testing Order. - The appropriate court may, at any time, either motu proprio or on application of any person who has a legal interest in the matter in litigation, order a DNA testing. Such order shall issue after due hearing and notice to the parties upon a showing of the following:
(a) A biological sample exists that is relevant to the case;
(b) The biological sample: (i) was not previously subjected to the type of DNA testing now requested; or (ii) was previously subjected to DNA testing, but the results may require confirmation for good reasons;
(c) The DNA testing uses a scientifically valid technique;
(d) The DNA testing has the scientific potential to produce new information that is relevant to the proper resolution of the case; and
(e) The existence of other factors, if any, which the court may consider as potentially affecting the accuracy or integrity of the DNA testing.
From the foregoing, it can be said that the death of the petitioner does not ipso facto negate the application of DNA testing for as long as there exist appropriate biological samples of his DNA.
As defined above, the term "biological sample" means any organic material originating from a person's body, even if found in inanimate objects, that is susceptible to DNA testing. This includes blood, saliva, and other body fluids, tissues, hairs and bones.[29]
Thus, even if Rogelio already died, any of the biological samples as enumerated above as may be available, may be used for DNA testing. In this case, petitioner has not shown the impossibility of obtaining an appropriate biological sample that can be utilized for the conduct of DNA testing.
And even the death of Rogelio cannot bar the conduct of DNA testing. In People v. Umanito,[30] citing Tecson v. Commission on Elections,[31] this Court held:
The 2004 case of Tecson v. Commission on Elections [G.R. No. 161434, 3 March 2004, 424 SCRA 277] likewise reiterated the acceptance of DNA testing in our jurisdiction in this wise: "[i]n case proof of filiation or paternity would be unlikely to satisfactorily establish or would be difficult to obtain, DNA testing, which examines genetic codes obtained from body cells of the illegitimate child and any physical residue of the long dead parent could be resorted to."
It is obvious to the Court that the determination of whether appellant is the father of AAA's child, which may be accomplished through DNA testing, is material to the fair and correct adjudication of the instant appeal. Under Section 4 of the Rules, the courts are authorized, after due hearing and notice, motu proprio to order a DNA testing. However, while this Court retains jurisdiction over the case at bar, capacitated as it is to receive and act on the matter in controversy, the Supreme Court is not a trier of facts and does not, in the course of daily routine, conduct hearings. Hence, it would be more appropriate that the case be remanded to the RTC for reception of evidence in appropriate hearings, with due notice to the parties. (Emphasis supplied.)
As we have declared in the said case of Agustin v. Court of Appeals[32]:
x x x [F]or too long, illegitimate children have been marginalized by fathers who choose to deny their existence. The growing sophistication of DNA testing technology finally provides a much needed equalizer for such ostracized and abandoned progeny. We have long believed in the merits of DNA testing and have repeatedly expressed as much in the past. This case comes at a perfect time when DNA testing has finally evolved into a dependable and authoritative form of evidence gathering. We therefore take this opportunity to forcefully reiterate our stand that DNA testing is a valid means of determining paternity.
WHEREFORE, the instant petition is DENIED for lack of merit. The Decision of the Court of Appeals dated 23 November 2005 and its Resolution dated 1 March 2006 are AFFIRMED. Costs against petitioner.
SO ORDERED.
NATIONAL POWER CORPORATION, Petitioner, versus HON. RAMON G. CODILLA, JR., Presiding Judge, RTC of Cebu, Br. 19, BANGPAI SHIPPING COMPANY, and WALLEM SHIPPING, INCORPORATED, Respondents. G.R. No. 170491 | 2007-04-04
D E C I S I O N
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing the Decision[1] of the Court of Appeals in CA-G.R. CEB-SP No. 00848, dated 9 November 2005, which dismissed the Petition for Certiorari filed by the National Power Corporation seeking to set aside the Order[2] issued by the Regional Trial Court (RTC) of Cebu, Branch 19 dated 16 November 2004, denying admission and excluding from the records plaintiff's (herein petitioner) Exhibits "A", "C", "D", "E", "H" and its sub-markings, "I", "J", and its sub-markings, "K", "L", "M" and its sub-markings, "N" and its sub-markings, "O", "P" and its sub-markings, "Q" and its sub-markings, "R" and "S" and its sub-markings.
On 20 April 1996, M/V Dibena Win, a vessel of foreign registry owned and operated by private respondent Bangpai Shipping, Co., allegedly bumped and damaged petitioner's Power Barge 209 which was then moored at the Cebu International Port. Thus, on 26 April 1996, petitioner filed before the Cebu RTC a complaint for damages against private respondent Bangpai Shipping Co., for the alleged damages caused on petitioner's power barges.
Thereafter, petitioner filed an Amended Complaint dated 8 July 1996 impleading herein private respondent Wallem Shipping, Inc., as additional defendant, contending that the latter is a ship agent of Bangpai Shipping Co. On 18 September 1996, Wallem Shipping, Inc. filed a Motion to Dismiss which was subsequently denied by public respondent Judge in an Order dated 20 October 1998. Bangpai Shipping Co. likewise filed a Motion to Dismiss which was also denied by public respondent Judge in an Order issued on 24 January 2003.
Petitioner, after adducing evidence during the trial of the case, filed a formal offer of evidence before the lower court on 2 February 2004 consisting of Exhibits "A" to "V" together with the sub-marked portions thereof. Consequently, private respondents Bangpai Shipping Co. and Wallem Shipping, Inc. filed their respective objections to petitioner's formal offer of evidence.
On 16 November 2004, public respondent judge issued the assailed order denying the admission and excluding from the records petitioner's Exhibits "A", "C", "D", "E", "H" and its sub-markings, "I", "J" and its sub-markings, "K", "L", "M" and its sub-markings, "N" and its sub-markings, "O", "P" and its sub-markings, "Q" and its sub-markings, "R" and "S" and its sub-markings. According to the court a quo:
The Court finds merit in the objections raised and the motion to strike out filed respectively by the defendants. The record shows that the plaintiff has been given every opportunity to present the originals of the Xerox or photocopies of the documents it offered. It never produced the originals. The plaintiff attempted to justify the admission of the photocopies by contending that "the photocopies offered are equivalent to the original of the document" on the basis of the Electronic Evidence (Comment to Defendant Wallem Philippines' Objections and Motion to Strike). But as rightly pointed out in defendant Wallem's Reply to the Comment of Plaintiff, the Xerox copies do not constitute the electronic evidence defined in Section 1 of Rule 2 of the Rules on Electronic Evidence as follows:
"(h) "Electronic document" refers to information or the representation of information, data, figures, symbols or other models of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically. It includes digitally signed documents and any printout, readable by sight or other means which accurately reflects the electronic data message or electronic document. For the purpose of these Rules, the term "electronic document" may be used interchangeably with "electronic data message".
The information in those Xerox or photocopies was not received, recorded, retrieved or produced electronically. Moreover, such electronic evidence must be authenticated (Sections 1 and 2, Rule 5, Rules on Electronic Evidence), which the plaintiff failed to do. Finally, the required Affidavit to prove the admissibility and evidentiary weight of the alleged electronic evidence (Sec. 1, Rule 9, Ibid) was not executed, much less presented in evidence.
The Xerox or photocopies offered should, therefore, be stricken off the record. Aside from their being not properly identified by any competent witness, the loss of the principals thereof was not established by any competent proof.
x x x x
WHEREFORE, plaintiff's Exhibits "A", "C", "D", "E", "H" and its sub-markings, "I", "J", and its sub-markings, "K", "L", "M" and its sub-markings, "N" and its sub-markings, "O", "P" and its sub-markings, "Q" and its sub-markings, and "R" are hereby DENIED admission and excluded from the records. However, these excluded evidence should be attached to the records of this case to enable the appellate court to pass upon them should an appeal be taken from the decision on the merits to be rendered upon the termination of the trial of this case.
Exhibits "S" and its sub-markings are also DENIED admission for lack of proper identification since the witness who brought these pictures expressly admitted that he was not present when the photos were taken and had not knowledge when the same where taken.[3]
Upon denial of petitioner's Motion for Reconsideration in an Order dated 20 April 2005, petitioner filed aPetition for Certiorari under Rule 65 of the Rules of Civil Procedure before the Court of Appeals maintaining that public respondent Judge acted with grave abuse of discretion amounting to lack or excess of jurisdiction in denying the admission of its Exhibits "A", "C", "D", "E", "H" and its sub-markings, "I", "J" and its sub- markings, "K", "L", "M" and its sub-markings, "N" and its sub-markings, "O", "P" and its sub-markings, "Q" and its sub-markings, "R", and "S" and its sub-markings.
On 9 November 2005, the appellate court issued a Decision dismissing petitioner's petition for certiorari, the pertinent portions of which elucidate:
After a judicious scrutiny of the record of the case on hand, together with the rules and jurisprudence which are applicable in the premises, we have come up with a finding that the petition for certiorari filed in this case is not meritorious.
It appears that there is no sufficient showing by the petitioner that the respondent judge acted with grave abuse of discretion in issuing the assailed orders in Civil Case No. CEB-18662. As what our jurisprudence tells us, grave abuse of discretion is meant such capricious and whimsical exercise of judgment as would be equivalent to lack of jurisdiction x x x.
In the case at bench, what has been shown to the contrary by the totality of the record on hand is that the respondent judge acted correctly and within the pale of his sound discretion in issuing the assailed order, dated November 16, 2004, in Civil Case No. CEB-18662.
Indeed, it appears that the pieces of petitioner's documentary evidence which were denied admission by the respondent judge were not properly identified by any competent witness. As pointed out by the respondent Bangpai Shipping Company in its comment on the petition filed in this case which reproduces some excerpts of the testimonies in the court a quo of Atty. Marianito De Los Santos, Engr. Nestor Enriquez, Jr. and Mr. Rodulfo I. Pagaling, the said witnesses did not have personal knowledge of and participation in the preparation and making of the pieces of documentary evidence denied admission by respondent judge x x x. In other words, there was lack of proper identification of said pieces of documentary evidence. x x x.
Then another ground for denying admission of petitioner's Exhibits A, C, D, E, H, I, J, K, L, M, N, O, P, Q, R, and S by the respondent judge is that said pieces of documentary evidence were merely photocopies of purported documents or papers. There is no gainsaying the fact that the respondent judge acted within the pale of his discretion when he denied admission of said documentary evidence. Section 3 of Rule 130 of the Rules of Court of the Philippines is very explicit in providing that, when the subject of inquiry are the contents of documents, no evidence shall be admissible other than the original documents themselves, except in certain cases specifically so enumerated therein, and the petitioner has not shown that the non-presentation or non-production of its original documentary pieces of evidence falls under such exceptions. As aptly pointed out by the respondent judge in the order issued by him on November 16, 2004:
"x x x The record shows that the plaintiff (petitioner herein) has been given every opportunity to present the originals of the Xerox or photocopies of the documents it offered. It never produced said originals."
So, the petitioner has only itself to blame for the respondent judge's denial of admission of its aforementioned documentary evidence.
Of course, the petitioner tries to contend that the photocopies of documents offered by it are equivalent to the original documents that it sought to offer in evidence, based on the Rules on Electronic Evidence which were in force and effect since August 1, 2001. However, such a contention is devoid of merit. The pieces of documentary evidence offered by the petitioner in Civil Case CEB-18662 which were denied admission by the respondent judge do not actually constitute as electronic evidence as defined in the Rules on Electronic Evidence. The informations therein were not received, retrieved or produced electronically. The petitioner has not adequately established that its documentary evidence were electronic evidence. it has not properly authenticated such evidence as electronic documents, assuming arguendo that they are. Lastly, the petitioner has not properly established by affidavit pursuant to Rule 9 of the Rules on Electronic Evidence the admissibility and evidentiary weight of said documentary evidence.
Thus, by any legal yardstick, it is manifest that the respondent judge did not commit grave abuse of discretion in denying admission of the aforementioned documentary evidence of petitioner.
But even if it be granted just for the sake of argument that the respondent judge committed an error in denying the aforementioned documentary evidence of the petitioner, still the petition for certiorari filed in this case must fail. Such error would at most be only an error of law and not an error of jurisdiction. In Lee vs. People, 393 SCRA 397, the Supreme Court of the Philippines said that certiorari will not lie in case of an error of law. x x x.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DISMISSING the petition filed in this case and AFFIRMING the assailed orders issued by respondent judge in Civil Case No. CEB-18662.[4]
Aggrieved by the aforequoted decision, petitioner filed the instant petition.
The focal point of this entire controversy is petitioner's obstinate contention that the photocopies it offered as formal evidence before the trial court are the functional equivalent of their original based on its inimitable interpretation of the Rules on Electronic Evidence.
Petitioner insists that, contrary to the rulings of both the trial court and the appellate court, the photocopies it presented as documentary evidence actually constitute electronic evidence based on its own premise that an "electronic document" as defined under Section 1(h), Rule 2 of the Rules on Electronic Evidence is not limited to information that is received, recorded, retrieved or produced electronically. Rather, petitioner maintains that an "electronic document" can also refer to other modes of written expression that is produced electronically, such as photocopies, as included in the section's catch-all proviso: "any print-out or output, readable by sight or other means".
We do not agree.
In order to shed light to the issue of whether or not the photocopies are indeed electronic documents as contemplated in Republic Act No. 8792 or the Implementing Rules and Regulations of the Electronic Commerce Act, as well as the Rules on Electronic Evidence, we shall enumerate the following documents offered as evidence by the petitioner, to wit:
Exhibit "A" is a photocopy of a letter manually signed by a certain Jose C. Troyo, with "RECEIVED" stamped thereon, together with a handwritten date;
Exhibit "C" is a photocopy of a list of estimated cost of damages of petitioner's power barges 207 and 209 prepared by Hopewell Mobile Power Systems Corporation and manually signed by Messrs. Rex Malaluan and Virgilio Asprer;
Exhibit "D" is a photocopy of a letter manually signed by a certain Nestor G. Enriquez, Jr., with "RECEIVED" stamped thereon, together with a handwritten notation of the date it was received;
Exhibit "E" is a photocopy of a Standard Marine Protest Form which was filled up and accomplished by Rex Joel C. Malaluan in his own handwriting and signed by him. Portions of the Jurat were handwritten, and manually signed by the Notary Public;
Exhibit "H" is a photocopy of a letter manually signed by Mr. Nestor G. Enriquez, Jr. with "RECEIVED" stamped thereon, together with a handwritten notation of the date it was received;
Exhibit "I" is a photocopy of a computation of the estimated energy loss allegedly suffered by petitioner which was manually signed by Mr. Nestor G. Enriquez, Jr.;
Exhibit "J" is a photocopy of a letter containing the breakdown of the cost estimate, manually signed by Mr. Nestor G. Enriquez, Jr., with "RECEIVED" stamped thereon, together with a handwritten notation of the date it was received, and other handwritten notations;
Exhibit "K" is a photocopy of the Subpoena Duces Tecum Ad Testificandum written using a manual typewriter, signed manually by Atty. Ofelia Polo-De Los Reyes, with a handwritten notation when it was received by the party;
Exhibit "L" is a photocopy of a portion of the electricity supply and operation and maintenance agreement between petitioner and Hopewell, containing handwritten notations and every page containing three unidentified manually placed signatures;
Exhibit "M" is a photocopy of the Notice of Termination with attachments addressed to Rex Joel C. Malaluan, manually signed by Jaime S. Patinio, with a handwritten notation of the date it was received. The sub-markings also contain manual signatures and/or handwritten notations;
Exhibit "N" is a photocopy of a letter of termination with attachments addressed to VIrgilio Asprer and manually signed by Jaime S. Patino. The sub-markings contain manual signatures and/or handwritten notations;
Exhibit "O" is the same photocopied document marked as Annex C;
Exhibit "P" is a photocopy of an incident report manually signed by Messrs. Malaluan and Bautista and by the Notary Public, with other handwritten notations;
Exhibit "Q" is a photocopy of a letter manually signed by Virgilio Asprer and by a Notary Public, together with other handwritten notations.
On the other hand, an "electronic document" refers to information or the representation of information, data, figures, symbols or other models of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed,which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.[5] It includes digitally signed documents and any printout, readable by sight or other means which accurately reflects the electronic data message or electronic document.[6]
The rules use the word "information" to define an electronic document received, recorded, transmitted, stored, processed, retrieved or produced electronically. This would suggest that an electronic document is relevant only in terms of the information contained therein, similar to any other document which is presented in evidence as proof of its contents.[7] However, what differentiates an electronic document from a paper-based document is the manner by which the information is processed; clearly, the information contained in an electronic document is received, recorded, transmitted, stored, processed, retrieved or produced electronically.
A perusal of the information contained in the photocopies submitted by petitioner will reveal that not all of the contents therein, such as the signatures of the persons who purportedly signed the documents, may be recorded or produced electronically. By no stretch of the imagination can a person's signature affixed manually be considered as information electronically received, recorded, transmitted, stored, processed, retrieved or produced. Hence, the argument of petitioner that since these paper printouts were produced through an electronic process, then these photocopies are electronic documents as defined in the Rules on Electronic Evidence is obviously an erroneous, if not preposterous, interpretation of the law. Having thus declared that the offered photocopies are not tantamount to electronic documents, it is consequential that the same may not be considered as the functional equivalent of their original as decreed in the law.
Furthermore, no error can be ascribed to the court a quo in denying admission and excluding from the records petitioner's Exhibits "A", "C", "D", "E", "H" and its sub- markings, "I", "J" and its sub-markings, "K", "L", "M" and its sub-markings, "N" and its sub-markings, "O", "P" and its sub-markings, "Q" and its sub-markings, and "R". The trial court was correct in rejecting these photocopies as they violate the best evidence rule and are therefore of no probative value being incompetent pieces of evidence. Before the onset of liberal rules of discovery, and modern technique of electronic copying, the best evidence rule was designed to guard against incomplete or fraudulent proof and the introduction of altered copies and the withholding of the originals.[8] But the modern justification for the rule has expanded from the prevention of fraud to a recognition that writings occupy a central position in the law.[9] The importance of the precise terms of writings in the world of legal relations, the fallibility of the human memory as reliable evidence of the terms, and the hazards of inaccurate or incomplete duplicate are the concerns addressed by the best evidence rule.[10]
Moreover, as mandated under Section 2, Rule 130 of the Rules of Court:
"SECTION 2. Original writing must be produced; exceptions. - There can be no evidence of a writing the contents of which is the subject of inquiry, other than the original writing itself, except in the following cases:
(a) When the original has been lost, destroyed, or cannot be produced in court;
(b) When the original is in the possession of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice;
(c) When the original is a record or other document in the custody of a public officer;
(d) When the original has been recorded in an existing record a certified copy of which is made evidence by law;
(e) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole."
When the original document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated.[11] The offeror of secondary evidence is burdened to prove the predicates thereof: (a) the loss or destruction of the original without bad faith on the part of the proponent/offeror which can be shown by circumstantial evidence of routine practices of destruction of documents;[12] (b) the proponent must prove by a fair preponderance of evidence as to raise a reasonable inference of the loss or destruction of the original copy; and (c) it must be shown that a diligent and bona fide but unsuccessful search has been made for the document in the proper place or places.[13] However, in the case at bar, though petitioner insisted in offering the photocopies as documentary evidence, it failed to establish that such offer was made in accordance with the exceptions as enumerated under the abovequoted rule. Accordingly, we find no error in the Order of the court a quo denying admissibility of the photocopies offered by petitioner as documentary evidence.
Finally, it perplexes this Court why petitioner continued to obdurately disregard the opportunities given by the trial court for it to present the originals of the photocopies it presented yet comes before us now praying that it be allowed to present the originals of the exhibits that were denied admission or in case the same are lost, to lay the predicate for the admission of secondary evidence. Had petitioner presented the originals of the documents to the court instead of the photocopies it obstinately offered as evidence, or at the very least laid the predicate for the admission of said photocopies, this controversy would not have unnecessarily been brought before the appellate court and finally to this Court for adjudication. Had it not been for petitioner's intransigence, the merits of petitioner's complaint for damages would have been decided upon by the trial court long ago. As aptly articulated by the Court of Appeals, petitioner has only itself to blame for the respondent judge's denial of admission of its aforementioned documentary evidence and consequently, the denial of its prayer to be given another opportunity to present the originals of the documents that were denied admission nor to lay the predicate for the admission of secondary evidence in case the same has been lost.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CEB-SP No. 00848, dated 9 November 2005 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION, respondents. G.R. No. 133250 | 2002-07-09
Discussions citing this case are available. Executive privilege Judicial Review EN BANC
D E C I S I O N
CARPIO, J.:
This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin PEA from signing a new agreement with AMARI involving such reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of Public Highways, signed a contract with the Construction and Development Corporation of the Philippines ("CDCP" for brevity) to reclaim certain foreshore and offshore areas of Manila Bay. The contract also included the construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works in consideration of fifty percent of the total reclaimed land.
On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged areas," and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands."[1] On the same date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA the "lands reclaimed in the foreshore and offshore of the Manila Bay"[2] under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP).
On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned by PEA." Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December 29, 1981, which stated:
"(i) CDCP shall undertake all reclamation, construction, and such other works in the MCCRRP as may be agreed upon by the parties, to be paid according to progress of works on a unit price/lump sum basis for items of work to be agreed upon, subject to price escalation, retention and other terms and conditions provided for in Presidential Decree No. 1594. All the financing required for such works shall be provided by PEA.
x x x
(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and to all the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981 which have not yet been sold, transferred or otherwise disposed of by CDCP as of said date, which areas consist of approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square meters in the Financial Center Area covered by land pledge No. 5 and approximately Three Million Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at varying elevations above Mean Low Water Level located outside the Financial Center Area and the First Neighborhood Unit."[3]
On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517, granting and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) containing a total area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters." Subsequently, on April 9, 1988, the Register of Deeds of the Municipality of Paraaque issued Transfer Certificates of Title Nos. 7309, 7311, and 7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom Islands" located at the southern portion of the Manila-Cavite Coastal Road, Paraaque City. The Freedom Islands have a total land area of One Million Five Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square meters or 157.841 hectares.
On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI, a private corporation, to develop the Freedom Islands. The JVA also required the reclamation of an additional 250 hectares of submerged areas surrounding these islands to complete the configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA through negotiation without public bidding.[4] On April 28, 1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA. [5] On June 8, 1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA.[6]
On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in the Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate Committee on Government Corporations and Public Enterprises, and the Committee on Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate Committees reported the results of their investigation in Senate Committee Report No. 560 dated September 16, 1997.[7] Among the conclusions of their report are: (1) the reclaimed lands PEA seeks to transfer to AMARI under the JVA are lands of the public domain which the government has not classified as alienable lands and therefore PEA cannot alienate these lands; (2) the certificates of title covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order No. 365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of Senate Committee Report No. 560. The members of the Legal Task Force were the Secretary of Justice,[8] the Chief Presidential Legal Counsel ,[9] and the Government Corporate Counsel.[10] The Legal Task Force upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees.[11]
On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there were on-going renegotiations between PEA and AMARI under an order issued by then President Fidel V. Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with Application for the Issuance of a Temporary Restraining Order and Preliminary Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the petition "for unwarranted disregard of judicial hierarchy, without prejudice to the refiling of the case before the proper court."[12]
On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order. Petitioner contends the government stands to lose billions of pesos in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 Constitution on the right of the people to information on matters of public concern. Petitioner assails the sale to AMARI of lands of the public domain as a blatant violation of Section 3, Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the public domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss of billions of pesos in properties of the State that are of public dominion.
After several motions for extension of time,[13] PEA and AMARI filed their Comments on October 19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI contract; (b) for issuance of a temporary restraining order; and (c) to set the case for hearing on oral argument. Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court denied in a Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to the petition and required the parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the administration of then President Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the President, petitioner now prays that on "constitutional and statutory grounds the renegotiated contract be declared null and void."[14]
The Issues
The issues raised by petitioner, PEA[15] and AMARI[16] are as follows:
I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND
VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT.
The Court's Ruling
First issue: whether the principal reliefs prayed for in the petition are moot and academic because of subsequent events.
The petition prays that PEA publicly disclose the "terms and conditions of the on-going negotiations for a new agreement." The petition also prays that the Court enjoin PEA from "privately entering into, perfecting and/or executing any new agreement with AMARI."
PEA and AMARI claim the petition is now moot and academic because AMARI furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing the terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a public disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the signing of the Amended JVA is now moot because PEA and AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the Office of the President has approved the Amended JVA on May 28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast- tracking the signing and approval of the Amended JVA before the Court could act on the issue. Presidential approval does not resolve the constitutional issue or remove it from the ambit of judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the Amended JVA on constitutional grounds necessarily includes preventing its implementation if in the meantime PEA and AMARI have signed one in violation of the Constitution. Petitioner's principal basis in assailing the renegotiation of the JVA is its violation of Section 3, Article XII of the Constitution, which prohibits the government from alienating lands of the public domain to private corporations. If the Amended JVA indeed violates the Constitution, it is the duty of the Court to enjoin its implementation, and if already implemented, to annul the effects of such unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay to a single private corporation. It now becomes more compelling for the Court to resolve the issue to insure the government itself does not violate a provision of the Constitution intended to safeguard the national patrimony. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution. In the instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent the transfer of title and ownership of alienable lands of the public domain in the name of AMARI. Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar, and the public.[17]
Also, the instant petition is a case of first impression. All previous decisions of the Court involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973 Constitution,[18] covered agricultural lands sold to private corporations which acquired the lands from private parties. The transferors of the private corporations claimed or could claim the right to judicial confirmation of their imperfect titles[19] under Title II of Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed lands and submerged areas for non- agricultural purposes by purchase under PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain undertakings by AMARI under the Amended JVA constitute the consideration for the purchase. Neither AMARI nor PEA can claim judicial confirmation of their titles because the lands covered by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of imperfect title requires open, continuous, exclusive and notorious occupation of agricultural lands of the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the deadline for filing applications for judicial confirmation of imperfect title expired on December 31, 1987.[20]
Lastly, there is a need to resolve immediately the constitutional issue raised in this petition because of the possible transfer at any time by PEA to AMARI of title and ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy percent proportionate share in the reclaimed areas as the reclamation progresses. The Amended JVA even allows AMARI to mortgage at any time the entire reclaimed area to raise financing for the reclamation project.[21]
Second issue: whether the petition merits dismissal for failing to observe the principle governing the hierarchy of courts.
PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the Court. The principle of hierarchy of courts applies generally to cases involving factual questions. As it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant case, however, raises constitutional issues of transcendental importance to the public.[22] The Court can resolve this case without determining any factual issue related to the case. Also, the instant case is a petition for mandamus which falls under the original jurisdiction of the Court under Section 5, Article VIII of the Constitution. We resolve to exercise primary jurisdiction over the instant case.
Third issue: whether the petition merits dismissal for non-exhaustion of administrative remedies.
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly certain information without first asking PEA the needed information. PEA claims petitioner's direct resort to the Court violates the principle of exhaustion of administrative remedies. It also violates the rule that mandamus may issue only if there is no other plain, speedy and adequate remedy in the ordinary course of law.
PEA distinguishes the instant case from Taada v. Tuvera[23] where the Court granted the petition for mandamus even if the petitioners there did not initially demand from the Office of the President the publication of the presidential decrees. PEA points out that in Taada, the Executive Department had an affirmative statutory duty under Article 2 of the Civil Code[24] and Section 1 of Commonwealth Act No. 638[25] to publish the presidential decrees. There was, therefore, no need for the petitioners in Taada to make an initial demand from the Office of the President. In the instant case, PEA claims it has no affirmative statutory duty to disclose publicly information about its renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of exhaustion of administrative remedies to the instant case in view of the failure of petitioner here to demand initially from PEA the needed information.
The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation. Under Section 79 of the Government Auditing Code,[26]2 the disposition of government lands to private parties requires public bidding. PEA was under a positive legal duty to disclose to the public the terms and conditions for the sale of its lands. The law obligated PEA to make this public disclosure even without demand from petitioner or from anyone. PEA failed to make this public disclosure because the original JVA, like the Amended JVA, was the result of a negotiated contract, not of a public bidding. Considering that PEA had an affirmative statutory duty to make the public disclosure, and was even in breach of this legal duty, petitioner had the right to seek direct judicial intervention.
Moreover, and this alone is determinative of this issue, the principle of exhaustion of administrative remedies does not apply when the issue involved is a purely legal or constitutional question.[27] The principal issue in the instant case is the capacity of AMARI to acquire lands held by PEA in view of the constitutional ban prohibiting the alienation of lands of the public domain to private corporations. We rule that the principle of exhaustion of administrative remedies does not apply in the instant case.
Fourth issue: whether petitioner has locus standi to bring this suit
PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his constitutional right to information without a showing that PEA refused to perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he will suffer any concrete injury because of the signing or implementation of the Amended JVA. Thus, there is no actual controversy requiring the exercise of the power of judicial review.
The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel PEA to comply with its constitutional duties. There are two constitutional issues involved here. First is the right of citizens to information on matters of public concern. Second is the application of a constitutional provision intended to insure the equitable distribution of alienable lands of the public domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose publicly information on the sale of government lands worth billions of pesos, information which the Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation.
Moreover, the petition raises matters of transcendental importance to the public. In Chavez v. PCGG,[28] the Court upheld the right of a citizen to bring a taxpayer's suit on matters of transcendental importance to the public, thus -
"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses is an issue of 'transcendental importance to the public.' He asserts that ordinary taxpayers have a right to initiate and prosecute actions questioning the validity of acts or orders of government agencies or instrumentalities, if the issues raised are of 'paramount public interest,' and if they 'immediately affect the social, economic and moral well being of the people.'
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding involves the assertion of a public right, such as in this case. He invokes several decisions of this Court which have set aside the procedural matter of locus standi, when the subject of the case involved public interest.
x x x
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the Court declared that the right they sought to be enforced 'is a public right recognized by no less than the fundamental law of the land.'
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that 'when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the right.'
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and operation of the Manila International Container Terminal, 'public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved.' We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner's standing.
Similarly, the instant petition is anchored on the right of the people to information and access to official records, documents and papers - a right guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that the petition at bar should be allowed."
We rule that since the instant petition, brought by a citizen, involves the enforcement of constitutional rights - to information and to the equitable diffusion of natural resources - matters of transcendental public importance, the petitioner has the requisite locus standi.
Fifth issue: whether the constitutional right to information includes official information on on-going negotiations before a final agreement.
Section 7, Article III of the Constitution explains the people's right to information on matters of public concern in this manner:
"Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law." (Emphasis supplied)
The State policy of full transparency in all transactions involving public interest reinforces the people's right to information on matters of public concern. This State policy is expressed in Section 28, Article II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest." (Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency in policy-making and in the operations of the government, as well as provide the people sufficient information to exercise effectively other constitutional rights. These twin provisions are essential to the exercise of freedom of expression. If the government does not disclose its official acts, transactions and decisions to citizens, whatever citizens say, even if expressed without any restraint, will be speculative and amount to nothing. These twin provisions are also essential to hold public officials "at all times x x x accountable to the people,"[29] for unless citizens have the proper information, they cannot hold public officials accountable for anything. Armed with the right information, citizens can participate in public discussions leading to the formulation of government policies and their effective implementation. An informed citizenry is essential to the existence and proper functioning of any democracy. As explained by the Court in Valmonte v. Belmonte, Jr.[30]-
"An essential element of these freedoms is to keep open a continuing dialogue or process of communication between the government and the people. It is in the interest of the State that the channels for free political discussion be maintained to the end that the government may perceive and be responsive to the people's will. Yet, this open dialogue can be effective only to the extent that the citizenry is informed and thus able to formulate its will intelligently. Only when the participants in the discussion are aware of the issues and have access to information relating thereto can such bear fruit."
PEA asserts, citing Chavez v. PCGG,[31] that in cases of on-going negotiations the right to information is limited to "definite propositions of the government." PEA maintains the right does not include access to "intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the 'exploratory stage'."
Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or before the closing of the transaction. To support its contention, AMARI cites the following discussion in the 1986 Constitutional Commission:
"Mr. Suarez. And when we say 'transactions' which should be distinguished from contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does he refer to the contract itself?
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can cover both steps leading to a contract and already a consummated contract, Mr. Presiding Officer.
Mr. Suarez: This contemplates inclusion of negotiations leading to the consummation of the transaction.
Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.
Mr. Suarez: Thank you."[32] (Emphasis supplied)
AMARI argues there must first be a consummated contract before petitioner can invoke the right. Requiring government officials to reveal their deliberations at the pre-decisional stage will degrade the quality of decision-making in government agencies. Government officials will hesitate to express their real sentiments during deliberations if there is immediate public dissemination of their discussions, putting them under all kinds of pressure before they decide.
We must first distinguish between information the law on public bidding requires PEA to disclose publicly, and information the constitutional right to information requires PEA to release to the public. Before the consummation of the contract, PEA must, on its own and without demand from anyone, disclose to the public matters relating to the disposition of its property. These include the size, location, technical description and nature of the property being disposed of, the terms and conditions of the disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare all these data and disclose them to the public at the start of the disposition process, long before the consummation of the contract, because the Government Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding or review committee is not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals. However, once the committee makes its official recommendation, there arises a "definite proposition" on the part of the government. From this moment, the public's right to information attaches, and any citizen can access all the non-proprietary information leading to such definite proposition. In Chavez v. PCGG,[33] the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain to definite propositions of the government, not necessarily to intra-agency or inter- agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier - such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission understood that the right to information "contemplates inclusion of negotiations leading to the consummation of the transaction." Certainly, a consummated contract is not a requirement for the exercise of the right to information. Otherwise, the people can never exercise the right if no contract is consummated, and if one is consummated, it may be too late for the public to expose its defects.
Requiring a consummated contract will keep the public in the dark until the contract, which may be grossly disadvantageous to the government or even illegal, becomes a fait accompli. This negates the State policy of full transparency on matters of public concern, a situation which the framers of the Constitution could not have intended. Such a requirement will prevent the citizenry from participating in the public discussion of any proposed contract, effectively truncating a basic right enshrined in the Bill of Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by the State of its avowed "policy of full disclosure of all its transactions involving public interest."
The right covers three categories of information which are "matters of public concern," namely: (1) official records; (2) documents and papers pertaining to official acts, transactions and decisions; and (3) government research data used in formulating policies. The first category refers to any document that is part of the public records in the custody of government agencies or officials. The second category refers to documents and papers recording, evidencing, establishing, confirming, supporting, justifying or explaining official acts, transactions or decisions of government agencies or officials. The third category refers to research data, whether raw, collated or processed, owned by the government and used in formulating government policies.
The information that petitioner may access on the renegotiation of the JVA includes evaluation reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference and other documents attached to such reports or minutes, all relating to the JVA. However, the right to information does not compel PEA to prepare lists, abstracts, summaries and the like relating to the renegotiation of the JVA.[34] The right only affords access to records, documents and papers, which means the opportunity to inspect and copy them. One who exercises the right must copy the records, documents and papers at his expense. The exercise of the right is also subject to reasonable regulations to protect the integrity of the public records and to minimize disruption to government operations, like rules specifying when and how to conduct the inspection and copying.[35]
The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.[36] The right does not also apply to information on military and diplomatic secrets, information affecting national security, and information on investigations of crimes by law enforcement agencies before the prosecution of the accused, which courts have long recognized as confidential.[37] The right may also be subject to other limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner is privileged information rooted in the separation of powers. The information does not cover Presidential conversations, correspondences, or discussions during closed-door Cabinet meetings which, like internal deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house of Congress,[38] are recognized as confidential. This kind of information cannot be pried open by a co-equal branch of government. A frank exchange of exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties, is essential to protect the independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial power.[39] This is not the situation in the instant case.
We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order.[40] Congress has also prescribed other limitations on the right to information in several legislations.[41]
Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands, reclaimed or to be reclaimed, violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian doctrine which holds that the State owns all lands and waters of the public domain. Upon the Spanish conquest of the Philippines, ownership of all "lands, territories and possessions" in the Philippines passed to the Spanish Crown.[42] The King, as the sovereign ruler and representative of the people, acquired and owned all lands and territories in the Philippines except those he disposed of by grant or sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian doctrine is the foundation of the time-honored principle of land ownership that "all lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain."[43] Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission enacted Act No. 1654 which provided for the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. Later, on November 29, 1919, the Philippine Legislature approved Act No. 2874, the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. On November 7, 1936, the National Assembly passed Commonwealth Act No. 141, also known as the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. CA No. 141 continues to this day as the general law governing the classification and disposition of lands of the public domain.
The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within the maritime zone of the Spanish territory belonged to the public domain for public use.[44] The Spanish Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the provinces, pueblos or private persons, with proper permission, shall become the property of the party constructing such works, unless otherwise provided by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party undertaking the reclamation, provided the government issued the necessary permit and did not reserve ownership of the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public dominion as follows:
"Art. 339. Property of public dominion is -
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;
2. That belonging exclusively to the State which, without being of general public use, is employed in some public service, or in the development of the national wealth, such as walls, fortresses, and other works for the defense of the territory, and mines, until granted to private individuals."
Property devoted to public use referred to property open for use by the public. In contrast, property devoted to public service referred to property used for some specific public service and open only to those authorized to use the property.
Property of public dominion referred not only to property devoted to public use, but also to property not so used but employed to develop the national wealth. This class of property constituted property of public dominion although employed for some economic or commercial activity to increase the national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion into private property, to wit:
"Art. 341. Property of public dominion, when no longer devoted to public use or to the defense of the territory, shall become a part of the private property of the State."
This provision, however, was not self-executing. The legislature, or the executive department pursuant to law, must declare the property no longer needed for public use or territorial defense before the government could lease or alienate the property to private parties.[45]
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of reclaimed and foreshore lands. The salient provisions of this law were as follows:
"Section 1. The control and disposition of the foreshore as defined in existing law, and the title to all Government or public lands made or reclaimed by the Government by dredging or filling or otherwise throughout the Philippine Islands, shall be retained by the Government without prejudice to vested rights and without prejudice to rights conceded to the City of Manila in the Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause all Government or public lands made or reclaimed by the Government by dredging or filling or otherwise to be divided into lots or blocks, with the necessary streets and alleyways located thereon, and shall cause plats and plans of such surveys to be prepared and filed with the Bureau of Lands.
(b) Upon completion of such plats and plans the Governor-General shall give notice to the public that such parts of the lands so made or reclaimed as are not needed for public purposes will be leased for commercial and business purposes, x x x.
x x x
(e) The leases above provided for shall be disposed of to the highest and best bidder therefore, subject to such regulations and safeguards as the Governor-General may by executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title to all lands reclaimed by the government. The Act also vested in the government control and disposition of foreshore lands. Private parties could lease lands reclaimed by the government only if these lands were no longer needed for public purpose. Act No. 1654 mandated public bidding in the lease of government reclaimed lands. Act No. 1654 made government reclaimed lands sui generis in that unlike other public lands which the government could sell to private parties, these reclaimed lands were available only for lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No. 1654 did not prohibit private parties from reclaiming parts of the sea under Section 5 of the Spanish Law of Waters. Lands reclaimed from the sea by private parties with government permission remained private lands.
Act No. 2874 of the Philippine Legislature
On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land Act.[46] The salient provisions of Act No. 2874, on reclaimed lands, were as follows:
"Sec. 6. The Governor-General, upon the recommendation of the Secretary of Agriculture and Natural Resources, shall from time to time classify the lands of the public domain into -
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands, x x x.
Sec. 7. For the purposes of the government and disposition of alienable or disposable public lands, the Governor-General, upon recommendation by the Secretary of Agriculture and Natural Resources, shall from time to time declare what lands are open to disposition or concession under this Act."
Sec. 8. Only those lands shall be declared open to disposition or concession which have been officially delimited or classified x x x.
x x x
Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral land, shall be classified as suitable for residential purposes or for commercial, industrial, or other productive purposes other than agricultural purposes, and shall be open to disposition or concession, shall be disposed of under the provisions of this chapter, and not otherwise.
Sec. 56. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall be disposed of to private parties by lease only and not otherwise, as soon as the Governor- General, upon recommendation by the Secretary of Agriculture and Natural Resources, shall declare that the same are not necessary for the public service and are open to disposition under this chapter. The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public domain into x x x alienable or disposable"[47] lands. Section 7 of the Act empowered the Governor-General to "declare what lands are open to disposition or concession." Section 8 of the Act limited alienable or disposable lands only to those lands which have been "officially delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this title[48] shall be classified" as government reclaimed, foreshore and marshy lands, as well as other lands. All these lands, however, must be suitable for residential, commercial, industrial or other productive non-agricultural purposes. These provisions vested upon the Governor-General the power to classify inalienable lands of the public domain into disposable lands of the public domain. These provisions also empowered the Governor-General to classify further such disposable lands of the public domain into government reclaimed, foreshore or marshy lands of the public domain, as well as other non-agricultural lands.
Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain classified as government reclaimed, foreshore and marshy lands "shall be disposed of to private parties by lease only and not otherwise." The Governor-General, before allowing the lease of these lands to private parties, must formally declare that the lands were "not necessary for the public service." Act No. 2874 reiterated the State policy to lease and not to sell government reclaimed, foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands remained sui generis, as the only alienable or disposable lands of the public domain that the government could not sell to private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy public lands for non-agricultural purposes retain their inherent potential as areas for public service. This is the reason the government prohibited the sale, and only allowed the lease, of these lands to private parties. The State always reserved these lands for some future public service.
Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and marshy lands into other non-agricultural lands under Section 56 (d). Lands falling under Section 56 (d) were the only lands for non-agricultural purposes the government could sell to private parties. Thus, under Act No. 2874, the government could not sell government reclaimed, foreshore and marshy lands to private parties, unless the legislature passed a law allowing their sale.[49]
Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with government permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people. The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that -
"Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution. Natural resources, with the exception of public agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and limit of the grant." (Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources except public agricultural lands, which were the only natural resources the State could alienate. Thus, foreshore lands, considered part of the State's natural resources, became inalienable by constitutional fiat, available only for lease for 25 years, renewable for another 25 years. The government could alienate foreshore lands only after these lands were reclaimed and classified as alienable agricultural lands of the public domain. Government reclaimed and marshy lands of the public domain, being neither timber nor mineral lands, fell under the classification of public agricultural lands.[50] However, government reclaimed and marshy lands, although subject to classification as disposable public agricultural lands, could only be leased and not sold to private parties because of Act No. 2874.
The prohibition on private parties from acquiring ownership of government reclaimed and marshy lands of the public domain was only a statutory prohibition and the legislature could therefore remove such prohibition. The 1935 Constitution did not prohibit individuals and corporations from acquiring government reclaimed and marshy lands of the public domain that were classified as agricultural lands under existing public land laws. Section 2, Article XIII of the 1935 Constitution provided as follows:
"Section 2. No private corporation or association may acquire, lease, or hold public agricultural lands in excess of one thousand and twenty four hectares, nor may any individual acquire such lands by purchase in excess of one hundred and forty hectares, or by lease in excess of one thousand and twenty-four hectares, or by homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding two thousand hectares, may be leased to an individual, private corporation, or association." (Emphasis supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act No. 2874 to open for sale to private parties government reclaimed and marshy lands of the public domain. On the contrary, the legislature continued the long established State policy of retaining for the government title and ownership of government reclaimed and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also known as the Public Land Act, which compiled the then existing laws on lands of the public domain. CA No. 141, as amended, remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands.[51]
Section 6 of CA No. 141 empowers the President to classify lands of the public domain into "alienable or disposable"[52] lands of the public domain, which prior to such classification are inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President to "declare what lands are open to disposition or concession." Section 8 of CA No. 141 states that the government can declare open for disposition or concession only lands that are "officially delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as follows:
"Sec. 6. The President, upon the recommendation of the Secretary of Agriculture and Commerce, shall from time to time classify the lands of the public domain into -
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in like manner transfer such lands from one class to another,[53] for the purpose of their administration and disposition.
Sec. 7. For the purposes of the administration and disposition of alienable or disposable public lands, the President, upon recommendation by the Secretary of Agriculture and Commerce, shall from time to time declare what lands are open to disposition or concession under this Act.
Sec. 8. Only those lands shall be declared open to disposition or concession which have been officially delimited and classified and, when practicable, surveyed, and which have not been reserved for public or quasi-public uses, nor appropriated by the Government, nor in any manner become private property, nor those on which a private right authorized and recognized by this Act or any other valid law may be claimed, or which, having been reserved or appropriated, have ceased to be so. x x x."
Thus, before the government could alienate or dispose of lands of the public domain, the President must first officially classify these lands as alienable or disposable, and then declare them open to disposition or concession. There must be no law reserving these lands for public or quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public domain, are as follows:
"Sec. 58. Any tract of land of the public domain which, being neither timber nor mineral land, is intended to be used for residential purposes or for commercial, industrial, or other productive purposes other than agricultural, and is open to disposition or concession, shall be disposed of under the provisions of this chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case may be, to any person, corporation, or association authorized to purchase or lease public lands for agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be disposed of to private parties by lease only and not otherwise, as soon as the President, upon recommendation by the Secretary of Agriculture, shall declare that the same are not necessary for the public service and are open to disposition under this chapter. The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable lands of the public domain. All these lands are intended for residential, commercial, industrial or other non-agricultural purposes. As before, Section 61 allowed only the lease of such lands to private parties. The government could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or those lands for non-agricultural purposes not classified as government reclaimed, foreshore and marshy disposable lands of the public domain. Foreshore lands, however, became inalienable under the 1935 Constitution which only allowed the lease of these lands to qualified private parties.
Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended for residential, commercial, industrial or other productive purposes other than agricultural "shall be disposed of under the provisions of this chapter and not otherwise." Under Section 10 of CA No. 141, the term "disposition" includes lease of the land. Any disposition of government reclaimed, foreshore and marshy disposable lands for non- agricultural purposes must comply with Chapter IX, Title III of CA No. 141,[54] unless a subsequent law amended or repealed these provisions.
In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court of Appeals,[55] Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:
"Foreshore lands are lands of public dominion intended for public use. So too are lands reclaimed by the government by dredging, filling, or other means. Act 1654 mandated that the control and disposition of the foreshore and lands under water remained in the national government. Said law allowed only the 'leasing' of reclaimed land. The Public Land Acts of 1919 and 1936 also declared that the foreshore and lands reclaimed by the government were to be "disposed of to private parties by lease only and not otherwise." Before leasing, however, the Governor-General, upon recommendation of the Secretary of Agriculture and Natural Resources, had first to determine that the land reclaimed was not necessary for the public service. This requisite must have been met before the land could be disposed of. But even then, the foreshore and lands under water were not to be alienated and sold to private parties. The disposition of the reclaimed land was only by lease. The land remained property of the State." (Emphasis supplied)
As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has remained in effect at present."
The State policy prohibiting the sale to private parties of government reclaimed, foreshore and marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore lands, however, became a constitutional edict under the 1935 Constitution. Foreshore lands became inalienable as natural resources of the State, unless reclaimed by the government and classified as agricultural lands of the public domain, in which case they would fall under the classification of government reclaimed lands.
After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands of the public domain continued to be only leased and not sold to private parties.[56] These lands remained sui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties.
Since then and until now, the only way the government can sell to private parties government reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural purposes that the government could sell to private parties.
Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands under Section 59 that the government previously transferred to government units or entities could be sold to private parties. Section 60 of CA No. 141 declares that -
"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the Secretary of Agriculture and Natural Resources, be reasonably necessary for the purposes for which such sale or lease is requested, and shall not exceed one hundred and forty-four hectares: Provided, however, That this limitation shall not apply to grants, donations, or transfers made to a province, municipality or branch or subdivision of the Government for the purposes deemed by said entities conducive to the public interest; but the land so granted, donated, or transferred to a province, municipality or branch or subdivision of the Government shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress: x x x." (Emphasis supplied)
The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority required in Section 56 of Act No. 2874.
One reason for the congressional authority is that Section 60 of CA No. 141 exempted government units and entities from the maximum area of public lands that could be acquired from the State. These government units and entities should not just turn around and sell these lands to private parties in violation of constitutional or statutory limitations. Otherwise, the transfer of lands for non-agricultural purposes to government units and entities could be used to circumvent constitutional limitations on ownership of alienable or disposable lands of the public domain. In the same manner, such transfers could also be used to evade the statutory prohibition in CA No. 141 on the sale of government reclaimed and marshy lands of the public domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a lien on these lands.[57]
In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for public purposes, the Director of Lands shall ask the Secretary of Agriculture and Commerce (now the Secretary of Natural Resources) for authority to dispose of the same. Upon receipt of such authority, the Director of Lands shall give notice by public advertisement in the same manner as in the case of leases or sales of agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall be made to the highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of alienable or disposable lands of the public domain.[58]
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the sea with government permission. However, the reclaimed land could become private land only if classified as alienable agricultural land of the public domain open to disposition under CA No. 141. The 1935 Constitution prohibited the alienation of all natural resources except public agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of property of public dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that -
"Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
x x x.
Art. 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State."
Again, the government must formally declare that the property of public dominion is no longer needed for public use or public service, before the same could be classified as patrimonial property of the State.[59] In the case of government reclaimed and marshy lands of the public domain, the declaration of their being disposable, as well as the manner of their disposition, is governed by the applicable provisions of CA No. 141.
Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those properties of the State which, without being for public use, are intended for public service or the "development of the national wealth." Thus, government reclaimed and marshy lands of the State, even if not employed for public use or public service, if developed to enhance the national wealth, are classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that -
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to the State. With the exception of agricultural, industrial or commercial, residential, and resettlement lands of the public domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, development, exploitation, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for not more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases, beneficial use may be the measure and the limit of the grant." (Emphasis supplied)
The 1973 Constitution prohibited the alienation of all natural resources with the exception of "agricultural, industrial or commercial, residential, and resettlement lands of the public domain." In contrast, the 1935 Constitution barred the alienation of all natural resources except "public agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution encompassed industrial, commercial, residential and resettlement lands of the public domain.[60] If the land of public domain were neither timber nor mineral land, it would fall under the classification of agricultural land of the public domain. Both the 1935 and 1973 Constitutions, therefore, prohibited the alienation of all natural resources except agricultural lands of the public domain.
The 1973 Constitution, however, limited the alienation of lands of the public domain to individuals who were citizens of the Philippines. Private corporations, even if wholly owned by Philippine citizens, were no longer allowed to acquire alienable lands of the public domain unlike in the 1935 Constitution. Section 11, Article XIV of the 1973 Constitution declared that -
"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and development requirements of the natural resources, shall determine by law the size of land of the public domain which may be developed, held or acquired by, or leased to, any qualified individual, corporation, or association, and the conditions therefor. No private corporation or association may hold alienable lands of the public domain except by lease not to exceed one thousand hectares in area nor may any citizen hold such lands by lease in excess of five hundred hectares or acquire by purchase, homestead or grant, in excess of twenty-four hectares. No private corporation or association may hold by lease, concession, license or permit, timber or forest lands and other timber or forest resources in excess of one hundred thousand hectares. However, such area may be increased by the Batasang Pambansa upon recommendation of the National Economic and Development Authority." (Emphasis supplied)
Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public domain only through lease. Only individuals could now acquire alienable lands of the public domain, and private corporations became absolutely barred from acquiring any kind of alienable land of the public domain. The constitutional ban extended to all kinds of alienable lands of the public domain, while the statutory ban under CA No. 141 applied only to government reclaimed, foreshore and marshy alienable lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084 creating PEA, a wholly government owned and controlled corporation with a special charter. Sections 4 and 8 of PD No. 1084, vests PEA with the following purposes and powers:
"Sec. 4. Purpose. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands, buildings, estates and other forms of real property, owned, managed, controlled and/or operated by the government;
(c) To provide for, operate or administer such service as may be necessary for the efficient, economical and beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the purposes for which it is created, have the following powers and functions:
(a)To prescribe its by-laws.
x x x
(i) To hold lands of the public domain in excess of the area permitted to private corporations by statute.
(j) To reclaim lands and to construct work across, or otherwise, any stream, watercourse, canal, ditch, flume x x x.
x x x
(o) To perform such acts and exercise such functions as may be necessary for the attainment of the purposes and objectives herein specified." (Emphasis supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public domain. Foreshore areas are those covered and uncovered by the ebb and flow of the tide.[61] Submerged areas are those permanently under water regardless of the ebb and flow of the tide.[62] Foreshore and submerged areas indisputably belong to the public domain[63] and are inalienable unless reclaimed, classified as alienable lands open to disposition, and further declared no longer needed for public service.
The ban in the 1973 Constitution on private corporations from acquiring alienable lands of the public domain did not apply to PEA since it was then, and until today, a fully owned government corporation. The constitutional ban applied then, as it still applies now, only to "private corporations and associations." PD No. 1084 expressly empowers PEA "to hold lands of the public domain" even "in excess of the area permitted to private corporations by statute." Thus, PEA can hold title to private lands, as well as title to lands of the public domain.
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public domain, there must be legislative authority empowering PEA to sell these lands. This legislative authority is necessary in view of Section 60 of CA No.141, which states -
"Sec. 60. x x x; but the land so granted, donated or transferred to a province, municipality, or branch or subdivision of the Government shall not be alienated, encumbered or otherwise disposed of in a manner affecting its title, except when authorized by Congress; x x x." (Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and submerged alienable lands of the public domain. Nevertheless, any legislative authority granted to PEA to sell its reclaimed alienable lands of the public domain would be subject to the constitutional ban on private corporations from acquiring alienable lands of the public domain. Hence, such legislative authority could only benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian doctrine. The 1987 Constitution declares that all natural resources are "owned by the State," and except for alienable agricultural lands of the public domain, natural resources cannot be alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that -
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. x x x.
Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks. Agricultural lands of the public domain may be further classified by law according to the uses which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor." (Emphasis supplied)
The 1987 Constitution continues the State policy in the 1973 Constitution banning private corporations from acquiring any kind of alienable land of the public domain. Like the 1973 Constitution, the 1987 Constitution allows private corporations to hold alienable lands of the public domain only through lease. As in the 1935 and 1973 Constitutions, the general law governing the lease to private corporations of reclaimed, foreshore and marshy alienable lands of the public domain is still CA No. 141.
The Rationale behind the Constitutional Ban
The rationale behind the constitutional ban on corporations from acquiring, except through lease, alienable lands of the public domain is not well understood. During the deliberations of the 1986 Constitutional Commission, the commissioners probed the rationale behind this ban, thus:
"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5 which says:
`No private corporation or association may hold alienable lands of the public domain except by lease, not to exceed one thousand hectares in area.'
If we recall, this provision did not exist under the 1935 Constitution, but this was introduced in the 1973 Constitution. In effect, it prohibits private corporations from acquiring alienable public lands. But it has not been very clear in jurisprudence what the reason for this is. In some of the cases decided in 1982 and 1983, it was indicated that the purpose of this is to prevent large landholdings. Is that the intent of this provision?
MR. VILLEGAS: I think that is the spirit of the provision.
FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances where the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land where a chapel stood because the Supreme Court said it would be in violation of this." (Emphasis supplied)
In Ayog v. Cusi,[64] the Court explained the rationale behind this constitutional ban in this way:
"Indeed, one purpose of the constitutional prohibition against purchases of public agricultural lands by private corporations is to equitably diffuse land ownership or to encourage 'owner-cultivatorship and the economic family-size farm' and to prevent a recurrence of cases like the instant case. Huge landholdings by corporations or private persons had spawned social unrest."
However, if the constitutional intent is to prevent huge landholdings, the Constitution could have simply limited the size of alienable lands of the public domain that corporations could acquire. The Constitution could have followed the limitations on individuals, who could acquire not more than 24 hectares of alienable lands of the public domain under the 1973 Constitution, and not more than 12 hectares under the 1987 Constitution.
If the constitutional intent is to encourage economic family-size farms, placing the land in the name of a corporation would be more effective in preventing the break-up of farmlands. If the farmland is registered in the name of a corporation, upon the death of the owner, his heirs would inherit shares in the corporation instead of subdivided parcels of the farmland. This would prevent the continuing break-up of farmlands into smaller and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional limitation on individuals from acquiring more than the allowed area of alienable lands of the public domain. Without the constitutional ban, individuals who already acquired the maximum area of alienable lands of the public domain could easily set up corporations to acquire more alienable public lands. An individual could own as many corporations as his means would allow him. An individual could even hide his ownership of a corporation by putting his nominees as stockholders of the corporation. The corporation is a convenient vehicle to circumvent the constitutional limitation on acquisition by individuals of alienable lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only a limited area of alienable land of the public domain to a qualified individual. This constitutional intent is safeguarded by the provision prohibiting corporations from acquiring alienable lands of the public domain, since the vehicle to circumvent the constitutional intent is removed. The available alienable public lands are gradually decreasing in the face of an ever-growing population. The most effective way to insure faithful adherence to this constitutional intent is to grant or sell alienable lands of the public domain only to individuals. This, it would seem, is the practical benefit arising from the constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of three properties, namely:
1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of 1,578,441 square meters;"
2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and
3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less to regularize the configuration of the reclaimed area."[65]
PEA confirms that the Amended JVA involves "the development of the Freedom Islands and further reclamation of about 250 hectares x x x," plus an option "granted to AMARI to subsequently reclaim another 350 hectares x x x."[66]
In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares of the 750-hectare reclamation project have been reclaimed, and the rest of the 592.15 hectares are still submerged areas forming part of Manila Bay.
Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's "actual cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own expense, the reclamation of the Freedom Islands. AMARI will further shoulder all the reclamation costs of all the other areas, totaling 592.15 hectares, still to be reclaimed. AMARI and PEA will share, in the proportion of 70 percent and 30 percent, respectively, the total net usable area which is defined in the Amended JVA as the total reclaimed area less 30 percent earmarked for common areas. Title to AMARI's share in the net usable area, totaling 367.5 hectares, will be issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides that -
"x x x, PEA shall have the duty to execute without delay the necessary deed of transfer or conveyance of the title pertaining to AMARI's Land share based on the Land Allocation Plan. PEA, when requested in writing by AMARI, shall then cause the issuance and delivery of the proper certificates of title covering AMARI's Land Share in the name of AMARI, x x x; provided, that if more than seventy percent (70%) of the titled area at any given time pertains to AMARI, PEA shall deliver to AMARI only seventy percent (70%) of the titles pertaining to AMARI, until such time when a corresponding proportionate area of additional land pertaining to PEA has been titled." (Emphasis supplied)
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5 hectares of reclaimed land which will be titled in its name.
To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint venture PEA's statutory authority, rights and privileges to reclaim foreshore and submerged areas in Manila Bay. Section 3.2.a of the Amended JVA states that -
"PEA hereby contributes to the joint venture its rights and privileges to perform Rawland Reclamation and Horizontal Development as well as own the Reclamation Area, thereby granting the Joint Venture the full and exclusive right, authority and privilege to undertake the Project in accordance with the Master Development Plan."
The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and its supplemental agreement dated August 9, 1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can acquire and own under the Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in view of Sections 2 and 3, Article XII of the 1987 Constitution which state that:
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. x x x.
x x x
Section 3. x x x Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, x x x."(Emphasis supplied)
Classification of Reclaimed Foreshore and Submerged Areas
PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay are alienable or disposable lands of the public domain. In its Memorandum,[67] PEA admits that -
"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified as alienable and disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the government by dredging, filling, or other means;
x x x.'" (Emphasis supplied)
Likewise, the Legal Task Force[68] constituted under Presidential Administrative Order No. 365 admitted in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed lands are classified as alienable and disposable lands of the public domain."[69] The Legal Task Force concluded that -
"D. Conclusion
Reclaimed lands are lands of the public domain. However, by statutory authority, the rights of ownership and disposition over reclaimed lands have been transferred to PEA, by virtue of which PEA, as owner, may validly convey the same to any qualified person without violating the Constitution or any statute.
The constitutional provision prohibiting private corporations from holding public land, except by lease (Sec. 3, Art. XVII,[70] 1987 Constitution), does not apply to reclaimed lands whose ownership has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As such, foreshore and submerged areas "shall not be alienated," unless they are classified as "agricultural lands" of the public domain. The mere reclamation of these areas by PEA does not convert these inalienable natural resources of the State into alienable or disposable lands of the public domain. There must be a law or presidential proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or disposable if the law has reserved them for some public or quasi-public use.[71]
Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or concession which have been officially delimited and classified."[72] The President has the authority to classify inalienable lands of the public domain into alienable or disposable lands of the public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia,[73] the Executive Department attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by the Philippine Government for use as the Chancery of the Philippine Embassy. Although the Chancery had transferred to another location thirteen years earlier, the Court still ruled that, under Article 422[74] of the Civil Code, a property of public dominion retains such character until formally declared otherwise. The Court ruled that -
"The fact that the Roppongi site has not been used for a long time for actual Embassy service does not automatically convert it to patrimonial property. Any such conversion happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be part of the public domain, not available for private appropriation or ownership 'until there is a formal declaration on the part of the government to withdraw it from being such' (Ignacio v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for lands reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19, 1988 then President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for the 157.84 hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April 9, 1999 the Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title corresponding to land patents. To this day, these certificates of title are still in the name of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085 and President Aquino's issuance of a land patent also constitute a declaration that the Freedom Islands are no longer needed for public service. The Freedom Islands are thus alienable or disposable lands of the public domain, open to disposition or concession to qualified parties.
At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed the Freedom Islands although subsequently there were partial erosions on some areas. The government had also completed the necessary surveys on these islands. Thus, the Freedom Islands were no longer part of Manila Bay but part of the land mass. Section 3, Article XII of the 1987 Constitution classifies lands of the public domain into "agricultural, forest or timber, mineral lands, and national parks." Being neither timber, mineral, nor national park lands, the reclaimed Freedom Islands necessarily fall under the classification of agricultural lands of the public domain. Under the 1987 Constitution, agricultural lands of the public domain are the only natural resources that the State may alienate to qualified private parties. All other natural resources, such as the seas or bays, are "waters x x x owned by the State" forming part of the public domain, and are inalienable pursuant to Section 2, Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because CDCP, then a private corporation, reclaimed the islands under a contract dated November 20, 1973 with the Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law of Waters of 1866, argues that "if the ownership of reclaimed lands may be given to the party constructing the works, then it cannot be said that reclaimed lands are lands of the public domain which the State may not alienate."[75] Article 5 of the Spanish Law of Waters reads as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the provinces, pueblos or private persons, with proper permission, shall become the property of the party constructing such works, unless otherwise provided by the terms of the grant of authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea only with "proper permission" from the State. Private parties could own the reclaimed land only if not "otherwise provided by the terms of the grant of authority." This clearly meant that no one could reclaim from the sea without permission from the State because the sea is property of public dominion. It also meant that the State could grant or withhold ownership of the reclaimed land because any reclaimed land, like the sea from which it emerged, belonged to the State. Thus, a private person reclaiming from the sea without permission from the State could not acquire ownership of the reclaimed land which would remain property of public dominion like the sea it replaced.[76] Article 5 of the Spanish Law of Waters of 1866 adopted the time-honored principle of land ownership that "all lands that were not acquired from the government, either by purchase or by grant, belong to the public domain."[77]
Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on the disposition of public lands. In particular, CA No. 141 requires that lands of the public domain must first be classified as alienable or disposable before the government can alienate them. These lands must not be reserved for public or quasi-public purposes.[78] Moreover, the contract between CDCP and the government was executed after the effectivity of the 1973 Constitution which barred private corporations from acquiring any kind of alienable land of the public domain. This contract could not have converted the Freedom Islands into private lands of a private corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the reclamation of areas under water and revested solely in the National Government the power to reclaim lands. Section 1 of PD No. 3-A declared that -
"The provisions of any law to the contrary notwithstanding, the reclamation of areas under water, whether foreshore or inland, shall be limited to the National Government or any person authorized by it under a proper contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of areas under water could now be undertaken only by the National Government or by a person contracted by the National Government. Private parties may reclaim from the sea only under a contract with the National Government, and no longer by grant or permission as provided in Section 5 of the Spanish Law of Waters of 1866.
Executive Order No. 525, issued on February 14, 1979, designated PEA as the National Government's implementing arm to undertake "all reclamation projects of the government," which "shall be undertaken by the PEA or through a proper contract executed by it with any person or entity." Under such contract, a private party receives compensation for reclamation services rendered to PEA. Payment to the contractor may be in cash, or in kind consisting of portions of the reclaimed land, subject to the constitutional ban on private corporations from acquiring alienable lands of the public domain. The reclaimed land can be used as payment in kind only if the reclaimed land is first classified as alienable or disposable land open to disposition, and then declared no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares which are still submerged and forming part of Manila Bay. There is no legislative or Presidential act classifying these submerged areas as alienable or disposable lands of the public domain open to disposition. These submerged areas are not covered by any patent or certificate of title. There can be no dispute that these submerged areas form part of the public domain, and in their present state are inalienable and outside the commerce of man. Until reclaimed from the sea, these submerged areas are, under the Constitution, "waters x x x owned by the State," forming part of the public domain and consequently inalienable. Only when actually reclaimed from the sea can these submerged areas be classified as public agricultural lands, which under the Constitution are the only natural resources that the State may alienate. Once reclaimed and transformed into public agricultural lands, the government may then officially classify these lands as alienable or disposable lands open to disposition. Thereafter, the government may declare these lands no longer needed for public service. Only then can these reclaimed lands be considered alienable or disposable lands of the public domain and within the commerce of man.
The classification of PEA's reclaimed foreshore and submerged lands into alienable or disposable lands open to disposition is necessary because PEA is tasked under its charter to undertake public services that require the use of lands of the public domain. Under Section 5 of PD No. 1084, the functions of PEA include the following: "[T]o own or operate railroads, tramways and other kinds of land transportation, x x x; [T]o construct, maintain and operate such systems of sanitary sewers as may be necessary; [T]o construct, maintain and operate such storm drains as may be necessary." PEA is empowered to issue "rules and regulations as may be necessary for the proper use by private parties of any or all of the highways, roads, utilities, buildings and/or any of its properties and to impose or collect fees or tolls for their use." Thus, part of the reclaimed foreshore and submerged lands held by the PEA would actually be needed for public use or service since many of the functions imposed on PEA by its charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government." The same section also states that "[A]ll reclamation projects shall be approved by the President upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract executed by it with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became the primary implementing agency of the National Government to reclaim foreshore and submerged lands of the public domain. EO No. 525 recognized PEA as the government entity "to undertake the reclamation of lands and ensure their maximum utilization in promoting public welfare and interests."[79] Since large portions of these reclaimed lands would obviously be needed for public service, there must be a formal declaration segregating reclaimed lands no longer needed for public service from those still needed for public service.
Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be owned by the PEA," could not automatically operate to classify inalienable lands into alienable or disposable lands of the public domain. Otherwise, reclaimed foreshore and submerged lands of the public domain would automatically become alienable once reclaimed by PEA, whether or not classified as alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525, vests in the Department of Environment and Natural Resources ("DENR" for brevity) the following powers and functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
x x x
(4) Exercise supervision and control over forest lands, alienable and disposable public lands, mineral resources and, in the process of exercising such control, impose appropriate taxes, fees, charges, rentals and any such form of levy and collect such revenues for the exploration, development, utilization or gathering of such resources;
x x x
(14) Promulgate rules, regulations and guidelines on the issuance of licenses, permits, concessions, lease agreements and such other privileges concerning the development, exploration and utilization of the country's marine, freshwater, and brackish water and over all aquatic resources of the country and shall continue to oversee, supervise and police our natural resources; cancel or cause to cancel such privileges upon failure, non-compliance or violations of any regulation, order, and for all other causes which are in furtherance of the conservation of natural resources and supportive of the national interest;
(15) Exercise exclusive jurisdiction on the management and disposition of all lands of the public domain and serve as the sole agency responsible for classification, sub-classification, surveying and titling of lands in consultation with appropriate agencies."[80] (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the State, DENR exercises "supervision and control over alienable and disposable public lands." DENR also exercises "exclusive jurisdiction on the management and disposition of all lands of the public domain." Thus, DENR decides whether areas under water, like foreshore or submerged areas of Manila Bay, should be reclaimed or not. This means that PEA needs authorization from DENR before PEA can undertake reclamation projects in Manila Bay, or in any part of the country.
DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain. Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under Sections 6[81] and 7[82] of CA No. 141. Once DENR decides that the reclaimed lands should be so classified, it then recommends to the President the issuance of a proclamation classifying the lands as alienable or disposable lands of the public domain open to disposition. We note that then DENR Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation of areas under water, while PEA is vested with the power to undertake the physical reclamation of areas under water, whether directly or through private contractors. DENR is also empowered to classify lands of the public domain into alienable or disposable lands subject to the approval of the President. On the other hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not make the reclaimed lands alienable or disposable lands of the public domain, much less patrimonial lands of PEA. Likewise, the mere transfer by the National Government of lands of the public domain to PEA does not make the lands alienable or disposable lands of the public domain, much less patrimonial lands of PEA.
Absent two official acts - a classification that these lands are alienable or disposable and open to disposition and a declaration that these lands are not needed for public service, lands reclaimed by PEA remain inalienable lands of the public domain. Only such an official classification and formal declaration can convert reclaimed lands into alienable or disposable lands of the public domain, open to disposition under the Constitution, Title I and Title III[83] of CA No. 141 and other applicable laws.[84]
PEA's Authority to Sell Reclaimed Lands
PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public domain, the reclaimed lands shall be disposed of in accordance with CA No. 141, the Public Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed lands transferred to a branch or subdivision of the government "shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress: x x x."[85] (Emphasis by PEA)
In Laurel vs. Garcia,[86] the Court cited Section 48 of the Revised Administrative Code of 1987, which states that -
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: x x x."
Thus, the Court concluded that a law is needed to convey any real property belonging to the Government. The Court declared that -
"It is not for the President to convey real property of the government on his or her own sole will. Any such conveyance must be authorized and approved by a law enacted by the Congress. It requires executive and legislative concurrence." (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that -
"The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to the contract for the reclamation and construction of the Manila-Cavite Coastal Road Project between the Republic of the Philippines and the Construction and Development Corporation of the Philippines dated November 20, 1973 and/or any other contract or reclamation covering the same area is hereby transferred, conveyed and assigned to the ownership and administration of the Public Estates Authority established pursuant to PD No. 1084; Provided, however, That the rights and interests of the Construction and Development Corporation of the Philippines pursuant to the aforesaid contract shall be recognized and respected.
Henceforth, the Public Estates Authority shall exercise the rights and assume the obligations of the Republic of the Philippines (Department of Public Highways) arising from, or incident to, the aforesaid contract between the Republic of the Philippines and the Construction and Development Corporation of the Philippines.
In consideration of the foregoing transfer and assignment, the Public Estates Authority shall issue in favor of the Republic of the Philippines the corresponding shares of stock in said entity with an issued value of said shares of stock (which) shall be deemed fully paid and non-assessable.
The Secretary of Public Highways and the General Manager of the Public Estates Authority shall execute such contracts or agreements, including appropriate agreements with the Construction and Development Corporation of the Philippines, as may be necessary to implement the above.
Special land patent/patents shall be issued by the Secretary of Natural Resources in favor of the Public Estates Authority without prejudice to the subsequent transfer to the contractor or his assignees of such portion or portions of the land reclaimed or to be reclaimed as provided for in the above-mentioned contract. On the basis of such patents, the Land Registration Commission shall issue the corresponding certificate of title." (Emphasis supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that -
"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the PEA which shall be responsible for its administration, development, utilization or disposition in accordance with the provisions of Presidential Decree No. 1084. Any and all income that the PEA may derive from the sale, lease or use of reclaimed lands shall be used in accordance with the provisions of Presidential Decree No. 1084."
There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its reclaimed lands. PD No. 1085 merely transferred "ownership and administration" of lands reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA "shall belong to or be owned by PEA." EO No. 525 expressly states that PEA should dispose of its reclaimed lands "in accordance with the provisions of Presidential Decree No. 1084," the charter of PEA.
PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled and/or operated by the government."[87] (Emphasis supplied) There is, therefore, legislative authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the public domain. PEA may sell to private parties its patrimonial properties in accordance with the PEA charter free from constitutional limitations. The constitutional ban on private corporations from acquiring alienable lands of the public domain does not apply to the sale of PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of the public domain to private individuals since, with the legislative authority, there is no longer any statutory prohibition against such sales and the constitutional ban does not apply to individuals. PEA, however, cannot sell any of its alienable or disposable lands of the public domain to private corporations since Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The legislative authority benefits only individuals. Private corporations remain barred from acquiring any kind of alienable land of the public domain, including government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by PEA to the "contractor or his assignees" (Emphasis supplied) would not apply to private corporations but only to individuals because of the constitutional ban. Otherwise, the provisions of PD No. 1085 would violate both the 1973 and 1987 Constitutions.
The requirement of public auction in the sale of reclaimed lands
Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to disposition, and further declared no longer needed for public service, PEA would have to conduct a public bidding in selling or leasing these lands. PEA must observe the provisions of Sections 63 and 67 of CA No. 141 requiring public auction, in the absence of a law exempting PEA from holding a public auction.[88] Special Patent No. 3517 expressly states that the patent is issued by authority of the Constitution and PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended." This is an acknowledgment that the provisions of CA No. 141 apply to the disposition of reclaimed alienable lands of the public domain unless otherwise provided by law. Executive Order No. 654,[89] which authorizes PEA "to determine the kind and manner of payment for the transfer" of its assets and properties, does not exempt PEA from the requirement of public auction. EO No. 654 merely authorizes PEA to decide the mode of payment, whether in kind and in installment, but does not authorize PEA to dispense with public auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing Code, the government is required to sell valuable government property through public bidding. Section 79 of PD No. 1445 mandates that -
"Section 79. When government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefor, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless or unsaleable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other authorized representative of the Commission, after advertising by printed notice in the Official Gazette, or for not less than three consecutive days in any newspaper of general circulation, or where the value of the property does not warrant the expense of publication, by notices posted for a like period in at least three public places in the locality where the property is to be sold. In the event that the public auction fails, the property may be sold at a private sale at such price as may be fixed by the same committee or body concerned and approved by the Commission."
It is only when the public auction fails that a negotiated sale is allowed, in which case the Commission on Audit must approve the selling price.[90] The Commission on Audit implements Section 79 of the Government Auditing Code through Circular No. 89-296[91] dated January 27, 1989. This circular emphasizes that government assets must be disposed of only through public auction, and a negotiated sale can be resorted to only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed foreshore and submerged alienable lands of the public domain. Private corporations are barred from bidding at the auction sale of any kind of alienable land of the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA imposed a condition that the winning bidder should reclaim another 250 hectares of submerged areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional reclaimed areas in favor of the winning bidder.[92] No one, however, submitted a bid. On December 23, 1994, the Government Corporate Counsel advised PEA it could sell the Freedom Islands through negotiation, without need of another public bidding, because of the failure of the public bidding on December 10, 1991.[93]
However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim another 350 hectares. The original JVA, a negotiated contract, enlarged the reclamation area to 750 hectares.[94] The failure of public bidding on December 10, 1991, involving only 407.84 hectares,[95] is not a valid justification for a negotiated sale of 750 hectares, almost double the area publicly auctioned. Besides, the failure of public bidding happened on December 10, 1991, more than three years before the signing of the original JVA on April 25, 1995. The economic situation in the country had greatly improved during the intervening period.
Reclamation under the BOT Law and the Local Government Code
The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and clear: "Private corporations or associations may not hold such alienable lands of the public domain except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by PEA and AMARI as legislative authority to sell reclaimed lands to private parties, recognizes the constitutional ban. Section 6 of RA No. 6957 states -
"Sec. 6. Repayment Scheme. - For the financing, construction, operation and maintenance of any infrastructure projects undertaken through the build-operate-and-transfer arrangement or any of its variations pursuant to the provisions of this Act, the project proponent x x x may likewise be repaid in the form of a share in the revenue of the project or other non-monetary payments, such as, but not limited to, the grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of the land: x x x." (Emphasis supplied)
A private corporation, even one that undertakes the physical reclamation of a government BOT project, cannot acquire reclaimed alienable lands of the public domain in view of the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes local governments in land reclamation projects to pay the contractor or developer in kind consisting of a percentage of the reclaimed land, to wit:
"Section 302. Financing, Construction, Maintenance, Operation, and Management of Infrastructure Projects by the Private Sector. x x x
x x x
In case of land reclamation or construction of industrial estates, the repayment plan may consist of the grant of a portion or percentage of the reclaimed land or the industrial estate constructed."
Although Section 302 of the Local Government Code does not contain a proviso similar to that of the BOT Law, the constitutional restrictions on land ownership automatically apply even though not expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if a corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the contractor or developer is an individual, portions of the reclaimed land, not exceeding 12 hectares[96] of non-agricultural lands, may be conveyed to him in ownership in view of the legislative authority allowing such conveyance. This is the only way these provisions of the BOT Law and the Local Government Code can avoid a direct collision with Section 3, Article XII of the 1987 Constitution.
Registration of lands of the public domain
Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public respondent PEA transformed such lands of the public domain to private lands." This theory is echoed by AMARI which maintains that the "issuance of the special patent leading to the eventual issuance of title takes the subject land away from the land of public domain and converts the property into patrimonial or private property." In short, PEA and AMARI contend that with the issuance of Special Patent No. 3517 and the corresponding certificates of titles, the 157.84 hectares comprising the Freedom Islands have become private lands of PEA. In support of their theory, PEA and AMARI cite the following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,[97] where the Court held -
"Once the patent was granted and the corresponding certificate of title was issued, the land ceased to be part of the public domain and became private property over which the Director of Lands has neither control nor jurisdiction."
2. Lee Hong Hok v. David,[98] where the Court declared -
"After the registration and issuance of the certificate and duplicate certificate of title based on a public land patent, the land covered thereby automatically comes under the operation of Republic Act 496 subject to all the safeguards provided therein."
3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,[99] where the Court ruled -
"While the Director of Lands has the power to review homestead patents, he may do so only so long as the land remains part of the public domain and continues to be under his exclusive control; but once the patent is registered and a certificate of title is issued, the land ceases to be part of the public domain and becomes private property over which the Director of Lands has neither control nor jurisdiction."
4. Manalo v. Intermediate Appellate Court,[100] where the Court held -
"When the lots in dispute were certified as disposable on May 19, 1971, and free patents were issued covering the same in favor of the private respondents, the said lots ceased to be part of the public domain and, therefore, the Director of Lands lost jurisdiction over the same."
5.Republic v. Court of Appeals,[101] where the Court stated -
"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally effected a land grant to the Mindanao Medical Center, Bureau of Medical Services, Department of Health, of the whole lot, validly sufficient for initial registration under the Land Registration Act. Such land grant is constitutive of a 'fee simple' title or absolute title in favor of petitioner Mindanao Medical Center. Thus, Section 122 of the Act, which governs the registration of grants or patents involving public lands, provides that 'Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the Government of the Philippines are alienated, granted or conveyed to persons or to public or private corporations, the same shall be brought forthwith under the operation of this Act (Land Registration Act, Act 496) and shall become registered lands.'"
The first four cases cited involve petitions to cancel the land patents and the corresponding certificates of titles issued to private parties. These four cases uniformly hold that the Director of Lands has no jurisdiction over private lands or that upon issuance of the certificate of title the land automatically comes under the Torrens System. The fifth case cited involves the registration under the Torrens System of a 12.8-hectare public land granted by the National Government to Mindanao Medical Center, a government unit under the Department of Health. The National Government transferred the 12.8-hectare public land to serve as the site for the hospital buildings and other facilities of Mindanao Medical Center, which performed a public service. The Court affirmed the registration of the 12.8- hectare public land in the name of Mindanao Medical Center under Section 122 of Act No. 496. This fifth case is an example of a public land being registered under Act No. 496 without the land losing its character as a property of public dominion.
In the instant case, the only patent and certificates of title issued are those in the name of PEA, a wholly government owned corporation performing public as well as proprietary functions. No patent or certificate of title has been issued to any private party. No one is asking the Director of Lands to cancel PEA's patent or certificates of title. In fact, the thrust of the instant petition is that PEA's certificates of title should remain with PEA, and the land covered by these certificates, being alienable lands of the public domain, should not be sold to a private corporation.
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or public ownership of the land. Registration is not a mode of acquiring ownership but is merely evidence of ownership previously conferred by any of the recognized modes of acquiring ownership. Registration does not give the registrant a better right than what the registrant had prior to the registration.[102] The registration of lands of the public domain under the Torrens system, by itself, cannot convert public lands into private lands.[103]
Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the alienable land of the public domain automatically becomes private land cannot apply to government units and entities like PEA. The transfer of the Freedom Islands to PEA was made subject to the provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued by then President Aquino, to wit:
"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the Philippines and in conformity with the provisions of Presidential Decree No. 1084, supplemented by Commonwealth Act No. 141, as amended, there are hereby granted and conveyed unto the Public Estates Authority the aforesaid tracts of land containing a total area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters; the technical description of which are hereto attached and made an integral part hereof." (Emphasis supplied)
Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale of alienable lands of the public domain that are transferred to government units or entities. Section 60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a "statutory lien affecting title" of the registered land even if not annotated on the certificate of title.[104] Alienable lands of the public domain held by government entities under Section 60 of CA No. 141 remain public lands because they cannot be alienated or encumbered unless Congress passes a law authorizing their disposition. Congress, however, cannot authorize the sale to private corporations of reclaimed alienable lands of the public domain because of the constitutional ban. Only individuals can benefit from such law.
The grant of legislative authority to sell public lands in accordance with Section 60 of CA No. 141 does not automatically convert alienable lands of the public domain into private or patrimonial lands. The alienable lands of the public domain must be transferred to qualified private parties, or to government entities not tasked to dispose of public lands, before these lands can become private or patrimonial lands. Otherwise, the constitutional ban will become illusory if Congress can declare lands of the public domain as private or patrimonial lands in the hands of a government agency tasked to dispose of public lands. This will allow private corporations to acquire directly from government agencies limitless areas of lands which, prior to such law, are concededly public lands.
Under EO No. 525, PEA became the central implementing agency of the National Government to reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525 declares that -
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency Primarily Responsible for all Reclamation Projects
Whereas, there are several reclamation projects which are ongoing or being proposed to be undertaken in various parts of the country which need to be evaluated for consistency with national programs;
Whereas, there is a need to give further institutional support to the Government's declared policy to provide for a coordinated, economical and efficient reclamation of lands;
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be limited to the National Government or any person authorized by it under proper contract;
Whereas, a central authority is needed to act on behalf of the National Government which shall ensure a coordinated and integrated approach in the reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a government corporation to undertake reclamation of lands and ensure their maximum utilization in promoting public welfare and interests; and
Whereas, Presidential Decree No. 1416 provides the President with continuing authority to reorganize the national government including the transfer, abolition, or merger of functions and offices.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution and pursuant to Presidential Decree No. 1416, do hereby order and direct the following:
Section 1. The Public Estates Authority (PEA) shall be primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government. All reclamation projects shall be approved by the President upon recommendation of the PEA, and shall be undertaken by the PEA or through a proper contract executed by it with any person or entity; Provided, that, reclamation projects of any national government agency or entity authorized under its charter shall be undertaken in consultation with the PEA upon approval of the President.
x x x ."
As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public domain. Only when qualified private parties acquire these lands will the lands become private lands. In the hands of the government agency tasked and authorized to dispose of alienable of disposable lands of the public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as well as "any and all kinds of lands." PEA can hold both lands of the public domain and private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are transferred to PEA and issued land patents or certificates of title in PEA's name does not automatically make such lands private.
To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind of alienable land of the public domain. PEA will simply turn around, as PEA has now done under the Amended JVA, and transfer several hundreds of hectares of these reclaimed and still to be reclaimed lands to a single private corporation in only one transaction. This scheme will effectively nullify the constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse equitably the ownership of alienable lands of the public domain among Filipinos, now numbering over 80 million strong.
This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to corporations and even individuals acquiring hundreds of hectares of alienable lands of the public domain under the guise that in the hands of PEA these lands are private lands. This will result in corporations amassing huge landholdings never before seen in this country - creating the very evil that the constitutional ban was designed to prevent. This will completely reverse the clear direction of constitutional development in this country. The 1935 Constitution allowed private corporations to acquire not more than 1,024 hectares of public lands.[105] The 1973 Constitution prohibited private corporations from acquiring any kind of public land, and the 1987 Constitution has unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD No. 1529, automatically become private lands is contrary to existing laws. Several laws authorize lands of the public domain to be registered under the Torrens System or Act No. 496, now PD No. 1529, without losing their character as public lands. Section 122 of Act No. 496, and Section 103 of PD No. 1529, respectively, provide as follows:
Act No. 496
"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x Government of the Philippine Islands are alienated, granted, or conveyed to persons or the public or private corporations, the same shall be brought forthwith under the operation of this Act and shall become registered lands."
PD No. 1529
"Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree." (Emphasis supplied)
Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No. 1529 includes conveyances of public lands to public corporations.
Alienable lands of the public domain "granted, donated, or transferred to a province, municipality, or branch or subdivision of the Government," as provided in Section 60 of CA No. 141, may be registered under the Torrens System pursuant to Section 103 of PD No. 1529. Such registration, however, is expressly subject to the condition in Section 60 of CA No. 141 that the land "shall not be alienated, encumbered or otherwise disposed of in a manner affecting its title, except when authorized by Congress." This provision refers to government reclaimed, foreshore and marshy lands of the public domain that have been titled but still cannot be alienated or encumbered unless expressly authorized by Congress. The need for legislative authority prevents the registered land of the public domain from becoming private land that can be disposed of to qualified private parties.
The Revised Administrative Code of 1987 also recognizes that lands of the public domain may be registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states -
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:
(1) x x x
(2) For property belonging to the Republic of the Philippines, but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality." (Emphasis supplied)
Thus, private property purchased by the National Government for expansion of a public wharf may be titled in the name of a government corporation regulating port operations in the country. Private property purchased by the National Government for expansion of an airport may also be titled in the name of the government agency tasked to administer the airport. Private property donated to a municipality for use as a town plaza or public school site may likewise be titled in the name of the municipality.[106] All these properties become properties of the public domain, and if already registered under Act No. 496 or PD No. 1529, remain registered land. There is no requirement or provision in any existing law for the de- registration of land from the Torrens System.
Private lands taken by the Government for public use under its power of eminent domain become unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529 authorizes the Register of Deeds to issue in the name of the National Government new certificates of title covering such expropriated lands. Section 85 of PD No. 1529 states -
"Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest therein, is expropriated or taken by eminent domain, the National Government, province, city or municipality, or any other agency or instrumentality exercising such right shall file for registration in the proper Registry a certified copy of the judgment which shall state definitely by an adequate description, the particular property or interest expropriated, the number of the certificate of title, and the nature of the public use. A memorandum of the right or interest taken shall be made on each certificate of title by the Register of Deeds, and where the fee simple is taken, a new certificate shall be issued in favor of the National Government, province, city, municipality, or any other agency or instrumentality exercising such right for the land so taken. The legal expenses incident to the memorandum of registration or issuance of a new certificate of title shall be for the account of the authority taking the land or interest therein." (Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom Islands or of the lands to be reclaimed from submerged areas of Manila Bay. In the words of AMARI, the Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement of the original cost incurred by PEA for the earlier reclamation and construction works performed by the CDCP under its 1973 contract with the Republic." Whether the Amended JVA is a sale or a joint venture, the fact remains that the Amended JVA requires PEA to "cause the issuance and delivery of the certificates of title conveying AMARI's Land Share in the name of AMARI."[107]
This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides that private corporations "shall not hold such alienable lands of the public domain except by lease." The transfer of title and ownership to AMARI clearly means that AMARI will "hold" the reclaimed lands other than by lease. The transfer of title and ownership is a "disposition" of the reclaimed lands, a transaction considered a sale or alienation under CA No. 141,[108] the Government Auditing Code,[109] and Section 3, Article XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas form part of the public domain and are inalienable. Lands reclaimed from foreshore and submerged areas also form part of the public domain and are also inalienable, unless converted pursuant to law into alienable or disposable lands of the public domain. Historically, lands reclaimed by the government are sui generis, not available for sale to private parties unlike other alienable public lands. Reclaimed lands retain their inherent potential as areas for public use or public service. Alienable lands of the public domain, increasingly becoming scarce natural resources, are to be distributed equitably among our ever-growing population. To insure such equitable distribution, the 1973 and 1987 Constitutions have barred private corporations from acquiring any kind of alienable land of the public domain. Those who attempt to dispose of inalienable natural resources of the State, or seek to circumvent the constitutional ban on alienation of lands of the public domain to private corporations, do so at their own risk.
We can now summarize our conclusions as follows:
1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by certificates of title in the name of PEA, are alienable lands of the public domain. PEA may lease these lands to private corporations but may not sell or transfer ownership of these lands to private corporations. PEA may only sell these lands to Philippine citizens, subject to the ownership limitations in the 1987 Constitution and existing laws.
2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural resources of the public domain until classified as alienable or disposable lands open to disposition and declared no longer needed for public service. The government can make such classification and declaration only after PEA has reclaimed these submerged areas. Only then can these lands qualify as agricultural lands of the public domain, which are the only natural resources the government can alienate. In their present state, the 592.15 hectares of submerged areas are inalienable and outside the commerce of man.
3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of 77.34 hectares[110] of the Freedom Islands, such transfer is void for being contrary to Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares[111] of still submerged areas of Manila Bay, such transfer is void for being contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural resources other than agricultural lands of the public domain. PEA may reclaim these submerged areas. Thereafter, the government can classify the reclaimed lands as alienable or disposable, and further declare them no longer needed for public service. Still, the transfer of such reclaimed alienable lands of the public domain to AMARI will be void in view of Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain.
Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution. Under Article 1409[112] of the Civil Code, contracts whose "object or purpose is contrary to law," or whose "object is outside the commerce of men," are "inexistent and void from the beginning." The Court must perform its duty to defend and uphold the Constitution, and therefore declares the Amended JVA null and void ab initio.
Seventh issue: whether the Court is the proper forum to raise the issue of whether the Amended JVA is grossly disadvantageous to the government.
Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this last issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of factual matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay Development Corporation are PERMANENTLY ENJOINED from implementing the Amended Joint Venture Agreement which is hereby declared NULL and VOID ab initio.
SO ORDERED.
LAND BANK OF THE PHILIPPINES, Petitioner, vs. EMMANUEL ONATE, Respondent. G.R. No. 192371 | 2014-01-15
SECOND DIVISION
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the December 18, 2009 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 89346, which affirmed with modification the May 31, 2006 Decision3 of the Regional Trial Court (RTC), Branch 141, Makati City. The RTC dismissed the Complaint4 for Sum of Money, which petitioner Land Bank of the Philippines (Land Bank) filed against respondent Emmanuel C. Ofiate (Ofiate), and ordered Land Bank to return the amount of 111,471,416.52 it unilaterally debited from his accounts. On separate appeals by both parties, the CA affirmed the RTC Decision with modification that Land Bank was further ordered to pay Ofiate the sums of 1!60,663,488.11 and US$3,210,222.85 representing the undocumented withdrawals and drawings from his trust accounts with 12% per annum interest compounded annually from June 21, 1991 until fully paid.
Also assailed is the CAs May 27, 2010 Resolution5 denying Land Banks Motion for Reconsideration.6
Factual Antecedents
Land Bank is a government financial institution created under Republic Act No. 3844.7 From 1978 to 1980, Oate opened and maintained seven trust accounts with Land Bank, more particularly described as follows:
Each trust account was covered by an Investment Management Account (IMA) with Full Discretion15 and has a corresponding passbook where deposits and withdrawals were recorded. Pertinent portions common to the IMAs read:
You [Land Bank] are appointed as my agent with full powers and discretion, subject only to the following provisions:
1. You are authorized to hold, invest and reinvest the Fund and keep the same invested, in your sole discretion, without distinction between principal and income, in any assets which you deem advisable, without being restricted to those of the character authorized for fiduciaries under any present or future law.
2. You shall have full power and authority:
(a) to treat all the Fund as one aggregate amount for purposes of investment, and to deposit all or any part thereof with a reputable bank including your own commercial banking department;
(b) to pay all costs, expenses and charges incurred in connection with the administration, preservation, maintenance and protection of the Fund and to charge the same to the Fund;
(c) to vote in person or by proxy on any stocks, bonds or other securities held by you, for my/our account;
(d) to borrow money for the Fund (from your banking department or from others) with or without giving securities from the Fund;
(e) to cause any asset of the Fund to be issued, held or registered in your name or in the name of your nominee, or in such form that title will pass by delivery, provided your records shall indicate the true ownership of such assets;
(f) to hold the Fund in cash and to invest the same in fixed income placements traded and sold by your ownMoney Market Division; and
(g) to sign all documents pertinent to the transaction which you will make in behalf of this Account.
3. All actions taken by you hereunder shall be for my account and risk. Except for willful default or gross misconduct, you shall not be liable for any loss or depreciation in the value of the assets of the Fund arising from any cause whatsoever.
4. You shall maintain accurate records of all investments, receipts, disbursements and other transactions of the Account. Records relating thereto shall be open at all reasonable times to inspection and audit by me either personally or through duly authorized representatives. Statements consisting of a balance sheet, portfolio analysis, statement of income and expenses, and summary of investment changes are to be sent to me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a statement to that effect or by failure to express objection to such accounting in writing delivered to you within thirty (30) days from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage of said period of time within which objections may be filed, without written objections having been delivered to you, such accounting shall be deemed to be approved, and you shall be released and discharged as to all items, matters and things set forth in such accounting as if such accounting had been settled and allowed by a decree of a court of competent jurisdiction, in an action or proceeding in which you and I were parties.16 (Emphasis supplied)
In a letter17 dated October 8, 1981, however, Land Bank demanded from Oate the return of P4 million it claimed to have been inadvertently deposited to Trust Account No. 01-125 as his additional funds but actually represents the total amount of the checks issued to Land Bank by its corporate borrowers as payment for their pre-terminated loans. Oate refused. To settle the matter, a meeting was held, but the parties failed to reach an agreement. Since then, the issue of miscrediting remained unsettled. Then on June 21, 1991, Land Bank unilaterally applied the outstanding balance in all of Oates trust accounts against his resulting indebtedness by reason of the miscrediting of funds. Although it exhausted the funds in all of Oates trust accounts, Land Bank was able to debit the amount of P1,528,583.48 only.18
Proceedings before the Regional Trial Court
To recoup the remaining balance of Oates indebtedness, Land Bank filed a Complaint19 for Sum of Money seeking to recover the amount of P8,222,687.8920 plus interest at the legal rate of 12% per annum computed from May 15, 1992 until fully paid. Pertinent portions of Land Banks Complaint reads:
5. By virtue of the Deeds of Revocable Trust executed on January 9, 198921 [sic] and February 5, 198922 [sic] by Philippine Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB), LANDBANK likewise became a Trustee of certain funds belonging to PVTA and PVTB.
6. As authorized under the [Deeds] of Revocable Trust, on October 10, 1980, LANDBANK invested P4 Million of the trust accounts of PVTA and PVTB, through a direct lending scheme to the following companies:
(a) Republic Telephone Company, Inc. (RETELCO), under Promissory Note No. 1145 dated October 10, 1980, for P1,021,250.00 with maturity date on November 24, 1980, subject to automatic roll-over up to October 10, 1981 at 17% interest per annum.
(b) Philippine Blooming Mills Company, Inc. (PBM), under Promissory Note (unnumbered) dated October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject to automatic roll-over up to October 10, 1981, at 17% interest per annum;
(c) Cheng Ban Yek (CBY), under Promissory Note (unnumbered) dated October 10, 1980, for P1,023,138.89, with maturity date on November 28, 1980, subject to automatic roll-over up to October 10, 1981, at 17% interest per annum;
(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under Promissory Note (unnumbered) dated October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject to automatic roll-over up to October 10, 1981, at 17% interest per annum.
x x x x
7. Pursuant to such direct loan transactions granted to the aforementioned companies, LANDBANK issued four (4) cashiers checks for P1 Million each payable to RETELCO, PBM, CBY, and PHILTOFIL x x x
8. On or about November 24 and 28, 1980, the aforesaid borrowers (RETELCO, PBM, CBY, AND PHILTOFIL), pre-terminated their corresponding loans and paid their respective obligations in the form of checks payable to LANDBANK and delivered by [Oates] representative, Mr. Eduardo Polonio.
9. When the checks were delivered, [Oate] fraudulently misrepresented to LANDBANK that they were [Oates] additional capital contribution to his personal trust account. On the basis of this misrepresentation, LANDBANK credited the payments made by the aforementioned corporate borrowers to [Oates] Trust Account No. 01-125.
10. After the payments were credited to his personal trust account, Oate proceeded to withdraw the same, to the damage and prejudice of LANDBANK as the owner thereof.23
In his Answer (With Compulsory Counterclaim),24 Oate asserted that the setoff was without legal and factual bases. He specifically denied any knowledge or involvement in the transaction between Land Bank and its clients Philippine Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB). He also denied that he made fraudulent misrepresentation to induce the bank to deposit to his Trust Account No. 01-125 as his additional capital the payments allegedly tendered by the banks corporate borrowers. He maintained that all the funds in his accounts came from legitimate sources and that he was totally unaware of and had nothing to do with the alleged miscrediting. While Oate admitted having received the October 8, 1981 demand letter, he argued that he did not acquiesce thereto and, in fact, disputed the same during a meeting with an officer of Land Bank. He also refuted Land Banks claim that it formally demanded for the return of the disputed amount as the September 3, 1991 letter25 it alluded to is not a demand letter. It was sent in response to his counsels letter requesting for an accounting of his trust accounts.
By way of compulsory counterclaim, Oate pointed out that per Balance Sheets26 as of June 30, 1982 the funds in his trust accounts already totaled P35,555,464.78. And as of January 1993, the accumulated balance of his accounts reached P229,222,160.25 and $3,472,683.94 computed as follows:
With interest at the rate of eighteen percent (18%) compounded every ninety (90) days from the third quarter of 1982 to January, 1993, the trustors equity of P35,555,464.78 has earned interest in the amount of P193,666,695.47. Adding the trustors equity to the aforesaid accrued interest thereon, [Oates] peso deposits [in] his trust accounts with plaintiff bank have an accumulated balance of P229,222,160.25 as of January 1993.
But that is not all. [Oates] dollar deposits to Trust Account No. 01-014 (which is for an Undisclosed Principal) from the period July-September, 1980 alone, already amounted to $1,690,943.78. x x x
With interest at the rate of six percent (6%) compounded every ninety (90) days from the first quarter of 1981, the said dollar deposits have earned interest of $1,781,740.16 up to January, 1993. Thus, [Oates] dollar deposits [in] Trust Account No. 01-014 have an aggregate balance of $3,472,683.94 as of January 1993.27
Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is deducted from the outstanding balance of his trust accounts as of January 1993, the bank still owes him P220,999,472.36 on top of his dollar deposits amounting to $3,472,683.94.
Oate prayed that a judgment be issued dismissing the Complaint and ordering Land Bank to pay him:
i) The sum of P220,999,472.36, representing the outstanding balance on the peso deposits [of Oates] various trust accounts as of January 1993, with interest thereon from said date at the rate of eighteen percent (18%) compounded every ninety (90) days, until the said amount is fully paid;
ii) The sum of $3,472,683.94, representing the aggregate balance as of January 1993 on [Oates] dollar deposits [in] Trust Account No. 01-014, with interest thereon from said date at the rate of six percent (6%) compounded every ninety (90) days, until the said amount is fully paid;
iii) The sum of P100,000,000.00 as and by way of moral damages;
iv) The sum of P50,000,000.00 as and by way of exemplary damages;
and
v) The sum of P15,000,000.00, or 20% of all sums collected, whichever is higher, as and for attorney's fees, the further sum of P3,000.00 as appearance fee for each hearing attended, and such other sums that may be proved during the trial as litigation expenses.28
Upon Oates motion, the RTC issued an Order29 dated May 27, 1994, creating a Board of Commissioners (the Board) for the purpose of examining the records of Oates seven trust accounts, as well as to determine the total amount of deposits, withdrawals, funds invested, earnings, and expenses incurred. It was composed of Atty. Engracio M. Escasinas, the Clerk of Court of the RTC of Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab and Ms. Adeliza M. Jaranilla representing Land Bank and Oate, respectively, as members.
Initially, the Board submitted three reports.30 But for clarity, the trial court ordered31 the Board to reconvene and to submit a consolidated report furnishing copies of the same to both parties, who were given 10 days from receipt thereof to file their respective comments thereto. The Board complied and on August 16, 2004 submitted its consolidated report.32 As summarized by the RTC, the said consolidated report revealed that there were undocumented and over withdrawals and drawings33 from Oates trust accounts:
Thus, the Commissioners Report showed that the total amount of drawings and withdrawals from each account without withdrawal slips are as follows:
In Trust Account No. 01-014, there was a total withdrawals [sic] without withdrawal slips but reflected in the passbook in the amount of P45,103,297.33 and this account showed a negative balance of P40,367,342.34. On the dollar deposit under the same trust account, there was a total [withdrawal] without withdrawal slips but reflected in the passbook in the amount of $3,210,222.85.
In Trust Account No. 01-017, there was a total withdrawal without withdrawal slips in the amount of P2,682,088.58 and there was an over withdrawal of P11,738,470.53 and $30,000.00.
In Trust Account No. 01-024, there was a total withdrawal without withdrawal slips of P900,000.00 and over withdrawal of P13,310,328.01.
In Trust Account No. 01-075, there was a total withdrawal of P500,000.00 without withdrawal slips and there was a negative balance of P33,342,132.64 and $286,399.34 on the dollar account.
In Trust Account No. 01-082, the total amount of withdrawal without withdrawal slips but reflected in the passbook was P1,782,741.86 and there was an over withdrawal of P14,031.63.
In Trust Account No. 01-089, there was a total withdrawal without withdrawal slips in the amount of P5,054,809.00 but the report indicated that there was a negative balance of P1,296,441.92.
In Trust Account No. 01-125, there was a total withdrawal without withdrawal slips in the amount of P4,640,551.34 and there was a negative balance of P58,327,459.23.34
On even date, the Board also submitted a Manifestation35 informing the RTC that its findings as to the outstanding balance of each trust account may not be accurate considering that it was not given ample opportunity to collate and sort out the documents related to each trust account and that there may have been double take up of accounts since the documents previously reviewed may have been considered again in subsequent reports.
In his Comment,36 Oate asserted that the undocumented withdrawals mentioned in the consolidated report should not be considered as cash outflows. Rather, they should be treated as unauthorized transactions and the amounts subject thereof must be credited back to his accounts.
Land Bank did not file any comment or objection to the Boards consolidated comment.
During the pre-trial conference, the parties agreed that they would submit the case for decision based on the reports of the Board after they have submitted their respective memoranda. They also stipulated on the following issues for resolution of the RTC:
1. Whether x x x Oate could claim on Trust Account Nos. 01-014 and 01-017 which were opened for an undisclosed principal;
2. Whether x x x the undocumented withdrawals and drawings are considered valid and regular and, conversely, if in the negative, whether x x x such amounts shall be credited [back] to the accounts.37
In his Memorandum38 filed on July 12, 2005, Oate reiterated that Land Bank should be held liable for the undocumented withdrawals and drawings. For its part, Land Bank posited, inter alia, that Trust Account Nos. 01-014 and 01-017 should be excluded from the computation of Oates counterclaim considering his allegation that said accounts are owned by an undisclosed principal whom/which he failed to join as indispensable party. Land Bank further theorized that Oate must answer for the negative balances as revealed by the Boards reports.39
Thereafter, the case was submitted for decision.
Ruling of the Regional Trial Court
On May 31, 2006, the RTC rendered a Decision40 dismissing Land Banks Complaint for its failure to establish that the amount of P4,086,888.89 allegedly miscredited to Oates Trust Account No. 01-125 actually came from the investments of PVTA and PVTB. Hence, the RTC ordered Land Bank to restore the total amount of P1,471,416.52 which the bank unilaterally debited from Oates five trust accounts.41
With regard to Oates counterclaim for the recovery of P220,999,472.36, as well as the alleged US$3,472,683.94 balance of his dollar deposits in Trust Account No. 01-014, the RTC ruled that under the IMAs, Land Bank had the authority to withdraw funds (as in fact it was at all times in possession of the passbooks) from Oates accounts even without a letter of instruction or withdrawal slip coming from Oate. It thus gave weight to the entries in the passbooks since the same were made in the ordinary course of business. The RTC also ruled that Oate is deemed to have approved the entries in the statements of account that were sent to him as he never interposed any objection thereto within the period given him to do so.
Anent Land Banks claim for the negative balances, the RTC likewise denied the same for Land Bank never sought them in its Complaint. Moreover, being the manager of the funds and keeper of the records, the RTC held that Land Bank should not have allowed further withdrawals if there were no more funds.
The RTC likewise debunked Land Banks argument that Oates counterclaim with respect to Trust Account Nos. 01-014 and 01-017 should be dismissed for his failure to join his undisclosed principal. According to the RTC, Land Bank should have earlier invoked such defense when it filed its answer to the counterclaim. Also, if it is true that said accounts are not owned by Oate, then the bank had no right to apply the funds in said accounts as payment for the alleged personal indebtedness of Oate.
The dispositive portion of the RTCs Decision reads:
WHEREFORE, in view of all the foregoing, decision is hereby rendered dismissing the complaint and ordering [Land Bank] to pay [Oate] the total amount of P1,471,416.52 representing the total amount of funds debited from the five (5) trust accounts of the defendant with legal rate of interest of 12% per annum, compounded yearly, effective on 21 June 1991 until fully paid.
No pronouncement as to costs.
SO ORDERED.42
Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July 11, 2006, however, the RTC denied the same.
Both parties appealed to the CA.
Ruling of the Court of Appeals
In its December 18, 2009 Decision,45 the CA denied Land Banks appeal and granted that of Oate. The CA affirmed the RTCs ruling that Land Bank failed to establish the source of the funds it claimed to have been erroneously credited to Oates account. With respect to Oates appeal, the CA agreed that he is entitled to the unaccounted withdrawals which, as found by the Board, stood at P60,663,488.11 and $3,210,222.85.46 The CAs ruling is anchored on the banks failure to observe Sections X401 and X425 of the Bangko Sentral ng Pilipinas Manual of Regulation for Banks (MORB) requiring it to give full disclosure of the services it offered and conduct its dealings with transparency, as well as to render reports that would sufficiently apprise its clients of the significant developments in the administration of their accounts. Aside from allowing undocumented withdrawals, the CA likewise noted that Land Bank failed to keep an accurate record and render an accounting of Oates accounts. For the CA, the entries in the passbooks are not sufficient because they do not specify where the funds withdrawn from Oates accounts were invested.
The dispositive portion of the CAs Decision reads:
WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.
The appeal of defendant-appellant Emmanuel Oate is hereby partially GRANTED. Accordingly, the May 31, 2006 Decision of the Regional Trial Court, Branch 141, Makati City is hereby MODIFIED in that, in addition to the previous grant of P1,471,416.52 representing the total amount of funds debited from defendant-appellant Oates trust accounts, plaintiff-appellant Land Bank is hereby ordered to pay defendant-appellant Oate the sum of P60,663,488.11 and $3,210,222.85 representing the undocumented withdrawals it debited from the latters trust account with interest at the rate of 12% per annum, compounded yearly from June 21, 1991 until fully paid.
SO ORDERED.47
Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated May 27, 2010, however, the CA denied its motion. Hence, Land Bank filed the instant Petition for Review on Certiorari based on the following issues:
Issues
1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY LBP IN OATES TRUST ACCOUNT (EXPRESS TRUST) COVERED BY AN INVESTMENT MANAGEMENT AGREEMENT (IMA) WITH FULL DISCRETION ARE SUFFICIENT TO MEET THE RULE ON PRESUMPTION OF REGULARITY OF ENTRIES IN THE COURSE OF BUSINESS PROVIDED FOR UNDER SECTION 43, RULE 130 OF THE RULES OF COURT . 2. WHETHER X X X OATE IS ENTITLED TO CLAIM FOR P1,471,416.52 WHICH IS NOT PLEADED AS COUNTERCLAIM IN HIS ANSWER PURSUANT TO SECTION 2, RULE 9 OF THE RULES OF COURT.
3. WHETHER X X X OATE IS ENTITLED TO THE AWARD OF P60,663,488.11 AND $3,210,222.85 REPRESENTING THE ALLEGED UNDOCUMENTED WITHDRAWALS DEBITED FROM HIS TRUST ACCOUNTS ON THE GROUND OF LBPS ALLEGED FAILURE TO MEET THE STANDARDS SET FORTH UNDER THE 2008 MANUAL ON REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.
4. WHETHER X X X OATE MAY SUE [ON] TRUST ACCOUNT NOS. 01-014 AND 01-017 OPENED FOR AN UNDISCLOSED PRINCIPAL WITHOUT JOINING HIS UNDISCLOSED PRINCIPAL . 5. WHETHER X X X THE AWARD OF INTEREST TO OATE AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM, COMPOUNDED YEARLY FROM JUNE 21, 1991 UNTIL FULLY PAID, IS VIOLATIVE OF ARTICLE 1959 OF THE CIVIL CODE.50
Land Banks Arguments
Land Bank disputes the ruling of both lower courts that it failed to prove the fact of miscrediting the amount of P4,086,888.89 to Oates Trust Account No. 01-125 as the deposit slips pertaining thereto were not presented. Land Bank maintains that in trust accounts the passbooks are always in the banks possession so that it can record the cash inflows and outflows even without the corresponding deposit or withdrawal slips. Citing Section 43, Rule 130 of the Rules of Court, it asserts that the entries in the passbooks must be accepted as proof of the regularity of the transactions reflected in the trust accounts, including the miscrediting of P4,086,888.89, for they were made in the regular course of business. In addition, said entries are supported by demand letters dated October 8, 198151 and September 3, 1991,52 as well as a Statement of Account53 as of May 15, 1992. Land Bank avers that Oate never questioned the statements of account and the reports it presented to him and, hence, he is deemed to have approved all of them.
Land Bank also imputes error on the lower courts in ordering the restoration of the amount of P1,471,416.52 it debited from Oates five trust accounts because he never sought it in his Answer.
Petitioner bank vigorously argues that Oate is not entitled to the undocumented withdrawals amounting to P60,663,488.11 and $3,210,222.85. According to Land Bank, in holding it liable for the said amounts, the CA erroneously relied on the 2008 MORB which was not yet in existence at the time the transactions subject of this case were made or even at the time when Land Bank filed its Complaint. In any case, Land Bank insists that it made proper accounting and apprised Oate of the status of his investments in accordance with the terms of the IMAs. In its demand letter54 dated September 3, 1991 Land Bank made a full disclosure that the total outstanding balance of all the trust accounts amounted to P1,471,416.52, but that the same was setoff to recoup the miscredited funds. It faults Oate for not interposing any objection as his silence constitutes as his approval after 30 days from receipt thereof. Land Bank asseverates that Oate could have also inspected and audited the records of his accounts at any reasonable time. But he never did.
Land Bank likewise faults the CA in treating the undocumented withdrawals as unauthorized transactions as the Boards reports do not state anything to that effect. It claims that the CAs reliance on the consolidated report in awarding the extremely huge amounts of P60,663,488.11 and $3,210,222.85 is a grievous mistake because the Board itself already manifested that said report may not be accurate. Consequently too, Land Bank asserts that the reports of the Board cannot prevail over the entries in the passbooks which were made in the regular course of business.
Land Bank further states that as computed by the Board, the amount of negative balances in Oates accounts reached P131,747,487.02 and $818,674.71.55 It thus proposes that if the CA awarded to Oate the undocumented withdrawals on the basis of the Boards reports, then it should have also awarded to Land Bank said negative balances or over withdrawals as reflected in the same reports. After all, Oate admitted in his Answer that all withdrawals from his trust accounts were done in the ordinary course of business.
Furthermore, Land Bank claims that it argued before the CA that Oate cannot sue on Trust Account Nos. 01-014 and 01-017. While Oate alleged that said accounts were opened for an undisclosed principal, he did not, however, join as an indispensable party said principal in violation of Section 3, Rule 3 of the Rules of Court.56 Unfortunately, the CA sidestepped the issue and proceeded to grant Oate the unaccounted withdrawals from said accounts in the aggregate amounts of P47,785,385.91 and $3,210,222.85. Following Quilatan v. Heirs of Lorenzo Quilatan,57 Land Bank insists that this case should be remanded to the trial court even if the issue of failure to implead an indispensable party was raised for the first time in a Motion for Reconsideration of the trial courts Decision.
Finally, Land Bank questions the ruling of the CA imposing 12% per annum rate of interest. It contends that trust accounts are in the nature of Express Trust and not in the nature of a regular deposit account where a debtor-creditor relationship exists between the bank and its depositor. It was not indebted to Oate but merely held and managed his funds. There being no loan or forbearance of money involved, in the absence of stipulation, the applicable rate of interest is only 6% per annum. Land Bank claims that the CA further erred when it compounded the 12% interest even in the absence of any such stipulation.
Oates Arguments
In opposing the Petition, Oate argues that the issues raised by Land Bank involve factual matters not proper in a petition for review on certiorari. He posits that the Petition does not fall under any of the exceptions where this Court could review factual issues.
As to Land Banks allegation that he cannot claim the funds without divulging and impleading as an indispensable party his undisclosed principal, Oate points out that in his Answer (With Compulsory Counterclaim) he alleged that Trust Account Nos. 01-014 and 01-017 were opened for an undisclosed principal. Yet Land Bank did not controvert his allegation. It is, therefore, too late in the day for Land Bank to invoke non-joinder of principal as an indispensable party. Besides, when he executed the IMAs, he was acting for himself and on behalf of an undisclosed principal. Hence, he could claim and recover the amounts owing not only to himself but also to his undisclosed principal.
Oate likewise asserts that Land Bank, as uniformly found by both lower courts, failed to prove by preponderance of evidence the fact of miscrediting. As to the demand letters adverted to by Land Bank, Oate asserts that the lower courts did not consider the same because they were not formally offered. Land Bank also failed to present competent and sufficient evidence that he admitted his indebtedness on account of the miscrediting of funds. Since Land Bank failed to prove the fact of miscrediting it had no right to debit any amount from his accounts and must restore whatever funds it had debited therefrom. Oate also denies having failed to seek the return of the funds debited from his account.
Oate further claims that in 1982 his peso trust accounts had a total balance of P35,555,464.78 while the dollar trust accounts had a balance of US$1,690,943.78. Since then, however, he never received any report or update regarding his accounts until the bank sent him financial reports dated June 30, 1991 indicating that the balances of his trust accounts had been unilaterally setoff. According to Oate, Land Banks failure to keep an accurate record of his accounts and to make proper accounting violate several circulars of the Central Bank.58 Hence, it is only proper to require the bank to return the undocumented withdrawals which, as found by the Board, amount to P60,663,488.11 and $3,210,222.82. In addition, Oate points out Land Banks failure to keep an accurate record of his accounts as shown by the huge amounts of unsupported withdrawals and drawings which constitutes willful default if not gross misconduct in violation of the IMAs which, in turn, makes the bank liable for its actions.
Anent Land Banks invocation that the entries in the passbook made in the ordinary course of business are presumed correct and regular, Oate argues that such presumption does not relieve the trustee, Land Bank in this case, from presenting evidence that the undocumented withdrawals and drawings were authorized. In any case, the presumption invoked by Land Bank does not lie as one of its elements that the entrant must be deceased or unable to testify is lacking. Land Bank cannot also excuse itself for failing to regularly submit to him accounting reports as, anyway, he was free to inspect the records at any reasonable day. Oate emphasizes that it is the duty of the bank to keep him updated with significant developments in his accounts.
In refutation of Land Banks claim to negative balances and over withdrawals, Oate posits that the bank cannot benefit from its own negligence in mismanaging the trust accounts.
Lastly, Oate defends the CAs grant of 12% per annum rate of interest as under BSP Circular No. 416, said rate shall be applied in cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged. In any event, Land Bank is estopped from disputing said rate for Land Bank itself applied the same 12% per annum rate of interest when it sought to recover the amount allegedly miscredited to his account. As to the compounding of interest, Oate claims that the parties intended that interest income shall be capitalized and shall form part of the principal.
Our Ruling
We deny the Petition.
The issues raised are factual and do not involve questions of law.
From the very start the issues involved in this case are factual the very reason why the RTC created a Board of Commissioners to assist it in examining the records pertaining to Oates accounts and determine the respective cash inflows and outflows in said accounts. Thereafter, the parties agreed to submit the case based on the Boards reports. And when the controversy reached the CA, the appellate court basically conducted an assiduous assessment of the evidentiary records.59 No question of law was ever raised for determination of the lower courts. Now, Land Bank practically beseeches us to assess the probative weight of the documentary evidence on record to resolve the same basic issues of (i) whether Land Bank miscredited P4,086,888.89 to Trust Account No. 01-125 and (ii) whether x x x the undocumented withdrawals and drawings are considered valid and regular and, conversely, if in the negative, whether x x x such amounts shall be credited to the accounts.60
These issues could be resolved by consulting the evidence extant on records, such as the IMAs, the passbooks, the letters of instructions, withdrawal and deposit slips, statements of account, and the Boards reports. Land Banks heavy reliance on Section 43, Rule 130 of the Rules of Court61 also attests to the factual nature of the issues involved in this case. Well-settled is the rule that in petitions for review on certiorari under Rule 45, only questions of law can be raised.62 In Velayo- Fong v. Spouses Velayo,63 we defined a question of law as distinguished from a question of fact:
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of fact. (Italics supplied)
While there are recognized exceptions64 to this rule, none exists in this case.
Anent Land Banks contention that the determination of whether the CA erred in retroactively applying the 2008 MORB poses a legal question, the same deserves scant consideration. True, the CA included in its ratio decidendi a discussion on the 2008 MORB to give emphasis to the duties of banks to keep an accurate record and regularly apprise their clients of the status of their accounts. But the issue of whether Land Bank failed to comply with those duties can be resolved even without the MORB as the same duties are also imposed on Land Bank by the IMAs, the contract that primarily governs the parties in this case. As a general rule, a contract is the law between the parties. Thus, from the moment the contract is perfected, the parties are bound not only to the fulfilment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law. Also, the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written x x x.65
Based on the factual milieu of this case even without touching on the MORB, we found that Land Bank still failed to perform its bounden duties to keep accurate records and render regular accounting. We also found no cogent reason to disturb the other factual findings of the CA.
Land Bank failed to prove that the miscredited funds came from the proceeds of the pre-terminated loans of its corporate borrowers.
Land Bank argues that the entries in the passbooks were made in the regular course of business and should be accepted as prima facie evidence of the facts stated therein. But before entries made in the course of business may qualify under the exception to the hearsay rule and given weight, the party offering them must establish that: (1) the person who made those entries is dead, outside the country, or unable to testify; (2) the entries were made at, or near the time of the transaction to which they refer; (3) the entrant was in a position to know the facts stated therein; (4) the entries were made in the professional capacity or in the course of duty of the entrant; and, (5) the entries were made in the ordinary or regular course of business or duty.66
Here, Land Bank has neither identified the persons who made the entries in the passbooks nor established that they are already dead or unable to testify as required by Section 43,67 Rule 130 of the Rules of Court. Also, and as correctly opined by the CA, [w]hile the deposit entries in the banks passbook enjoy a certain degree of presumption of regularity x x x, the same do not indicate or explain the source of the funds being deposited or withdrawn from an individual account.68 They are mere prima facie proof of what are stated therein the dates of the transactions, the amounts deposited or withdrawn, and the outstanding balances. They do not establish that the total amount of P4,086,888.89 deposited in Oates Trust Account No. 01-125 in November 1980 came from the proceeds of the pre-terminated loans of Land Banks corporate borrowers. It would be too presumptuous to immediately conclude that said amount came from the checks paid to Land Bank by its corporate borrowers just because the maturity dates of the loans coincided with the dates said total amount was deposited. There must be proof showing an unbroken link between the proceeds of the pre-terminated loans and the amount allegedly miscredited to Oates Trust Account No. 01- 125. As a bank and custodian of records, Land Bank could have easily produced documents showing that its borrowers pre-terminated their loans, the checks they issued as payment for such loans, and the deposit slips used in depositing those checks. But it did not.
Land Bank did not also bother to explain how Oate or his representative, Eduardo Polonio (Polonio), obtained possession of the checks when, according to it, the corporate borrowers issued the checks in its name as payment for their loans.69 Under paragraph 8 of its Complaint, Land Bank alleged that its corporate borrowers paid their respective obligations in the form of checks payable to LANDBANK x x x.70 If it is true, then why were the checks credited to Oates account? Unless subsequently endorsed to Oate, said checks can only be deposited in the account of the payee appearing therein. We cannot thus lend credence to Land Banks excuse that the proximate cause of the alleged miscrediting was the fraudulent representation of Polonio, for assuming that the latter indeed employed fraudulent machinations, with the degree of prudence expected of banks, Land Bank and its tellers could have easily detected that Oate was not the intended payee. In Traders Royal Bank v. Radio Philippines Network, Inc.,71 we held that petitioner bank was remiss in its duty and obligation for accepting and paying a check to a person other than the payee appearing on the face of the check sans valid endorsement. Consequently, it was made liable for its own negligence and in disregarding established banking rules and procedures.
We are also groping in the dark as to the number of checks allegedly deposited by Polonio to Oates Trust Account No. 01-125. According to Land Bank, the entire amount of P4,086,888.89 represents the proceeds of the preterminated loans of four of its clients, namely, RETELCO, PBM, CBY and PHILTOFIL. But it could only point to two entries made on two separate dates in the passbook as reproduced below:
Were there only two checks issued as payment for the separate loans of these four different entities? These hanging questions only confirm the correctness of the lower courts uniform conclusion that Land Bank failed to prove that the amount allegedly miscredited to Oates account came from the proceeds of the pre-terminated loans of its clients. It is worth emphasizing that in civil cases, the party making the allegations has the burden of proving them by preponderance of evidence. Mere allegation is not sufficient.73
As a consequence of its failure to prove the source of the claimed miscredited funds, Land Bank had no right to debit the total amount of P1,471,416.52 and must, therefore, restore the same.
In view of the above, Land Banks argument that the lower courts erred in ordering the return of the amount of P1,471,416.52 it debited from Oates five trust accounts since he did not seek such relief in his Answer as a counterclaim, falls flat on its face. The order to restore the debited amount is consistent with the lower courts ruling that Land Bank failed to prove that the amount of P4,086,888.89 was miscredited to Oates account and, hence, it had no right to seek reimbursement or debit any amount from his accounts in payment therefor.
Without such right, Land Bank should return the amount of P1,471,416.52 it debited from Oates accounts in its attempt to recoup what it allegedly lost due to miscrediting. Moreover, contrary to Land Banks assertion, Oate contested the banks application of the balance of his trust accounts in payment for the allegedly miscredited amount in his Answer (With Compulsory Counterclaim) for being without any factual and legal [bases].74
Land Bank was remiss in performing its duties under the IMAs and as a banking institution.
The contractual relation between Land Bank and Oate in this case is primarily governed by the IMAs. Paragraph 4 thereof expressly imposed on Land Bank the duty to maintain accurate records of all his investments, receipts, disbursements and other transactions relating to his accounts. It also obliged Land Bank to provide Oate with quarterly balance sheets, statements of income and expenses, summary of investments, etc. Thus:
4. You shall maintain accurate records of all investments, receipts, disbursements and other transactions of the Account. Records relating thereto shall be open at all reasonable times to inspection and audit by me either personally or through duly authorized representatives. Statements consisting of a balance sheet, portfolio analysis, statement of income and expenses, and summary of investment changes are to be sent to me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a statement to that effect or by failure to express objections to such accounting in writing delivered to you within thirty (30) days from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage of said period of time within which objections may be filed, without written objections having been delivered to you, such accounting shall be deemed to be approved, and you shall be released and discharged as to all items, matters and things set forth in such accounting as if such accounting had been settled and allowed by a decree of a court of competent jurisdiction, in an action or proceeding in which you and I were parties.75 (Emphasis supplied)
These are the obligations of Land Bank which it should have faithfully complied with in good faith.76 Unfortunately, Land Bank failed in its contractual duties to maintain accurate records of all investments and to regularly furnish Oate with financial statements relating to his accounts. Had Land Bank kept an accurate record there would have been no need for the creation of a Board of Commissioners or at least the latters work would have been a lot easier and more accurate. But because of Land Banks inefficient record keeping, the Board performed the tedious task of trying to reconcile messy and incomplete records. The lackadaisical attitude of Land Bank in keeping an updated record of Oates accounts is aggravated by its reluctance to accord the Board full and unrestricted access to the records when it was conducting a review of the accounts upon the orders of the trial court. Thus, in its Manifestation77 dated August 16, 2004, the Board informed the trial court that its report pertaining to outstanding balances may not be accurate because the documents were then in the custody of Land Bank and the documents to be reviewed by the Board at a designated hearing depended on what was released by the then handling lawyer of Land Bank. They were not given the opportunity to collate/sort-out the documents related to each trust account78 and the folders being reviewed contained documents related to different trust accounts.79 As a result, [t]here may have been double take up of accounts since the documents previously reviewed may have been repeatedly considered in the reports.80
For its failure to faithfully comply with its obligations under the IMAs and for having agreed to submit the case on the basis of the reports of the Board of Commissioners, the latters findings are binding on Land Bank.
Because of Land Banks failure to keep an updated and accurate record of Oates account, it would have been difficult, if not impossible, to determine with some degree of accuracy the outstanding balances in Oates accounts. Indeed, the creation of a Board of Commissioners was a significant development in this case as it facilitated the examination of the records and helped in the determination of the balances in each of Oates accounts. In a span of four years, the Board held 60 meetings and scoured the voluminous and scattered records of subject accounts. In the course thereof, it found several undocumented withdrawals and over withdrawals. Thereafter, the Board submitted its consolidated report, to which Land Bank did not file its comment despite having been given the opportunity to do so. It did not question the result of the examinations conducted by the Board, particularly the Boards computation of the outstanding balance in each account, the existence of undocumented and over withdrawals, and how often the bank sent Oate statements of account. In fact, during the pre-trial conference, Land Bank agreed to submit the case based on the reports of the Board.
Consequently, we found no cogent reason to deviate from the same course taken by the CA give weight to the consolidated report of the Board and treat it as competent and sufficient evidence of what are stated therein. After all, the dearth of evidentiary documents that could have shed light on the alleged unintended crediting and unexplained withdrawals was brought about by Land Banks failure to maintain accurate records as required by the IMAs. In Simex International (Manila), Inc. v. Court of Appeals,81 we elucidated on the nature of banking business and the responsibility of banks:
The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-today transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. x x x
The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligations to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. x x x (Emphasis supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to benefit therefrom. Time and again, we have cautioned banks to spare no effort in ensuring the integrity of the records of its clients.82 And in Philippine National Bank v. Court of Appeals,83 we held that as between parties where negligence is imputable to one and not to the other, the former must perforce bear the consequences of its neglect. In this case, the Board could have submitted a more accurate report had Land Bank faithfully complied with its duty of maintaining a complete and accurate record of Oates accounts. But the Board could not find and present the corresponding slips for the withdrawals reflected in the passbooks. In addition, and as earlier mentioned, Land Bank was less than cooperative when the Board was examining the records of Oates accounts. It did not give the Board enough leeway to go over the records systematically or in orderly fashion. Hence, we cannot allow Land Bank to benefit from possible inaccuracies in the reports.
Neither does Oates failure to exercise his rights to inspect the records and audit his accounts excuse the bank from sending the required notices, for under the IMAs it behooved upon Land Bank to keep him fully informed of the status of his investments by sending him regular reports and statements. Oates failure to inspect the record of his accounts should neither be construed as his waiver to be furnished with updates on his accounts nor authority for the bank to make undocumented withdrawals. As aptly opined by the CA:
x x x The least that Land Bank could have done was to keep a detailed quarterly report on [its] file. In this case, Land Bank did away with this procedure that made [its] records a complete mess of voluminous and meaningless records of numerous folders containing more than 7,600 leaves/pages and some 90 passbooks, with 1,355 leaves/pages of entries, corresponding to the seven (7) Trust Accounts.
The passbook entries alone are insufficient compliance with Land Banks duty to keep accurate records of all investments, receipts, disbursements and other transactions of the Account. These passbooks do not inform what investments were made on the funds withdrawn. Moreover, these passbook entries do not show if the amounts purported to have been invested were indeed received by the concerned entity, facility, or borrower. From these entries alone, Oate would have no way of knowing where his money went.84
But Land Bank next postulates that if Oate is entitled to the undocumented withdrawals on the basis of the reports of the Board, then it should also be entitled to the negative balances or over withdrawals as reflected in the same reports.
We cannot agree for a number of reasons. First, as earlier discussed, Land Bank is guilty of negligence while Oate (at least insofar as over withdrawals are concerned) is not. Had Land Bank maintained an accurate record, it would have readily detected and prevented over withdrawals. But without any qualms, Land Bank asks for the negative balances, unmindful that such claim is actually detrimental to its cause because it amounts to an admission that it allowed over withdrawals. As aptly observed by the CA:
Corollarily, the Court cannot allow Land Bank to recover the negative balances from Oates trust accounts. Examining the Commissioners Report, the Court notes that the funds of Oates trust accounts became seriously depleted due to the unaccounted withdrawals that Land Bank charged against his accounts. At any rate, those negative balances on Oates accounts show Land Banks inefficient performance in managing his trust accounts. Reasonable bank practice and prudence [dictate] that Land Bank should not have authorized the withdrawal of various sums from Oates accounts if it would result to overwithdrawals. x x x85
Second, Land Bank never prayed for the recovery of the negative balances in its Complaint.
It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what is being sought by the party. x x x Due process considerations require that judgments must conform to and be supported by the pleadings and evidence presented in court. In Development Bank of the Philippines v. Teston,86 this Court expounded that:
Due process considerations justify this requirement. It is improper to enter an order which exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing party an opportunity to be heard with respect to the proposed relief. The fundamental purpose of the requirement that allegations of a complaint must provide the measure of recovery is to prevent surprise to the defendant.87
Last, during the pre-trial conference, the issue of the validity of undocumented withdrawals was properly put into issue. The parties also agreed, as a collateral issue, that should it appear that the bank was not authorized to make the undocumented withdrawals, the next issue for consideration would be whether the amount subject thereof should be credited back to Oates accounts.88 The case of negative balances as alluded to by Land Bank, however, is different. It was never put into issue during the pre-trial conference. In Caltex (Philippines), Inc. v. Court of Appeals,89 we held that to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination of issues at a pre-trial conference bars the consideration of other questions on appeal. Land Bank interposed its claim to the negative balances for the first time only when it filed its Memorandum with the RTC.
Land Bank knew from the start and admitted during trial that Trust Account Nos. 01-014 and 01-017 do not belong to Oate; hence, it should not have debited any amount therefrom to compensate for the alleged personal indebtedness of Oate.
Land Bank claims that Oate cannot sue on Trust Account Nos. 01-014 and 01-017 without joining as an indispensable party his undisclosed principal.
But if anyone in this case is guilty of failing to join an indispensable party, it is Land Bank that first committed a violation. The IMAs covering Trust Account Nos. 01-014 and 01-017 attached as Annexes A90 and B,91 respectively, of Land Banks Complaint clearly state that Oate signed the same FOR: UNDISCLOSED PRINCIPAL. As party to the said IMAs, Land Bank knew and ought not to forget that Oate is merely an agent and not the owner of the funds in said accounts. Yet Land Bank garnished the total amount of P792,595.25 from Trust Account Nos. 01-014 and 01-017 to answer for the alleged personal indebtedness of Oate. Worse, when Land Bank filed its Complaint for Sum of Money, it did not implead said undisclosed principal or inform the trial court thereof. Now that Oate is seeking the restoration of the amounts debited and withdrawn without withdrawal slips from said accounts, Land Bank is invoking the defense of failure to implead an indispensable party. We cannot allow Land Bank to do this. As aptly observed by the trial court:
Under the circumstances obtaining, it is highly unfair, unjust and iniquitous, to dismiss the suit with respect to the two Trust Accounts after [Land Bank] had garnished the balances of said accounts to pay the alleged indebtedness of [Oate] allegedly incurred by the erroneous crediting of P4 million to x x x Trust Account No. 01-125 which does not appear to be owned by an undisclosed principal. Trust Account No. 01-125 is [Oates] personal trust account with plaintiff. Stated differently, [Land Bank] having now recognized and admitted that Trust Account Nos. 01-014 and 01-017 were not owned by [Oate], it has perforce no right, nay unlawful for it, to apply the funds in said accounts to pay the alleged indebtedness of [Oates] personal account. Equity and justice so demand that the funds be restored to Trust Account Nos. 01-014 and 01-017.92
Oate protested the contents of the statements of account at the earliest opportunity.
As to Land Banks insistence that Oate is deemed to have accepted the contents of the statements of account for his failure to manifest his objection thereto within 30 days from receipt thereof, it should be recalled that from the time the alleged miscrediting occurred in November 1980, the first communication coming from Land Bank was its letter dated October 8, 1981.93 This, however, was the subject of a failed negotiation between the parties. Besides, said letter can hardly be considered as an statement that would apprise Oate of the status of his investments. It is not a balance sheet, portfolio analysis, statement of income and expenses or a summary of investment changes as contemplated in paragraph 4 of the IMAs. It is a demand letter seeking the return of the alleged miscredited amount. The same goes true with Land Banks letter dated September 3, 1991. As can be readily seen from its opening paragraph, said letter is in response to Oates demand for information regarding the offsetting,94 which Oate protested and is now one of the issues involved in this case. In fine, it cannot be said that Oate approved and adopted the outstanding balances in his accounts for his failure to object to the contents of those letters within the 30-day period allotted to him under the IMAs.
From what is available on the voluminous records of this case and as borne out by the Boards consolidated report dated August 16, 2004, the statements which Land Bank sent to Oate are only the following:
Based on the Annexes95 attached to Oates Answer (With Compulsory Counterclaim)
The patent wide gap between the time Land Bank furnished Oate with Balance Sheets as of June 30, 1982 and the date it sent him an Statement of Income and Expenses, as well as a Balance Sheet, on March 31, 1990 is a clear and gross violation of the IMAs requiring it to furnish him with balance sheet, portfolio analysis, statement of income and expenses and the like, quarterly. As to the reports dated June 30, 1991 and letters subsequent thereto, it should be noted that during those times Oate had already interposed his objections to the outstanding balances of his accounts.96
The proper rate of legal interest.
Land Banks argument that the lower courts erred in imposing 12% per annum rate of interest is likewise devoid of merit. The unilateral offsetting of funds without legal justification and the undocumented withdrawals are tantamount to forbearance of money. In the analogous case of Estores v. Supangan,97 we held that [the] unwarranted withholding of the money which rightfully pertains to [another] amounts to forbearance of money which can be considered as an involuntary loan. Following Eastern Shipping Lines, Inc. v. Court of Appeals,98 therefore, the applicable rate of interest in this case is 12% per annum. Besides, Land Bank is estopped from assailing the award of 12% per annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the outstanding indebtedness of Oate by using the same 12% per annum rate of interest. It was only after the lower courts rendered unfavorable decisions that Land Bank started to insist that the applicable rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum rate of interest should commence. Recall that both the RTC and the CA reckoned the running of the 12% per annum rate of interest from June 21, 1991, or the day Land Bank unilaterally applied the outstanding balance in all of Oates trust accounts, until fully paid. The compounding of interest, on the other hand, was based on the provision of the IMAs granting Land Bank to hold, invest and reinvest the Fund and keep the same invested, in your sole discretion, without distinction between principal and income.
While we find sufficient basis for the compounding of interest, we find it necessary however to modify the commencement date. In Eastern Shipping,99 it was observed that the commencement of when the legal interest should start to run varies depending on the factual circumstances obtaining in each case.100 As a rule of thumb, it was suggested that where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made101 (at which time the quantification of damages may be deemed to have been reasonably ascertained).102
In the case at bench, while Oate protested the setting off, no proof was presented that he formally demanded for the return of the amount so debited prior to the filing of the Complaint. Quite understandably so because at that time he could not determine with some degree of certainty the outstanding balances of his accounts as Land Bank neglected on its duty to keep him updated on the status of his accounts. Land Bank even undertook to furnish him with the exact computation103 of what remains in his accounts after the set off. But this never happened until Land Bank initiated the Complaint on September 7, 1992. Oate, on the other hand, filed his Answer (With Compulsory Counterclaim) on May 26, 1993. In other words, we cannot reckon the running of the interest prior to the filing of the Complaint or Oates Counterclaim as no demand prior thereto was made. Neither could the interest commence to run at the time of filing of any of aforesaid pleadings (as to constitute judicial demand) since the undocumented withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well as the amount actually debited from all of Oates accounts, were determined only after the Board submitted its consolidated report on August 16, 2004 or more than 10 years after Land Bank and Oate filed their Complaint and Answer, respectively. Note too that while Oate sought to recover the amount of undocumented withdrawals before the RTC,104 the same was denied in the latters May 31, 2006 Decision. The RTC granted Oate only the total amount of funds debited from his trust accounts. It was only when the CA rendered its December 18, 2009 Decision that Oate was awarded the undocumented withdrawals. Hence, we find it just and proper to reckon the running of the interest of 12% per annum, compounded yearly, for the debited amount and undocumented withdrawals on different dates. The debited amount of P1,471,416.52, shall earn interest beginning May 31, 2006 or the day the RTC rendered its Decision granting said amount to Oate. As to the undocumented withdrawals of P60,663,488.11 and US$3,210,222.85, the legal rate of interest should start to run the day the CA promulgated its Decision on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued Resolution No. 796 dated May 16, 2013, stating that in the absence of express stipulation between the parties, the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, which took effect on July 1, 2013. Hence, the 12% annual interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the debited amount and undocumented withdrawals shall be 6% per annum, compounded annually, until fully paid.
WHEREFORE, the Petition is hereby DENIED and the December 18, 2009 Decision of the Court of Appeals in CA-G.R. CV No. 89346 is AFFIRMED with modification in that the interest of 12% per annum, compounded annually, for the debited amount of Pl,471,416.52 shall commence to run on May 31, 2006, while the same rate of interest shall apply to the undocumented withdrawals in the amounts of P60,663,488.11 and US$3,210,222.85 starting December 18, 2009. Beginning July 1, 2013, however, the applicable rate of interest on all amounts awarded shall earn interest at the rate of 6% per annum, compounded yearly, until fully paid.
SO ORDERED.
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. PEDRING CALIXTRO, CELSO FERRER and LOUIE FERRER, accused, PEDRING CALIXTRO, accused-appellant.
The Solicitor General for plaintiff-appellee. Eliseo A. Mendoza for accused-appellant. G.R. No. 92355 | 1991-01-24
D E C I S I O N
PARAS, J.:
This is an appeal from the decision of the Regional Trial Court, Branch 33, Guimba, Nueva Ecija, in Criminal Case No. 536-G1 entitled "People of the Philippines v. Pedring Calixtro, Celso Ferrer and Louie Ferrer", convicting the accused-appellant, Pedring Calixtro, of the crime of rape (Rollo, pp. 22- 26).
The accused Pedring Calixtro, Celso Ferrer and Louie Ferrer were charged with the crime of Robbery with Rape under the following information:
"That on or about the 24th day of April, 1989 in Barangay Faigal, Municipality of Guimba, Province of Nueva Ecija, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused being then armed with sharp-pointed instrument (patalim), conspiring, confederating and helping one another, and with intent to gain and by means of force and violence and intimidation upon person, did then and there willfully, unlawfully and feloniously take, steal and carry away one (1) gold ring with three (3) stones of diamond and one (1) pair of earrings with one stone diamond with a total value of TEN THOUSAND PESOS (P10,000.00) Philippine Currency, more or less, belonging to EDELIZA ASTELERO to the damage and prejudice of the latter in the said amount; and that during or on the occasion of the robbery, the said three (3) accused conspiring, confederating and helping one another did then and there willfully, unlawfully and feloniously have sexual intercourse one after the other with said EDELIZA ASTELERO against her will.
"That the crime was committed with the aggravating circumstance of nighttime which was taken advantage of by the said accused; and as a consequence of which the complaining witness suffered actual, moral and consequential damageswhich could be estimated in the total sum of P100,000.00.
"CONTRARY TO LAW." (p. 7, Rollo)
The pertinent facts of the case as gathered from the records are as follows:
Edeliza Astelero, her husband Gonzalo Astelero, and an 11-year old son are residents of Barangay Faigal, Guimba, Nueva Ecija. Pedring Calixtro had been a resident of the same barangay for a year before the incident occurred.
At about 10:00 o'clock in the night of April 24, 1989, while the Astelero family were peacefully resting in their abode, Edeliza heard the barking of dogs; she peeped thru the hole of their window and she saw three male persons. She went to her husband on the bed and awakened him. Both peeped through the hole of the window where they saw three men calling from outside, "Manang, Manang, buksan mo ang pintuan." She went near the door of their hut. One of the three persons threatened her that if she would not open the door, they would blast the house with a hand grenade. She was about to open the door but they continued kicking the door to open the same (p. 8, TSN, Oct. 10, 1989). Then they hacked the wall of their house and the same fell down. She was afraid that her family would be killed, so she decided to open the door. As she was opening the door, Celso Ferrer pulled her outside of the house and threatened her not to ask for help. Then they dragged her out to the middle of the fields (pp. 9-10, TSN, Ibid.).
In the middle of the field, Celso Ferrer and Louie Ferrer took hold of her arms and pointed a bladed weapon at her neck. At that very moment, accused Pedring Calixtro told her that if she would not give her womanhood she would be killed. She pleaded for mercy but accused Pedring Calixtro succeeded in removing her duster and short pants. She struggled but the accused started hurting her thighs (p. 11, TSN, Ibid.). Pedring Calixtro succeeded in having sexual intercourse with the victim, while Celso Ferrer took off her ring and earrings. Celso Ferrer and Louie Ferrer took turns in abusing her. After the heinous acts, the three accused debated whether to kill Edeliza Astelero or not. Edeliza took the opportunity to flee while the three were discussing. She ran as fast as she could until she saw a jeep, which she later found to be carrying her husband. Thereafter she was brought to the hacienda of Bebang Adriano (pp. 12-14, TSN, Ibid.).
The testimony of complainant witness is corroborated by Rogelio de la Cruz, a barangay tanod and neighbor of the Asteleros. He testified that in the evening of April 24, 1989 at around 10:00 o'clock, more or less, the accused Pedring Calixtro, Celso Ferrer and Louie Ferrer arrived in his house, and asked him for chicken, which they told him to cook and prepare as "pulutan" but he refused.
The three consumed a bottle of wine in his house. When the three left, he followed them secretly towards the house of complainant. He saw them kicking the house and ordering the occupants to open the door. Moments later, he saw them dragging the complainant away from her house towards the field. He reported the incident to the Barangay Captain (pp. 3-8, TSN, Nov. 14, 1989).
Police Corporal Juanito Villaba testified that in the evening of April 24, 1989, while in the office of the Integrated National Police, (Guimba, Nueva Ecija, Barangay Captain Marina Quitallas and companions arrived and reported that a certain Edeliza Astelero had forcibly been taken from her house by three male persons. Officer-in-charge, Lt. Soriano, dispatched Sgt. Mendoza and other policemen to respond to the call (pp. 5-6, TSN, Nov. 21, 1989).
Dr. Diosdado Barawid testified that the victim was brought to him for examination sometime on April 25, 1989 and he made the following observation: "light blackish discoloration right hip lower portion, inner aspect; several abrasion upper portion and inner aspect, and laboratory examination of vaginal smear-positive (+) for sperm cell, 3 counted." He further testified that the abrasions or injuries sustained by Edeliza Astelero were caused by a blow and there were signs of struggle (pp. 3-7, TSN, Nov. 27, 1989).
Pedro Calixtro testified on his behald that at 5:00 p.m. on April 24, 1989 he was tendering water in his ricefield. And about 5:30 of the same afternoon he was invited by Celso Ferrer and Louie Ferrer to the house of Rogelio de la Cruz tobuy chicken. He proceeded back to the ranch after 30 minutes and attended to the water pump. That during the hours of 10:00 and 11:00 p.m. of the same night he heard shouts. He proceeded to the direction of the shouts and saw a naked woman being forced and brought away by Celso Ferrer and Louie Ferrer. Then he heard from Celso Ferrer the words "papatayin kita", being addressed to Edeliza. Witness gave to Edeliza the dress which he noticed behind her. A fist fight ensued between him and Celso. After the fight, he noticed that Edeliza ran away, whereas, he went to the watering pump.
At about 6:00 o'clock the following morning, he was apprehended by Sgt. Soriano (pp. 3-11, TSN, November 28, 1989; pp. 7-9, Brief for the Accused-Appellant; Rollo, pp. 43-45).
Of the three accused, only Pedring Calixtro was apprehended. Pedring Calixtro pleaded "not guilty" to the crime charged, thereafter, trial on the merits ensued. After trial, the court a quo rendered a decision, the dispositive portion of which reads as follows:
"WHEREFORE, the Court finds the accused Pedring Calixtro guilty beyond reasonable doubt of the crime of Rape as described under Art. 335 of the Revised Penal Code, as amended, and hereby sentences him to suffer the penalty of reclusion perpetua; and to indemnify the complainant in the amount of P30,000.00, without subsidiary imprisonment in case of insolvency.
"SO ORDERED." (pp. 26, Rollo)
Dissatisfied, Pedring Calixtro appealed and assigned the following errors, to wit:
"I THE LOWER COURT ERRED IN CATEGORICALLY PRONOUNCING THAT THE TESTIMONIES OF THE COMPLAINANT EDELIZA ASTELERO DURING THE TRIAL OF THE CASE CLEARLY ESTABLISHED THE GUILT OF ACCUSED-APPELLANT BEYOND REASONABLE DOUBT, AS NARRATED BY SAID COURT IN THE THIRD AND LONGEST PARAGRAPH OF PAGE 2 OF THE DECISION IN QUESTION.
"II THE LOWER COURT ERRED IN: STATING THAT THE ACCUSED-APPELLANT'S DEFENSE CONSISTED OF MERE DENIALS OF THE CRIME CHARGED AND ALIBI; AND IN RE-STATING THE TESTIMONIES OF SAID ACCUSED-APPELLANT IN SHORT FIRST PARAGRAPH OF PAGE 4 OF SAID DECISION.
"III THE LOWER COURT ERRED IN FINDING THAT THE COMPLAINANT HAD POSITIVELY IDENTIFIED ACCUSED-APPELLANT AS ONE OF THE PERSONS WHO SEXUALLY MOLESTED HER.
"IV THE LOWER COURT ERRED IN DISCREDITING THE TESTIMONIES OF THE ACCUSED- APPELLANT AS THE SAME WERE NOT CORROBORATED BY OTHER EVIDENCE.
"V THE LOWER COURT ERRED IN NOT FINDING COGENT REASON WHY THE COMPLAINANT SHOULD FALSELY CHARGE THE ACCUSED-APPELLANT OF THE SERIOUS CRIME OR ROBBERY WITH RAPE.
"VI THE LOWER COURT ERRED IN NOT DISCREDITING THE TESTIMONIES OF ROGELIO DE LA CRUZ.
"VII THE LOWER COURT ERRED IN ALLOWING THE COMPLAINANT TO TESTIFY IN STORY- TELLING MANNER OVER THE OBJECTION OF THE UNDERSIGNED COUNSEL; and
"VIII THE LOWER COURT ERRED IN NOT TAKING INTO CONSIDERATION IN MAKING ITS DECISION, THE ACCUSED-APPELLANT'S MEMORANDUM FILED ON JANUARY 2, 1990, PURSUANT TO THE VERBAL ORDER DATED DECEMBER 11, 1989 AND IN NOT INCLUDING SAID MEMORANDUM AND THE NOTICE OF APPEAL IN THE RECORDS OF THE CASE REMANDED TO THIS HONORABLE SUPREME COURT." (pp. 37-38, Rollo)
Under Article 335 of the Revised Penal Code, rape is committed if the accused had carnal knowledge of a woman and such act is accomplished under the following circumstances: (1) by using force or intimidation; (2) when the woman is deprived of reason or otherwise unconscious; and (3) when the woman is under twelve years of age, even though neither of the circumstances mentioned in the two next preceding paragraphs is present.
There are three settled principles to guide an appellate court in reviewing the evidence in rape cases: (1) an accusation for rape can be made with facility; it is difficult to prove it but more difficult for the person accused, though innocent, to disprove it (People v. Aldana, G.R. No. 81817, July 27, 1989); (2) in view of the intrinsic nature of the crime of rape where two persons are usually involved, the testimony of the complainant must be scrutinized with extreme caution; and (3) the evidence for the prosecution must stand or fall on its own merits, and cannot be allowed to draw strength from the weakness of the evidence for the defense (People v. Villapana, 161 SCRA 72). What is decisive in the rape charged is complainant's positive identification of the accused-appellant as the malefactor (People v. Mustacisa, 159 SCRA 227; People v. Ramilo, 146 SCRA 258).
In the case at bar, the defense depended heavily on supposed inconsistencies pervading complainant's testimony at the trial court below. Appellant pointed out alleged inconsistencies and improbabilities in the testimony of the rape victim Edeliza Astelero which allegedly cast reasonable doubt on his guilt. The most notable of these were: (a) although she testified on direct that she was alone when she peeped through the hole of their window and saw three (3) male persons, on cross, she claimed that it was she and her husband who peeped through the hole of their window; (b) while, on direct, she testified that she heard the barking of the dogs at around 10:00 p.m., on cross, she stated that she heard the barking of the dogs at around 7:00 p.m.; (c) on direct, she did not state that her assailants wore masks and that she herself was blindfolded which she mentioned only on cross; (d) she could not have recognized her assailants because they wore masks and she was blindfolded.
We find the alleged inconsistencies as too trivial, insignificant and inconsequential to merit the reversal of the trial court's decision. The inconsistencies pointed out by appellant can hardly affect the complainant's credibility. They refer to minor details or to the precise sequence of events that do not detract from the central fact of rape, on which complainant had consistently and candidly testified. A witness who is in a state of fright cannot be expected to recall with accuracy or uniformity matters connected with the main overt act (People v. Ramilo, supra). The testimonial discrepancies could have also been caused by the natural fickleness of memory, which tend to strengthen, rather than weaken, credibility as they erase any suspicion of rehearsed testimony (People v. Cayago; 158 SCRA 586). These discrepancies on minor details serve to add credence and veracity to her categorical, straightforward, and spontaneous testimony (People v. Ramilo, supra).
Minor discrepancies indicate that the witness was not previously rehearsed, and consequently strengthen her credibility. It would, perhaps, have been more suspicious if complainant had been able to pinpoint with clarity or described with precision the exact sequence of events (People v. Cayago, supra; People v. Alfonso, 153 SCRA 487). The rape victim should not be expected to keep an accurate account of the traumatic and horrifying experience she went through.
Needless to say, when the issue is one of credibility of witnesses, the findings of the trial court are generally accorded a high degree of respect, the court having observed the demeanor and deportment of witness. We find no compelling reason to deviate from this settled rule.
Appellant alleged that it was improbable for Edeliza to have recognized him when she herself was blindfolded and her assailants wore masks. Such contention is devoid of merit.
Although Edeliza was blindfolded and her assailants wore masks, she was positive in her testimony that she recognized the appellant as one of her attackers through the latter's voice. Edeliza could recognize appellant through his voice inasmuch as they are barriomates. In fact, appellant even admitted that they were friends, thus:
Q Mr. Witness, how long have you been in Faigal, Guimba, Nueva Ecija, in the ranch of Mrs. Bebang Adriano prior to April 24, 1989?
A About one (1) year, sir, that I had been staying there.
Q And during that length of time you came to know Edeliza Astelero and her husband who are also from Faigal, Guimba, Nueva Ecija, is it not?
A Yes, sir.
Q And they used to go to that ranch. In fact considering the length of time that you have known Edeliza Astelero and her husband you alleged that you are their friend and the same way that they also were your friends?
A Yes, sir. (p. 16, TSN, Nov. 18, 1989)
In People vs. Inot, 150 SCRA 322 (1987), We ruled:
". . . complainant's identification of the appellant was not based solely on the latter's physical defect, but by his voice as well, when he warned complainant, 'Flor, keep quiet.' Although complainant did not see appellant's face during the sexual act because the house was dark, nevertheless, no error could have been committed by the complainant in identifying the voice of the accused, inasmuch as complainant and appellant were neighbors . . ."
This is corroborated by the testimony of Rogelio de la Cruz who saw Pedring Calixtro, Celso Ferrer and Louie Ferrer dragged Edeliza Astelero out of her house.
Appellant put up the defense of alibi that he was looking after his irrigation task when he heard shouts, and went back after having a fist fight with Celso Ferrer.
Defense of alibi is inherently weak and cannot prevail over the positive identification of the accused (People v. Cayago, 158 SCRA 586). For the defense of alibi to succeed, the accused must establish physical impossibility and improper motive of the prosecution witnesses, which matters the accused failed to prove (People v. Alfonso, 153 SCRA 487).
Edeliza Astelero had positively identified the accused Pedring Calixtro as one of the persons who had raped her in the middle of the fields. His alibi, that he was at the ranch during the hours of 10:00 and 11:00 p.m. of April 24, 1989 and while he was looking after his farm he heard shouts, and he was the one who saved and rescued Edeliza Astelero, can only be taken with a grain of salt. Such a statement could easily be fabricated, more so when it is not corroborated by testimonies of other impartial witnesses. The accused was the lone witness for his defense. The accused could have had his testimony corroborated by presenting other persons who could well testify on what he had been doing in the evening of April 24, 1989. Mere denial of the commission of a crime cannot prevail over the positive identification made by the complaining witness.
Appellant stresses the prosecution's failure to present the husband and son of Edeliza. The expected testimony of husband and son had already been dealt upon by Edeliza Astelero and Rogelio de la Cruz. There is no cogent reason for them to corroborate what had been testified on. Besides it is the prerogative of the prosecution to choose its witnesses (People v. Quebral, 134 SCRA 425; People v. Martinez, 127 SCRA 260).
In rape, the prosecution need not present testimonies of people other than the offended party herself if the same is accurate and credible (People v. Robles, G.R. No. 53569, February 23, 1989).
Appellant questions the credibility of Rogelio de la Cruz as a witness. The former argues that being a barangay tanod, de la Cruz should have apprehended the malefactors and should have prevented the heinous crime.
De la Cruz reasoned out that he was afraid that they might kill him; the malefactors were, then, armed with deadly bladed weapons. His only weapon was a stick, which was not a match against bladed weapons. He feared for his life, such is not contrary to human nature. Thus, de la Cruz should not foolhardily attempt to stop the malefactors in his state of physical disadvantage and stake his life in the process.
The allegation that Pedring Calixtro was implicated because the real perpetrators were not arrested defies human reason.
It is hard to believe that a woman, a simple housewife and mother, would fabricate a rape charge and subject herself and family to shame, humiliation and embarrassment of a public trial. We have oftentimes ruled that a woman would not undergo the expense, trouble and inconvenience of a public trial, not to mention the scandal, embarrassment and humiliation such action inevitably invites, as well as allow an examination of her private parts, if her motive is not to bring to justice the persons who had abused her (People v. Muoz, 163 SCRA 730; People v. Cayago, 158 SCRA 586; People v. Viray 164 SCRA 135; People v. Magdaraog, 160 SCRA 153; People v. Bulosan, 160 SCRA 492; People v. Hacbang, 164 SCRA 441).
Appellant further contends that the trial court erred in allowing the complainant-witness to testify in narrative form.
This contention is likewise devoid of merit.
Usually in criminal cases, the material facts within the knowledge of a witness are elicited by questions put to him by the counsel calling him. By this means, the evidence is readily limited and confined within the issue for the reason that the relevancy of the answer can in most cases be ascertained from the character of the question (Underhill's Criminal Evidence, Sec. 387, p. 742).
While this is the general rule, it still rests within the sound discretion of the trial judge to determine whether a witness will be required to testify by question and answer, or will be permitted to testify in a narrative form (98 C.J.S., Sec. 325, p. 26). There is no legal principle which prevents a witness from giving his testimony in a narrative form if he is requested to do so by counsel. A witness may be allowed to testify by narration if it would be the best way of getting at what he knew or could state concerning the matter at issue. It would expedite the trial and would perhaps furnish the court a clearer understanding of the matters related as they occurred. Moreover, narrative testimony may be allowed if material parts of his evidence cannot be easily obtained through piecemeal testimonies. But if, in giving such testimony, the witness states matters irrelevant or immaterial or incompetent, it is the right and duty of counsel objecting to such testimony to interpose and arrest the narration by calling the attention of the court particularly to the objectionable matter and, by a motion to strike it out, obtain a ruling of the court excluding such testimony from the case (98 C.J.S., Ibid.). While a witness may be permitted in the discretion of the court to narrate his knowledge of material facts bearing upon the case without specifically being interrogated in detail, it is also within the discretion of the court to prohibit a witness from volunteering unsought information in connection with the case (5 Jones on Evidence, Sec. 2312).
Appellant takes notice of the fact that the trial court did not consider his memorandum. We find that the contents of the memorandum were passed upon in the judgment of the trial court. The arguments therein were discussed by it. The arguments presented did not raise new issues; hence, the memorandum deserves scant consideration.
We find, as the trial court found, that appellant successively raped the offended party while the other two accused held down the victim, showing that conspiracy existed. Said other two also took turns in raping. In a conspiracy, the act of one is the act of all. There are three (3) crimes of rape, appellant, having conspired with the two others, should be convicted on three counts of rape. Thus, Pedring Calixtro is also responsible for the acts of Celso Ferrer and Louie Ferrer. The case of People v. Cayago, (158 SCRA 586) is applicable in the case at bar:
"The trial court found as a fact that appellant and others, having conspired with each other, successively raped the offended party while the other held down the victim. This is adequate basis for convicting appellant Cayago of three (3) crimes of rape. The judgment of the trial court does not purport to convict Macaraeg and Capitle and would not, of course, bind them should they ever be arrested and brought to trial; they may plead any defense to which they might feel entitled, such as insanity or mistaken identity, etc."
We find the accused's guilt to have been proved beyond reasonable doubt.
ACCORDINGLY, the judgment of conviction is hereby AFFIRMED, INCREASING the penalty imposed on the appellant to three (3) penalties of RECLUSION PERPETUA, and for him to indemnify the offended party in the sum of P30,000.00 in each case for a total of P90,000.00 and to pay the costs.
SO ORDERED.
Spouses Nilo Ramos and Eliadora Ramos, Petitioners, Vs. Raul Obispo and Far East Bank and Trust Co., Respondents. G.R. No. 193804 | 2013-02-27
A discussion citing this case is available. Accommodation mortgagor
FIRST DIVISION
DECISION
VILLARAMA, JR, J.:
Assailed in this petition for review on certiorari under Rule 45 is the Decision1 dated January 27, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 82378 which reversed and set aside the Decision2 dated January 29, 2004 of the Regional Trial Court (RTC) of Quezon City, Branch 82 in Civil Case No. Q-99-38988.
The facts follow:
Petitioner Nilo Ramos and respondent Raul Obispo met each other and became best friends while they were working in Saudi Arabia as contract workers. After both had returned to the Philippines, Ramos continued to visit Obispo who has a hardware store. Sometime in August 1996, petitioners executed a Real Estate Mortgage (REM) in favor of respondent Far East Bank and Trust Company (FEBTC)-Fairview Branch, over their property covered by Transfer Certificate of Title (TCT) No. RT- 64422 (369370) of the Registry of Deeds of Quezon City. The notarized REM secured credit accommodations extended to Obispo in the amount of P1,159,096.00. On even date, the REM was registered and annotated on the aforesaid title.3
On September 17, 1999, FEBTC received a letter from petitioners informing that Obispo, to whom they entrusted their property to be used as collateral for a P250,000.00 loan in their behalf, had instead secured a loan for P1,159,096.00, and had failed to return their title despite full payment by petitioners of P250,000.00. Petitioners likewise demanded that FEBTC furnish them with documents and papers pertinent to the mortgage failing which they will be constrained to refer the matter to their lawyer for the filing of appropriate legal action against Obispo and FEBTC.4
There being no action taken by FEBTC, petitioners filed on October 12, 1999 a complaint for annulment of real estate mortgage with damages against FEBTC and Obispo. Petitioners alleged that they signed the blank REM form given by Obispo who facilitated the loan with FEBTC, and that they subsequently received the loan proceeds of P250,000.00 which they paid in full through Obispo. With their loan fully settled, they demanded the release of their title but Obispo refused to talk or see them, as he is now hiding from them. Upon verification with the Registry of Deeds of Quezon City, petitioners said they were surprised to learn that their property was in fact mortgaged for P1,159,096.00. Petitioners thus prayed that the REM be declared void and cancelled; that FEBTC be ordered to deliver to them all documents pertaining to the loan and mortgage of Obispo; and that FEBTC and Obispo be ordered to pay moral damages and attorney's fees.5
In its Answer With Compulsory Counterclaim and Cross-claim, FEBTC averred that petitioners agreed to execute the REM over their property as partial security for the loans obtained by Obispo with a total principal balance of P2,500,000.00. Since the obligation secured by the REM remains unpaid, FEBTC contended that it should not be compelled to release the mortgage on the subject property. FEBTC further asserted that petitioners are guilty of laches and their claim already barred by estoppel. Under its cross-claim, FEBTC prayed that in the event of judgment rendered in favor of petitioners, Obispo should be made liable to answer for all the claims that may be adjudged against it plus all damages it suffered.6
On motion of petitioners, Obispo was declared in default for failure to file any responsive pleading despite due receipt of summons which he personally received.
After trial, the RTC rendered its Decision in favor of the petitioners and against the respondents, as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants Raul J. Obispo and Far East Banking Trust Company (now Bank of the Philippine Islands) as follows:
a) Declaring the real estate mortgage in favor of defendant Far East Bank & Trust Company (now Bank of Philippine Islands) null and void;
b) Ordering defendant FEBTC (now BPI) to cancel the encumbrance on Transfer Certificate of Title No. RT-64422 [369370] and release and surrender the Owners Duplicate copy thereof to the herein plaintiffs;
c) Ordering defendants Obispo and FEBTC (BPI) to pay the plaintiffs jointly and severally the sum of P200,000.00 as and by way of moral damages;
d) Ordering defendants Obispo and FEBTC (BPI) to pay the plaintiffs, jointly and severally the sum of P50,000.00 as and by way of attorney's fees, and the cost of suit.
The cross-claim set forth by defendant FEBTC (BPI) against its co-defendant Obispo is hereby ordered dismissed for lack of merit.
SO ORDERED.7
FEBTC appealed to the CA which reversed the trial court's decision and dismissed the complaint, holding that petitioners were third-party mortgagors under Article 2085 of the Civil Code and that they failed to present any evidence to prove their allegations. The appellate court thus decreed:
WHEREFORE, the assailed January 29, 2004 Decision of the Regional Trial Court of Quezon City, Branch 82 in Civil Case No. Q-99-38988 is hereby REVERSED and SET ASIDE and a new one is entered DISMISSING the Complaint of plaintiffs-appellees in Civil Case No. Q-99-38988.
SO ORDERED.8
Petitioners filed a motion for reconsideration but it was denied by the CA.
Hence, this petition raising the following errors allegedly committed by the appellate court when:
I IT SET ASIDE THE DECISION DATED JANUARY 29, 2004 RENDERED BY BRANCH 82 OF THE REGIONAL TRIAL COURT OF QU[E]ZON CITY BY UPHOLDING THE VALIDITY OF THE REAL ESTATE MORTGAGE AND RULING THAT THE PETITIONERS WERE ACCOMMODATION MORTGAGORS OF RESPONDENT RAUL OBISPO DESPITE THE FACT THAT NO CONSENT TO SUCH EFFECT WAS GIVEN BY THEM AND THE PREPARATION THEREOF WAS ATTENDED BY FRAUDULENT ACTS OR MISREPRESENTATIONS;
II IT DISREGARDED EXISTING LAWS AND CURRENT JURISPRUDENCE IN NOT DECLARING THE RESPONDENT BANK AS NOT A MORTGAGEE IN GOOD FAITH DESPITE THE CONTRARY FINDING OF THE TRIAL COURT; and
III IT DISREGARDED EXISTING LAWS AND SETTLED JURISPRUDENCE WHEN IT LIKEWISE DELETED IN ITS DISPUTED DECISION THE AWARD OF DAMAGES, ATTORNEY'S FEES AND COST OF SUIT IN FAVOR OF THE PETITIONERS.9
The petition has no merit.
The validity of an accommodation mortgage is allowed under Article 2085 of the Civil Code which provides that "[t]hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property." An accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such.10
In this case, petitioners denied having executed an accommodation mortgage and claimed to have executed the REM to secure only their P250,000.00 loan and not the P1,159,096.00 personal indebtedness of Obispo. They claimed it was Obispo who filled up the REM form contrary to their instructions and faulted FEBTC for being negligent in not ascertaining the authority of Obispo and failing to furnish petitioners with copies of mortgage documents. Obispo initially gave them P100,000.00 and the balance was given a few months later. After supposedly completing payment of the amount of P250,000.00 to Obispo, petitioners discovered that the REM secured a bigger amount. Because of the alleged fraud committed upon them by Obispo who made them sign the REM form in blank, petitioners sought to have the REM annulled and their title over the mortgaged property released by FEBTC. In other words, since their consent to the REM was vitiated, judicial declaration of its nullity is in order. The RTC granted relief to petitioners while the CA found the subject REM as a valid third-party or accommodation mortgage due to petitioners' failure to substantiate their allegations with the requisite quantum of evidence.
We sustain the decision of the CA.
In civil cases, basic is the rule that the party making allegations has the burden of proving them by a preponderance of evidence. Moreover, parties must rely on the strength of their own evidence, not upon the weakness of the defense offered by their opponent. This principle equally holds true, even if the defendant had not been given the opportunity to present evidence because of a default order. The extent of the relief that may be granted can only be as much as has been alleged and proved with preponderant evidence required under Section 1 of Rule 133 of the Revised Rules on Evidence.11
Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in opposition thereto.12
As to fraud, the rule is that he who alleges fraud or mistake affecting a transaction must substantiate his allegation, since it is presumed that a person takes ordinary care of his concerns and that private transactions have been fair and regular.13 The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.14 Moreover, fraud is not presumed - it must be proved by clear and convincing evidence.15
In this case, petitioners' testimonial evidence failed to convince that Obispo deceived them as to the debt secured by the REM. Petitioners' factual allegations are not firmly supported by the evidence on record and even inconsistent with ordinary experience and common sense.
While petitioners admitted they knew it was from FEBTC they will secure a loan, it was unbelievable for them to simply accept the P250,000.00 loan proceeds without seeing any document or voucher evidencing release of such amount by the bank containing the details of the transaction such as monthly amortization, interest rate and added charges. It is difficult to believe petitioners' simplistic explanation that they requested documents from Obispo but the latter would not give them any. Such failure of Obispo to produce any receipt or document at all coming from the bank should have, at the first instance, alerted the petitioners that something was amiss in the loan transaction for which they voluntarily executed the REM with their own property as collateral. Not only that, despite being aware of the absence of any document to ascertain if Obispo indeed filled up the REM contract form in accordance with their instructions, petitioners accepted the supposed loan proceeds in the form of personal checks issued by Obispo who claimed to have an account with FEBTC, instead of checks issued by the bank itself. These alleged checks were not submitted in evidence by the petitioners who could have easily obtained copies or record proving their issuance and encashment.
Another disturbing fact is why, despite having signed the REM contract in their name as mortgagors, petitioners did not go directly to the bank to pay their loan. One is also tempted to ask how petitioners could have possibly arrived at the amount of amortization payments without having seen any document from FEBTC pertaining to their loan account. Such conduct of petitioners in not bothering to appear before the bank or directly dealing with it regarding their outstanding obligation strongly suggests that there was no such loan account in their name and it was really Obispo who was the borrower and petitioners were merely accommodation mortgagors.
But assuming for the moment that petitioners really entrusted to Obispo the remittance of their payments to FEBTC, it is difficult to comprehend that they continued making payments to him despite the latter's not having complied at all with their repeated demands for the corresponding receipt from the bank. These demands for bank documents apparently had gone unheeded by Obispo for about one year and three months - the same period before petitioners were able to make full payment.16 Such considerably long period that petitioners remained indifferent and took no prompt action against their alleged defrauder, Obispo, truly defies the normal reaction of ordinary individuals giving rise to the inference that it was indeed Obispo who was the borrower/debtor and petitioners were just accommodation mortgagors.
Assuming arguendo that the REM was invalid on the ground of vitiated consent and misrepresentation by Obispo, petitioners' unjustified failure to act within a reasonable time after Obispo repeatedly failed to turn over the mortgage documents, constitutes estoppel and waiver to question its defect or invalidity. Corollarily, mortgagors desiring to attack a mortgage as invalid should act with reasonable promptness, and unreasonable delay may amount to ratification.17
As to petitioners' assertion that they have settled their loan obligation by paying P250,000.00 to Obispo, we note that said amount represents only the principal loan. Does this mean petitioners assumed that FEBTC granted their loan free of interest? Or was there any special arrangement with Obispo in consideration of the mortgage for the latter's benefit? Again, why was there no evidence of such check payments allegedly made by petitioners to Obispo, presented in court? This hiatus in petitioners' evidence raises serious doubt on their principal allegation that they never consented to the third-party mortgage approved by FEBTC, leading to the conclusion that there was, in fact, an agreement between Obispo and petitioners to use the latter's property as collateral for the former's credit line with said bank.
It bears stressing that an accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such. We have held that it is not always necessary that the accommodation mortgagor be apprised beforehand of the entire amount of the loan nor should it first be determined before the execution of the Special Power of Attorney in favor of the debtor.18 This is especially true when the words used by the parties indicate that the mortgage serves as a continuing security for credit obtained as well as future loan availments.
Here, petitioners as owners signed the REM as mortgagors and there is no evidence adduced that suggests fraud or irregularity in its execution. Petitioners are not contracting parties whom the law considers ignorant or disadvantaged but former overseas workers with sufficient education as to be well-aware of the consequences of their personal decisions, consistent with the legal presumption that a person takes ordinary care of his concerns. Hence, it can be reasonably inferred from the facts on record that it was more probable that petitioners allowed Obispo to use their property as additional collateral so as to avail of his existing credit line with FEBTC instead of petitioners directly applying for a separate loan.
With the dearth of evidence to back up petitioners' story, the CA found implausible the alleged legal infirmities in the execution of the REM. The appellate court thus aptly observed:
x x x it was defendant Obispo who obtained credit accommodation from defendant FEBTC which he secured with the mortgage of the subject property. The property mortgaged was owned by plaintiffs- appellees, considered a third party to the loan obligations of defendant Obispo with defendant- appellant FEBTC. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code x x x. The Real Estate Mortgage admittedly signed by plaintiffs-appellees, on its face, explicitly states that it is for the security of "credit accommodations obtained by Raul De Jesus Obispo," the principal of which is fixed at P1,159,096.00.
While plaintiffs-appellees claim that they sought the help of defendant Obispo in securing the loan from defendant-appellant FEBTC, and not to secure the loans obtained by defendant Obispo himself, they failed to present any evidence, except for their bare assertion, that they indeed gave their title to defendant Obispo purportedly to facilitate their loan with defendant-appellant FEBTC. It is axiomatic that under the Rules on Evidence a party who alleges a fact has the burden of proving it. A mere allegation is not evidence, and he who alleges has the burden of proving his allegation with the requisite quantum of evidence.
It may be argued that having received the amount of P250,000.00, plaintiffs-appellees became parties to the principal obligation and as such, the provision of the last paragraph of Article 2085 no longer applies. While it is undisputed that plaintiffs-appellees received the amount of P250,000.00, the record, however, reveals that they received the said amount not from defendant FEBTC but from defendant Obispo. It could be inferred that the P250,000.00 given by defendant Obispo to plaintiffsappellees was some form of remuneration in lending their title to him as security for his credit line with defendant-appellant FEBTC.
x x x x
From all indications, the failure of defendant Obispo to pay his loan resulted to the prejudice of plaintiffs-appellee[s] which may have led them to disown the Real Estate Mortgage they executed in favor of defendant-appellant FEBTC to accommodate the loan of defendant Obispo.19 (Emphasis supplied)
At this juncture, we underscore anew that the Court has always maintained its impartiality as early as in the case of Vales v. Villa,20 and has warned litigants that:
x x x The law furnishes no protection to the inferior simply because he is inferior any more than it protects the strong because he is strong. The law furnishes protection to both alike - to one no more or less than the other. It makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. x x x21
There being valid consent on the part of petitioners as accommodation mortgagors, no reversible error was committed by the CA in reversing the trial court's decision which declared the REM as void and awarded damages to petitioners.
A preponderance of the evidence is essential to establish the invalidity of a mortgage, and it has been said that clear and convincing proof is necessary to show fraud, duress, or undue influence.22 Any relevant and material evidence otherwise competent is admissible on the issue of the validity of a mortgage.23 Petitioners utterly failed to present relevant evidence to support their factual claims and offered no explanation whatsoever. Such omission is fatal to their cause.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The Decision dated January 27, 2010 of the Court of Appeals in CA-G.R. CV No. 82378 is hereby AFFIRMED and UPHELD.