EN BANC

[G.R. No. 133250. November 11, 2003]

FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY
DEVELOPMENT CORPORATION, respondents.

RESOLUTION
CARPIO, J.:

This Court is asked to legitimize a government contract that conveyed to a private entity 157.84 hectares of reclaimed
public lands along Roxas Boulevard in Metro Manila at the negotiated price of P1,200 per square meter. However, published
reports place the market price of land near that area at that time at a high of P90,000 per square meter.[1] The difference in price
is a staggering P140.16 billion, equivalent to the budget of the entire Judiciary for seventeen years and more than three times
the Marcos Swiss deposits that this Court forfeited in favor of the government.
Many worry to death that the private investors will lose their investments, at most not more than one-half billion pesos in
legitimate expenses,[2] if this Court voids the contract. No one seems to worry about the more than tens of billion pesos that the
hapless Filipino people will lose if the contract is allowed to stand. There are those who question these figures, but the questions
arise only because the private entity somehow managed to inveigle the government to sell the reclaimed lands without public
bidding in patent violation of the Government Auditing Code.
Fortunately for the Filipino people, two Senate Committees, the Senate Blue Ribbon Committee and the Committee on
Accountability of Public Officers, conducted extensive public hearings to determine the actual market value of the public lands
sold to the private entity. The Senate Committees established the clear, indisputable and unalterable fact that the sale
of the public lands is grossly and unconscionably undervalued based on official documents submitted by the proper
government agencies during the Senate investigation. We quote the joint report of these two Senate Committees, Senate
Committee Report No. 560, as approved by the Senate in plenary session on 27 September 1997:[3]

The Consideration for the Property

PEA, under the JVA, obligated itself to convey title and possession over the Property, consisting of approximately One
Million Five Hundred Seventy Eight Thousand Four Hundred Forty One (1,578,441) Square Meters for a total consideration
of One Billion Eight Hundred Ninety Four Million One Hundred Twenty Nine Thousand Two Hundred (P1,894,129,200.00)
Pesos, or a price of One Thousand Two Hundred (P1,200.00) Pesos per square meter.

According to the zonal valuation of the Bureau of Internal Revenue, the value of the Property is Seven Thousand
Eight Hundred Pesos (P7,800.00) per square meter. The Municipal Assessor of Paraaque, Metro Manila, where the
Property is located, pegs the market value of the Property at Six Thousand Pesos (P6,000.00) per square meter. Based
on these alone, the price at which PEA agreed to convey the property is a pittance. And PEA cannot claim ignorance of these
valuations, at least not those of the Municipal Assessors office, since it has been trying to convince the Office of the Municipal
Assessor of Paraaque to reduce the valuation of various reclaimed properties thereat in order for PEA to save on accrued real
property taxes.

PEAs justification for the purchase price are various appraisal reports, particularly the following:

(1) An appraisal by Vic T. Salinas Realty and Consultancy Services concluding that the Property is worth P500.00
per square meter for the smallest island and P750.00 per square meter for the two other islands, or a total
of P1,170,000.00 as of 22 February 1995;

(2) An appraisal by Valencia Appraisal Corporation concluding that the Property is worth P850 per square meter for
Island I, P800 per square meter for Island II and P600 per square meter for the smallest island, or a total
of P1,289,732,000, also as of 22 February 1995; and

(3) An Appraisal by Asian Appraisal Company, Inc. (AACI), stating that the Property is worth approximately P1,000
per square meter for Island I, P950 per square meter for Island II and P600 per square meter for Island III,
or a total of P1,518,805,000 as of 27 February 1995.
The credibility of the foregoing appraisals, however, are [sic] greatly impaired by a subsequent appraisal report of AACI stating
that the property is worth P4,500.00 per square meter as of 26 March 1996. Such discrepancies in the appraised value as
appearing in two different reports by the same appraisal company submitted within a span of one year render all such appraisal
reports unworthy of even the slightest consideration. Furthermore, the appraisal report submitted by the Commission
on Audit estimates the value of the Property to be approximately P33,673,000,000.00, or P21,333.07 per square meter.

There were also other offers made for the property from other parties which indicate that the Property has been undervalued
by PEA. For instance, on 06 March 1995, Mr. Young D. See, President of Saeil Heavy Industries Co., Ltd., (South Korea),
offered to buy the property at P1,400.00 and expressed its willingness to issue a stand-by letter of credit worth $10
million.PEA did not consider this offer and instead finalized the JVA with AMARI. Other offers were made on various dates
by Aspac Management and Development Group Inc. (for P1,600 per square meter), Universal Dragon Corporation
(for P1,600 per square meter), Cleene Far East Manila Incorporated and Hyosan Prime Construction Co. Ltd. which had
prepared an Irrevocable Clean Letter of Credit for P100,000,000.

In addition, AMARI agreed to pay huge commissions and bonuses to various persons, amounting to P1,596,863,050.00
(P1,754,707,150.00 if the bonus is included), as will be discussed fully below, which indicate that AMARI itself believed the
market value to be much higher than the agreed purchase price. If such commissions are added to the purchase
price, AMARIsacquisition cost for the Property will add-up to P3,490,992,250.00 (excluding the bonus). If AMARI was willing
to pay such amount for the Property, why was PEA willing to sell for only P1,894,129,200.00, making the Government stand
to lose approximately P1,596,863,050.00?

xxx

Even if we simply assume that the market value of the Property is half of the market value fixed by the Municipal Assessors
Office of Paraaque for lands along Roxas Boulevard, or P3,000.00 per square meter, the Government now stands to lose
approximately P2,841,193,800.00. But an even better assumption would be that the value of the Property is P4,500.00
persquare meter, as per the AACI appraisal report dated 26 March 1996, since this is the valuation used to justify the issuance
of P4 billion worth of shares of stock of Centennial City Inc. (CCI) in exchange for 4,800,000 AMARI shares with a total par
value of only P480,000,000.00. With such valuation, the Governments loss will amount to P5,208,855,300.00.

Clearly, the purchase price agreed to by PEA is way below the actual value of the Property, thereby subjecting the
Government to grave injury and enabling AMARI to enjoy tremendous benefit and advantage. (Emphasis supplied)

The Senate Committee Report No. 560 attached the following official documents from the Bureau of Internal Revenue,
the Municipal Assessor of Paraaque, Metro Manila, and the Commission on Audit:

1. Annex M, Certified True Copy of BIR Zonal Valuations as certified by Antonio F. Montemayor, Revenue
District Officer. This official document fixed the market value of the 157.84 hectares at P7,800 per square
meter.

2. Annex N, Certification of Soledad S. Medina-Cue, Municipal Assessor, Paraaque, dated 10 December

1996. This official document fixed the market value at P6,000 per square meter.

3. Exhibit 1-Engr. Santiago, the Appraisal Report of the Commission on Audit. This official document fixed the
market value at P21,333.07 per square meter.

Whether based on the official appraisal of the BIR, the Municipal Assessor or the Commission on Audit, the P1,200 per
square meter purchase price, or a total of P1.894 billion for the 157.84 hectares of government lands, is grossly and
unconscionably undervalued. The authoritative appraisal, of course, is that of the Commission on Audit which valued the 157.84
hectares at P21,333.07 per square meter or a total of P33.673 billion. Thus, based on the official appraisal of the
Commission on Audit, the independent constitutional body that safeguards government assets, the actual loss to the
Filipino people is a shocking P31.779 billion.
This gargantuan monetary anomaly, aptly earning the epithet Grandmother of All Scams, [4] is not the major defect of this
government contract. The major flaw is not even the P1.754 billion in commissions the Senate Committees discovered the
private entity paid to various persons to secure the contract, [5] described in Senate Report No. 560 as follows:
A Letter-Agreement dated 09 June 1995 signed by Messrs. Premchai Karnasuta and Emmanuel Sy for and in behalf of
AMARI, on the one hand, and stockholders of AMARI namely, Mr. Chin San Cordova (a.k.a. Benito Co) and Mr. Chua
Hun Siong (a.k.a. Frank Chua), on the other, sets forth various payments AMARI paid or agreed to pay the aforesaid
stockholders by way of fees for professional efforts and services in successfully negotiating and securing for AMARI
the Joint Venture Agreement, as follows:

Form of Payment Paid/Payable On Amount

Managers Checks 28 April 1995 P 400,000,000.00
Managers Checks Upon signing of letter 262,500,000.00
10 Post Dated Checks (PDCs) 60 days from date of letter 127,000,000.00
24 PDCs 31 Aug. 95 to 31 Jan. 98 150,000,000.00
48 PDCs Monthly, over a 12-month pd.
from date of letter 357,363,050.00
Cash bonus When sale of land begins not exceeding
157,844,100.00
Developed land from Project Upon completion of each Costing
phase 300,000,000.00
TOTAL P1,754,707,150.00
==============

Mr. Luis Benitez of SGV, the external auditors of AMARI, testified that said Letter-Agreement was approved by the
AMARI Board.[6] (Emphasis supplied)

The private entity that purchased the reclaimed lands for P1.894 billion expressly admitted before the Senate Committees
that it spent P1.754 billion in commissions to pay various individuals for professional efforts and services in successfully
negotiating and securing the contract. By any legal or moral yardstick, the P1.754 billion in commissions
obviously constitutes bribe money. Nonetheless, there are those who insist that the billions in investments of the private
entity deserve protection by this Court. Should this Court establish a new doctrine by elevating grease money to the status of
legitimate investments deserving of protection by the law?Should this Court reward the patently illegal and grossly unethical
business practice of the private entity in securing the contract? Should we allow those with hands dripping with dirty money
equitable relief from this Court?
Despite these revolting anomalies unearthed by the Senate Committees, the fatal flaw of this contract is that it glaringly
violates provisions of the Constitution expressly prohibiting the alienation of lands of the public domain.
Thus, we now come to the resolution of the second Motions for Reconsideration [7] filed by public respondent Public
Estates Authority (PEA) and private respondent Amari Coastal Bay Development Corporation (Amari). As correctly pointed
out by petitioner Francisco I. Chavez in his Consolidated Comment, [8] the second Motions for Reconsideration raise no new
issues.
However, the Supplement to Separate Opinion, Concurring and Dissenting of Justice Josue N. Bellosillo brings to the
Courts attention the Resolutions of this Court on 3 February 1965 and 24 June 1966 in L- 21870 entitled Manuel O. Ponce, et al.
v. Hon. Amador Gomez, et al. and No. L-22669 entitled Manuel O. Ponce, et al. v. The City of Cebu, et al. (Ponce Cases). In effect, the
Supplement to the Dissenting Opinion claims that these two Resolutions serve as authority that a single private
corporation like Amari may acquire hundreds of hectares of submerged lands, as well as reclaimed submerged lands,
within Manila Bay under the Amended Joint Venture Agreement (Amended JVA).
We find the cited Ponce Cases inapplicable to the instant case.
First, as Justice Bellosillo himself states in his supplement to his dissent, the Ponce Cases admit that submerged lands
still belong to the National Government.[9]The correct formulation, however, is that submerged lands are owned by the
State and are inalienable. Section 2, Article XII of the 1987 Constitution provides:

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. (Emphasis supplied)
 Submerged lands, like the waters (sea or bay) above them, are part of the States inalienable natural resources. Submerged
lands are property of public dominion, absolutely inalienable and outside the commerce of man. [10] This is also true with respect
to foreshore lands. Any sale of submerged or foreshore lands is void being contrary to the Constitution.[11]
This is why the Cebu City ordinance merely granted Essel, Inc. an irrevocable option to purchase the foreshore
lands after the reclamation and did not actually sell to Essel, Inc. the still to be reclaimed foreshore lands. Clearly, in the Ponce
Cases the option to purchase referred to reclaimed lands, and not to foreshore lands which are inalienable. Reclaimed lands
are no longer foreshore or submerged lands, and thus may qualify as alienable agricultural lands of the public domain provided
the requirements of public land laws are met.
In the instant case, the bulk of the lands subject of the Amended JVA are still submerged lands even to this very day, and
therefore inalienable and outside the commerce of man. Of the 750 hectares subject of the Amended JVA, 592.15 hectares
or 78% of the total area are still submerged, permanently under the waters of Manila Bay. Under the Amended JVA, the
PEA conveyed to Amari the submerged lands even before their actual reclamation, although the documentation of the deed of
transfer and issuance of the certificates of title would be made only after actual reclamation.
The Amended JVA states that the 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.[12] The Amended JVA
further states that the sharing of the Joint Venture Proceeds shall be based on the ratio of thirty percent (30%) for PEA and
seventy percent (70%) for AMARI. [13] The Amended JVA also provides that the PEA hereby designates AMARI to
perform PEAs rights and privileges to reclaim, own and develop the Reclamation Area. [14] In short, under the Amended JVA
the PEA contributed its rights, privileges and ownership over the Reclamation Area to the Joint Venture which is 70%
owned by Amari. Moreover, the PEA delegated to Amari the right and privilege to reclaim the submerged lands.
The Amended JVA mandates that the PEA had the duty to execute without delay the necessary deed of transfer or
conveyance of the title pertaining to AMARIs Land share based on the Land Allocation Plan. [15] The Amended JVA also
provides that PEA, when requested in writing by AMARI, shall then cause the issuance and delivery of the proper certificates
of title covering AMARIs Land Share in the name of AMARI, x x x.[16]
In the Ponce Cases, the City of Cebu retained ownership of the reclaimed foreshore lands and Essel, Inc. only had an
irrevocable option to purchase portions of the foreshore lands once actually reclaimed. In sharp contrast, in the instant case
ownership of the reclamation area, including the submerged lands, was immediately transferred to the joint
venture. Amari immediately acquired the absolute right to own 70% percent of the reclamation area, with the deeds of transfer
to be documented and the certificates of title to be issued upon actual reclamation. Amaris right to own the submerged lands is
immediately effective upon the approval of the Amended JVA and not merely an option to be exercised in the future if and
when the reclamation is actually realized. The submerged lands, being inalienable and outside the commerce of man, could not
be the subject of the commercial transactions specified in the Amended JVA.
Second, in the Ponce Cases the Cebu City ordinance granted Essel, Inc. an irrevocable option to purchase
from Cebu City not more than 70% of the reclaimed lands.The ownership of the reclaimed lands remained
with Cebu City until Essel, Inc. exercised its option to purchase. With the subsequent enactment of the Government Auditing
Code (Presidential Decree No. 1445) on 11 June 1978, any sale of government land must be made only through public
bidding. Thus, such an irrevocable option to purchase government land would now be void being contrary to the requirement
of public bidding expressly required in Section 79 [17] of PD No. 1445. This requirement of public bidding is reiterated in Section
379[18] of the 1991 Local Government Code. [19] Obviously, the ingenious reclamation scheme adopted in
the Cebu City ordinance can no longer be followed in view of the requirement of public bidding in the sale of government
lands. In the instant case, the Amended JVA is a negotiated contract which clearly contravenes Section 79 of PD No. 1445.
Third, Republic Act No. 1899 authorized municipalities and chartered cities to reclaim foreshore lands. The two
Resolutions in the Ponce Cases upheld the Cebu Cityordinance only with respect to foreshore areas, and nullified the same with
respect to submerged areas. Thus, the 27 June 1965 Resolution made the injunction of the trial court against the City
of Cebu permanent insofar x x x as the area outside or beyond the foreshore land proper is concerned.
As we held in the 1998 case of Republic Real Estate Corporation v. Court of Appeals,[20] citing the Ponce Cases, RA
No. 1899 applies only to foreshore lands, not to submerged lands. In his concurring opinion in Republic Real Estate
Corporation, Justice Reynato S. Puno stated that under Commonwealth Act No. 141, foreshore and lands under water were
not to be alienated and sold to private parties, and that such lands remained property of the State. Justice Puno emphasized that
Commonwealth Act No. 141 has remained in effect at present. The instant case involves principally submerged lands
within Manila Bay. On this score, the Ponce Cases, which were decided based on RA No. 1899, are not applicable to the instant
case.
 Fourth, the Ponce Cases involve the authority of the City of Cebu to reclaim foreshore areas pursuant to a general law, RA
No. 1899. The City of Cebu is a public corporation and is qualified, under the 1935, 1973, and 1987 Constitutions, to hold
alienable or even inalienable lands of the public domain. There is no dispute that a public corporation is not covered by the
constitutional ban on acquisition of alienable public lands. Both the 9 July 2002 Decision and the 6 May 2003 Resolution of this
Court in the instant case expressly recognize this.
Cebu City is an end user government agency, just like the Bases Conversion and Development Authority or the Department
of Foreign Affairs.[21] Thus, Congress may by law transfer public lands to the City of Cebu to be used for municipal purposes,
which may be public or patrimonial. Lands thus acquired by the City of Cebu for a public purpose may not be sold to private
parties. However, lands so acquired by the City of Cebu for a patrimonial purpose may be sold to private parties, including
private corporations.
However, in the instant case the PEA is not an end user agency with respect to the reclaimed lands under the Amended
JVA. As we explained in the 6 May 2003 Resolution:

PEA is the central implementing agency tasked to undertake reclamation projects nationwide. PEA took the place of the
Department of Environment and Natural Resources (DENR for brevity) as the government agency charged with leasing or
selling all reclaimed lands of the public domain. In the hands of PEA, which took over the leasing and selling functions
of DENR, reclaimed foreshore (or submerged lands) lands are public lands in the same manner that these same
lands would have been public lands in the hands of DENR. (Emphasis supplied)

Our 9 July 2002 Decision explained the rationale for treating the PEA in the same manner as the DENR with respect to
reclaimed foreshore or submerged lands in this wise:

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. (Emphasis supplied)

Finally, the Ponce Cases were decided under the 1935 Constitution which allowed private corporations to acquire alienable
lands of the public domain. However, the 1973 Constitution prohibited private corporations from acquiring alienable lands of
the public domain, and the 1987 Constitution reiterated this prohibition. Obviously, the Ponce Cases cannot serve as authority
for a private corporation to acquire alienable public lands, much less submerged lands, since under the present Constitution a
private corporation like Amari is barred from acquiring alienable lands of the public domain.
Clearly, the facts in the Ponce Cases are different from the facts in the instant case. Moreover, the governing constitutional
and statutory provisions have changed since the Ponce Cases were disposed of in 1965 and 1966 through minute Resolutions
of a divided (6 to 5) Court.
This Resolution does not prejudice any innocent third party purchaser of the reclaimed lands covered by the Amended
JVA. Neither the PEA nor Amari has sold any portion of the reclaimed lands to third parties. Title to the reclaimed lands remains
with the PEA. As we stated in our 9 July 2002 Decision:

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 PEAs patent or certificates of title. In fact, the thrust of the instant
petition is that PEAs 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.

As we held in our 9 July 2002 Decision, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987
Constitution. In our 6 May 2003 Resolution, we DENIED with FINALITY respondents Motions for
Reconsideration. Litigations must end some time. It is now time to write finis to this Grandmother of All Scams.
WHEREFORE, the second Motions for Reconsideration filed by Public Estates Authority and Amari Coastal Bay
Development Corporation are DENIED for being prohibited pleadings. In any event, these Motions for Reconsideration have
no merit. No further pleadings shall be allowed from any of the parties.
SO ORDERED.
Davide, Jr., C.J., Panganiban, Austria-Martinez, Carpio-Morales, and Callejo, Sr., JJ., concur.
Bellosillo, J., voted to grant reconsideration, pls. see dissenting opinion.
Puno, J., maintains previous qualified opinion.
Vitug, J., pls. see separate(concurring) opinion.
Quisumbing, J., voted to allow reconsideration, see separate opinion.
Ynares-Santiago, Sandoval-Gutierrez, and Corona, JJ., maintains their dissent.
Azcuna, J., no part. Tinga, J., see dissenting opinion.