Cases Property Part 2

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120098 October 2, 2001
RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and
MAMERTO R VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and
MAMERTO R VILLALUZ, respondents.
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in

CA-G.R. CV No. 32986, affirming the decision2 of the Regional Trial Court
of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is
respondent court's resolution denying petitioners' motion for
reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)

obtained a three million peso (P3,000,000.00) loan from petitioner
Philippine Bank of Communications (PBCom). As security for the loan,
EVERTEX executed in favor of PBCom, a deed of Real and Chattel
Mortgage over the lot under TCT No. 372097, where its factory stands, and
the chattels located therein as enumerated in a schedule attached to the
mortgage contract. The pertinent portions of the Real and Chattel Mortgage
are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx xxx xxx
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of

First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land,
together with all the buildings and improvements now existing or
which may hereafter exist thereon, situated in . . .
1
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor

of PBCommunications — continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins

made in Hongkong:
Serial Numbers Size of Machines
xxx xxx xxx
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
xxx xxx xxx
C. Two (2) Circular Knitting Machines made in West Germany.
xxx xxx xxx
D. Four (4) Winding Machines.
xxx xxx xxx
SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx xxx xxx
II. Any and all buildings and improvements now existing or hereafter
to exist on the above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or

installed on the above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and

accretions to above properties.
2
xxx xxx xxx3
On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to

EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. These listed properties were
similar to those listed in Annex A of the first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage
mentioned above, EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed

insolvency proceedings docketed as SP Proc. No. LP-3091-P before the
defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI
issued an order on November 24, 1982 declaring the corporation insolvent.
All its assets were taken into the custody of the Insolvency Court, including
the collateral, real and personal, securing the two mortgages as
abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to

PBCom, the latter commenced extrajudicial foreclosure proceedings against
EVERTEX under Act 3135, otherwise known as "An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to Real
Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice
of Sheriff's Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held where petitioner
PBCom emerged as the highest bidder and a Certificate of Sale was issued
in its favor on the same date. On December 23, 1982, another public
auction was held and again, PBCom was the highest bidder. The sheriff
issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all
the properties in it. In November 1986, it leased the entire factory premises
to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988,
PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,

reconveyance, and damages with the Regional Trial Court against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject mortgage was
in violation of the Insolvency Law. EVERTEX claimed that no rights
having been transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai acquired no rights over such assets sold to her, and should
reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real
and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of
3
April 23, 1979, and neither were those properties included in the Notice of
Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated
December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14

Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not included in the
schedules attached to the mortgage contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff

corporation and against the defendants:
1. Ordering the annulment of the sale executed by defendant

Philippine Bank of Communications in favor of defendant Ruby L.
Tsai on May 3, 1988 insofar as it affects the personal properties listed
in par. 9 of the complaint, and their return to the plaintiff corporation
through its assignee, plaintiff Mamerto R. Villaluz, for disposition by
the Insolvency Court, to be done within ten (10) days from finality of
this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff

corporation the sum of P5,200,000.00 as compensation for the use
and possession of the properties in question from November 1986 to
February 1991 and P100,000.00 every month thereafter, with interest
thereon at the legal rate per annum until full payment;

corporation the sum of P50,000.00 as and for attorney's fees and
expenses of litigation;

corporation the sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which
issued its decision dated August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the deletion therefrom of the award; for

exemplary damages, and reduction of the actual damages, from
4
P100,000.00 to P20,000.00 per month, from November 1986 until subject
personal properties are restored to appellees, the judgment appealed from is
hereby AFFIRMED, in all other respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the
resolution of April 28, 1995, PBCom and Tsai filed their separate petitions
for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the
respondent court:
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

ERRED IN EFFECT MAKING A CONTRACT FOR THE
PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES
AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN
THEIR EARLIER 1975 DEED OF REAL AND CHATTEL
MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II

ERRED IN HOLDING THAT THE DISPUTED 1981
MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART
OF THE MORTGAGE — DESPITE THE CLEAR IMPORT OF
THE EVIDENCE AND APPLICABLE RULINGS OF THE
SUPREME COURT.
III

ERRED IN DEEMING PETITIONER A PURCHASER IN BAD
FAITH.
IV

ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.

ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS
ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:

5
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE

MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE
1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM
FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED
BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT
ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF
THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE
THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND
HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY
MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE
ASSESSED FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN

QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO
EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED
P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND
SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY
ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR
IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION
TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the
questioned properties in the foreclosed properties is proper. The secondary
issue is whether or not the sale of these properties to petitioner Ruby Tsai is
valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract
for the parties by treating the 1981 acquired units of machinery as chattels
instead of real properties within their earlier 1975 deed of Real and Chattel
Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that
respondent court erred in holding that the disputed 1981 machineries are not
real properties.9 Finally, she contends that the Court of Appeals erred in
holding against petitioner's arguments on prescription and laches10 and in
assessing petitioner actual damages, attorney's fees and expenses of
litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the

lower court's judgment decreeing that the pieces of machinery in dispute
were not duly foreclosed and could not be legally leased nor sold to Ruby
Tsai. It further argued that the Court of Appeals' pronouncement that the
pieces of machinery in question were personal properties have no factual
6
and legal basis. Finally, it asserts that the Court of Appeals erred in
assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of

machinery are not "real properties" but chattels, and, therefore, they were
not part of the foreclosed real properties, rendering the lease and the
subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find
the petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on
record or the assailed judgment is based on misapprehension of facts.13 This
rule is applied more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court
of Appeals that are decisive of the issues: (1) the "controverted
machineries" are not covered by, or included in, either of the two
mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel
Mortgage; (2) the said machineries were not included in the list of
properties appended to the Notice of Sale, and neither were they included in
the Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that
they were heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under Article 415
(3) and (5) of the New Civil Code. This assertion, however, does not settle
the issue. Mere nuts and bolts do not foreclose the controversy. We have to
look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a

perusal of the contract of Real and Chattel Mortgage executed by the parties
herein gives us a contrary indication. In the case at bar, both the trial and
the appellate courts reached the same finding that the true intention of
PBCOM and the owner, EVERTEX, is to treat machinery and equipment as
chattels. The pertinent portion of respondent appellate court's ruling is
quoted below:
As stressed upon by appellees, appellant bank treated the machineries

as chattels; never as real properties. Indeed, the 1975 mortgage
contract, which was actually real and chattel mortgage, militates
against appellants' posture. It should be noted that the printed form
used by appellant bank was mainly for real estate mortgages. But
reflective of the true intention of appellant PBCOM and appellee
7
EVERTEX was the typing in capital letters, immediately following the
printed caption of mortgage, of the phrase "real and chattel." So
also, the "machineries and equipment" in the printed form of the bank
had to be inserted in the blank space of the printed contract and
connected with the word "building" by typewritten slash marks. Now,
then, if the machineries in question were contemplated to be included
in the real estate mortgage, there would have been no necessity to ink
a chattel mortgage specifically mentioning as part III of Schedule A a
listing of the machineries covered thereby. It would have sufficed to
list them as immovables in the Deed of Real Estate Mortgage of the
land and building involved.
As regards the 1979 contract, the intention of the parties is clear and
beyond question. It refers solely to chattels. The inventory list of the
mortgaged properties is an itemization of sixty-three (63)
individually described machineries while the schedule listed only
machines and 2,996,880.50 worth of finished cotton fabrics and
natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or

uncorroborated by the evidence on record, we find no compelling reason to
depart therefrom.
Too, assuming arguendo that the properties in question are immovable by Commented [u1]: In the course of the argument
nature, nothing detracts the parties from treating it as chattels to secure an

obligation under the principle of estoppel. As far back as Navarro v.
Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal
property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in
the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real
Estate Mortgage and Chattel Mortgage," instead of just "Real Estate
Mortgage" if indeed their intention is to treat all properties included therein
as immovable, and (2) attached to the said contract a separate "LIST OF
MACHINERIES & EQUIPMENT". These facts, taken together, evince the
conclusion that the parties' intention is to treat these units of machinery as
chattels. A fortiori, the contested after-acquired properties, which are of the Commented [u2]: All the more
same description as the units enumerated under the title "LIST OF

MACHINERIES & EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's

ruling that inasmuch as the subject mortgages were intended by the parties
to involve chattels, insofar as equipment and machinery were concerned,
the Chattel Mortgage Law applies, which provides in Section 7 thereof that:
"a chattel mortgage shall be deemed to cover only the property described
therein and not like or substituted property thereafter acquired by the
8
mortgagor and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not
have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject
machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title
passed in its favor. Consequently, the sale thereof to Tsai is also a nullity
under the elementary principle of nemo dat quod non habet, one cannot
give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the
contested properties is a nullity, she is nevertheless a purchaser in good
faith and for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the
trial court that she is not a purchaser in good faith. Well-settled is the rule
that the person who asserts the status of a purchaser in good faith and for
value has the burden of proving such assertion.18 Petitioner Tsai failed to
discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or
interest in such property and pays a full and fair price for the same, at the
time of purchase, or before he has notice of the claims or interest of some
other person in the property.19Records reveal, however, that when Tsai
purchased the controverted properties, she knew of respondent's claim
thereon. As borne out by the records, she received the letter of respondent's
counsel, apprising her of respondent's claim, dated February 27, 1987.20 She
replied thereto on March 9, 1987.21 Despite her knowledge of respondent's
claim, she proceeded to buy the contested units of machinery on May 3,
1988. Thus, the RTC did not err in finding that she was not a purchaser in
good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where

the disputed properties are located is equally unavailing. This defense refers
to sale of lands and not to sale of properties situated therein. Likewise, the
mere fact that the lot where the factory and the disputed properties stand is
in PBCom's name does not automatically make PBCom the owner of
everything found therein, especially in view of EVERTEX's letter to Tsai
enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than

convincing. We find no cogent reason to disturb the consistent findings of
both courts below that the case for the reconveyance of the disputed
properties was filed within the reglementary period. Here, in our view, the
9
doctrine of laches does not apply. Note that upon petitioners' adamant
refusal to heed EVERTEX's claim, respondent company immediately filed
an action to recover possession and ownership of the disputed properties.
There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier. The
doctrine of stale demands would apply only where by reason of the lapse of
time, it would be inequitable to allow a party to enforce his legal rights.
Moreover, except for very strong reasons, this Court is not disposed to
apply the doctrine of laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual

compensation, representing rentals for the contested units of machinery, the
exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00

corresponding to the unpaid rentals of the contested properties based on the
testimony of John Chua, who testified that the P100,000.00 was based on
the accepted practice in banking and finance, business and investments that
the rental price must take into account the cost of money used to buy them.
The Court of Appeals did not give full credence to Chua's projection and
reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not
only be capable of proof but must actually be proven with reasonable
degree of certainty, premised upon competent proof or best evidence
obtainable of the actual amount thereof.23 However, the allegations of
respondent company as to the amount of unrealized rentals due them as
actual damages remain mere assertions unsupported by documents and
other competent evidence. In determining actual damages, the court cannot
rely on mere assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence obtainable regarding
the actual amount of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on

record warranting the said award of P5,200,000.00, representing
monthly rental income of P100,000.00 from November 1986 to
February 1991, and the additional award of P100,000.00 per month
thereafter.
As pointed out by appellants, the testimonial evidence, consisting of

the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of
what is necessary to substantiate the actual damages allegedly
sustained by appellees, by way of unrealized rental income of subject
machineries and equipments.
10
The testimony of John Cua (sic) is nothing but an opinion or
projection based on what is claimed to be a practice in business and
industry. But such a testimony cannot serve as the sole basis for
assessing the actual damages complained of. What is more, there is
no showing that had appellant Tsai not taken possession of the
machineries and equipments in question, somebody was willing and
ready to rent the same for P100,000.00 a month.
xxx xxx xxx
Then, too, even assuming arguendo that the said machineries and
equipments could have generated a rental income of P30,000.00 a
month, as projected by witness Mamerto Villaluz, the same would
have been a gross income. Therefrom should be deducted or
removed, expenses for maintenance and repairs . . . Therefore, in the
determination of the actual damages or unrealized rental income sued
upon, there is a good basis to calculate that at least four months in a
year, the machineries in dispute would have been idle due to absence
of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net unrealized
rental income of P20,000.00 a month, since November 1986, is more
realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX

which the Court of Appeals deleted. But according to the CA, there was no
clear showing that petitioners acted malevolently, wantonly and
oppressively. The evidence, however, shows otherwise. It is a requisite to
award exemplary damages that the wrongful act must be accompanied by
bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive,
reckless or malevolent manner.27 As previously stressed, petitioner Tsai's
act of purchasing the controverted properties despite her knowledge of
EVERTEX's claim was oppressive and subjected the already insolvent
respondent to gross disadvantage. Petitioner PBCom also received the same
letters of Atty. Villaluz, responding thereto on March 24, 1987. 28 Thus,
PBCom's act of taking all the properties found in the factory of the
financially handicapped respondent, including those properties not covered
by or included in the mortgages, is equally oppressive and tainted with bad
faith. Thus, we are in agreement with the RTC that an award of exemplary
damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive.

Article 2216 of the Civil Code provides that no proof of pecuniary loss is
necessary for the adjudication of exemplary damages, their assessment
being left to the discretion of the court in accordance with the
circumstances of each case.29 While the imposition of exemplary damages
is justified in this case, equity calls for its reduction. In Inhelder
Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585,
(May 30, 1983), we laid down the rule that judicial discretion granted to the
11
courts in the assessment of damages must always be exercised with
balanced restraint and measured objectivity. Thus, here the award of
exemplary damages by way of example for the public good should be
reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be
recovered when exemplary damages are awarded.30 In our view, RTC's
award of P50,000.00 as attorney's fees and expenses of litigation is
reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and

resolution of the Court of Appeals in CA-G.R. CV No. 32986 are
AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of
Communications and Ruby L. Tsai are hereby ordered to pay jointly and
severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month,
as compensation for the use and possession of the properties in question
from November 198631 until subject personal properties are restored to
respondent corporation; (2) P100,000.00 by way of exemplary damages,
and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against
petitioners.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,

vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-
appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.

Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana
Gonzales (married to Gregorio Pineda), borrowed from plaintiff Conrado P.
Navarro, the sum of P2,500.00, payable 6 months after said date or on June
14, 1959. To secure the indebtedness, Rufino executed a document
12
captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES",
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated a
parcel of land, belonging to her, registered with the Register of Deeds of
Tarlac, under Transfer Certificate of Title No. 25776, and Rufino G.
Pineda, by way of Chattel Mortgage, mortgaged his two-story residential
house, having a floor area of 912 square meters, erected on a lot belonging
to Atty. Vicente Castro, located at Bo. San Roque, Tarlac, Tarlac; and one
motor truck, registered in his name, under Motor Vehicle Registration
Certificate No. A-171806. Both mortgages were contained in one
instrument, which was registered in both the Office of the Register of Deeds
and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were
granted extension up to June 30, 1960, within which to pay. Came June 30,
defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that
in the remote event he should fail to make good the obligation on such date
(July 30, 1960), the defendant would no longer ask for further extension
and there would be no need for any formal demand, and plaintiff could
proceed to take whatever action he might desire to enforce his rights, under
the said mortgage contract. In spite of said promise, defendants, failed and
refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the

mortgage and for damages, which consisted of liquidated damages in the
sum of P500.00 and 12% per annum interest on the principal, effective on
the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of
paragraph 4 of the First Cause of Action which states that the
defendants unreasonably failed and refuse to pay their obligation to
the plaintiff the truth being the defendants are hard up these days and
pleaded to the plaintiff to grant them more time within which to pay
their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully

prayed that this Honorable Court render judgment granting the
defendants until January 31, 1961, within which to pay their
obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary

Judgment, claiming that the Answer failed to tender any genuine and
material issue. The motion was set for hearing, but the record is not clear
what ruling the lower court made on the said motion. On November 11,
13
1960, however, the parties submitted a Stipulation of Facts, wherein the
defendants admitted the indebtedness, the authenticity and due execution of
the Real Estate and Chattel Mortgages; that the indebtedness has been due
and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and P500.00
as liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province of
Tarlac; that the only issue in the case is whether or not the residential house,
subject of the mortgage therein, can be considered a Chattel and the
propriety of the attorney's fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio

Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino

Pineda and Ramon Reyes, to pay jointly and severally and within
ninety (90) days from the receipt of the copy of this decision to the
plaintiff Conrado P. Navarro the principal sum of P2,550.00 with
12% compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated
damages and the costs of this suit, with the warning that in default of
said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold
to realize said mortgage debt, interests, liquidated damages and costs,
in accordance with the pertinent provisions of Act 3135, as amended
by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508;
and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to

deliver immediately to the Provincial Sheriff of Tarlac the personal
properties mentioned in said Annex "A", immediately after the lapse
of the ninety (90) days above-mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants
therein assigning only a single error, allegedly committed by the lower
court, to wit —
In holding that the deed of real estate and chattel mortgages appended
to the complaint is valid, notwithstanding the fact that the house of
the defendant Rufino G. Pineda was made the subject of the chattel
mortgage, for the reason that it is erected on a land that belongs to a
third person.
14
Appellants contend that article 415 of the New Civil Code, in classifying a
house as immovable property, makes no distinction whether the owner of
the land is or not the owner of the building; the fact that the land belongs to
another is immaterial, it is enough that the house adheres to the land; that in
case of immovables by incorporation, such as houses, trees, plants, etc; the
Code does not require that the attachment or incorporation be made by the
owner of the land, the only criterion being the union or incorporation with
the soil. In other words, it is claimed that "a building is an immovable
property, irrespective of whether or not said structure and the land on which
it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-
10817-8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong
Machinery Co., 37 Phil. 644). Appellants argue that since only movables
can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the
mortgage in question which is the basis of the present action, cannot give
rise to an action for foreclosure, because it is nullity. (Citing Associated Ins.
Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected
on the land which belonged to a third person, but also and principally on the
doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed
materials of sawali and wood". In construing arts. 334 and 335 of the
Spanish Civil Code (corresponding to arts. 415 and 416, N.C.C.), for
purposes of the application of the Chattel Mortgage Law, it was held that
under certain conditions, "a property may have a character different from
that imputed to it in said articles. It is undeniable that the parties to a
contract may by agreement, treat as personal property that which by nature
would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed materials may
be the subject of a chattel mortgage, in which case, it is considered as
between the parties as personal property. ... The matter depends on the
circumstances and the intention of the parties". "Personal property may
retain its character as such where it is so agreed by the parties interested
even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in
Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G.
No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may
agree to consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are concerned. It is
based partly, upon the principles of estoppel ..." (Evangelista v. Alto Surety,
No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented
land, was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part of the
land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well settled
that an object placed on land by one who has only a temporary right to the
same, such as a lessee or usufructuary, does not become immobilized by
attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao
15
Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house
belonging to a person stands on a rented land belonging to another person,
it may be mortgaged as a personal property is so stipulated in the document
of mortgage. (Evangelista v. Abad, supra.) It should be noted, however, that
the principle is predicated on statements by the owner declaring his house
to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al.,
[CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are
not parties to the contract, and specially in execution proceedings, the house
is considered as an immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel
Mortgage" "my personal properties", a residential house and a truck. The
mortgagor himself grouped the house with the truck, which is, inherently a
movable property. The house which was not even declared for taxation
purposes was small and made of light construction materials: G.I. sheets
roofing, sawali and wooden walls and wooden posts; built on land
belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya
cases (L-10837-38, supra), refer to a building or a house of strong
materials, permanently adhered to the land, belonging to the owner of the
house himself. In the case of Lopez v. Orosa, (L-10817-18), the subject
building was a theatre, built of materials worth more than P62,000, attached
permanently to the soil. In these cases and in the Leung Yee case, supra,
third persons assailed the validity of the deed of chattel mortgages; in the
present case, it was one of the parties to the contract of mortgages who
assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed

from, should be, as it is hereby affirmed, with costs against appellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala,

and Makalintal, JJ., concur.

SUPREME COURT
Manila
EN BANC
16
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX
APPEALS of Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals
in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company
is liable to the payment of the realty tax on its maintenance and repair
equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400

petitioner's above-mentioned equipment. Petitioner appealed the assessment
to the respondent Board of Tax Appeals on the ground that the same are not
realty. The Board of Tax Appeals of the City sustained the city assessor, so
petitioner herein filed with the Court of Tax Appeals a petition for the
review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation
of facts:
Petitioner and respondents, thru their respective counsels agreed to

the following stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting

passengers and cargoes by motor trucks, over its authorized lines in
the Island of Mindanao, collecting rates approved by the Public
Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro
City. It maintains Branch Offices and/or stations at Iligan City,
Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe,
Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as

real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached

photograph, marked Annex "A";
17
(b) Storm Boring Machine, appearing in the attached
photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached

photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached

photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached

photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the

attached photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached

photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms

as may be seen in the attached photographs which form part of this
agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and

operates a garage for its TPU motor trucks; a repair shop; blacksmith
and carpentry shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed; and same are
repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as

industrial equipments to produce finished products for sale, nor to
repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphîl.nèt
The Court of Tax Appeals having sustained the respondent city assessor's
ruling, and having denied a motion for reconsideration, petitioner brought
the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding

respondents' contention that the questioned assessments are valid;
and that said tools, equipments or machineries are immovable taxable
real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article

415 of the New Civil Code, and holding that pursuant thereto the
movable equipments are taxable realties, by reason of their being
intended or destined for use in an industry.
18
3. The Court of Tax Appeals erred in denying petitioner's contention
that the respondent City Assessor's power to assess and levy real
estate taxes on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for

reconsideration.
Respondents contend that said equipments, tho movable, are immobilized

by destination, in accordance with paragraph 5 of Article 415 of the New
Civil Code which provides:
Art. 415. — The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by

the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61
Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives
the character of real property to "machinery, liquid containers,
instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of
such trade or industry."
If the installation of the machinery and equipment in question in the

central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar and industry, converted them
into real property by reason of their purpose, it cannot be said that
their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central,
without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as
the central is permanent in character, the necessary machinery and
equipment installed for carrying on the sugar industry for which it
has been established must necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized in contemplation of the law

must first be "essential and principal elements" of an industry or works
19
without which such industry or works would be "unable to function or carry
on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by
destination because they are essential and principal elements in the industry
for those which may not be so considered immobilized because they
are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc.
are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on
their functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the
other hand, machineries of breweries used in the manufacture of liquor and
soft drinks, though movable in nature, are immobilized because they are
essential to said industries; but the delivery trucks and adding machines
which they usually own and use and are found within their industrial
compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by
their nature, not essential and principle municipal elements of petitioner's
business of transporting passengers and cargoes by motor trucks. They are
merely incidentals — acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and
equipments, its business may be carried on, as petitioner has carried on,
without such equipments, before the war. The transportation business could
be carried on without the repair or service shop if its rolling equipment is
repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as

follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by

the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works; (Civil Code of the
Phil.)
Aside from the element of essentiality the above-quoted provision also

requires that the industry or works be carried on in a building or on a piece
of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found in
a building constructed on the land. A sawmill would also be installed in a
building on land more or less permanently, and the sawing is conducted in
the land or building.
20
But in the case at bar the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a building
or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation
business, and petitioner's business is not carried on in a building, tenement
or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set
aside and the equipment in question declared not subject to assessment as
real estate for the purposes of the real estate tax. Without costs.
So ordered.

SUPREME COURT
Manila
EN BANC
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven
for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
21
The issue in this case, as announced in the opening sentence of the decision
in the trial court and as set forth by counsel for the parties on appeal,
involves the determination of the nature of the properties described in the
complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint,
with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from
the Government of the Philippine Islands. It has operated a sawmill in
the sitio of Maa, barrio of Tigatu, municipality of Davao, Province of
Davao. However, the land upon which the business was conducted
belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements
thus used were clearly personal property, the conflict concerning machines
which were placed and mounted on foundations of cement. In the contract
of lease between the sawmill company and the owner of the land there
appeared the following provision:
That on the expiration of the period agreed upon, all the

improvements and buildings introduced and erected by the party of
the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for
said improvements and buildings; also, in the event the party of the
second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass
to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will pass
to the party of the first part on the expiration or abandonment of the
land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out
by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the
sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by
the sheriff of Davao.
As connecting up with the facts, it should further be explained that the

Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in favor of
third persons. One of such persons is the appellee by assignment from the
original mortgages.
22
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to
the Code, real property consists of —
1. Land, buildings, roads and constructions of all kinds adhering to

the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended

by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right
in their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It
must further be pointed out that while not conclusive, the characterization
of the property as chattels by the appellant is indicative of intention and
impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New
Yorkvs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not,
furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building erected
on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant, but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted as
the agent of the owner. In the opinion written by Chief Justice White,
whose knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of

the property from the point of view of the rights of Valdes and its
nature and character from the point of view of Nevers & Callaghan as
a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real) property, not only land and
23
buildings, but also attributes immovability in some cases to property
of a movable nature, that is, personal property, because of the
destination to which it is applied. "Things," says section 334 of the
Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable."
Numerous illustrations are given in the fifth subdivision of section
335, which is as follows: "Machinery, vessels, instruments or
implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works."
(See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with
which we are dealing — machinery placed in the plant — it is plain,
both under the provisions of the Porto Rican Law and of the Code
Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore,
by the placing of machinery in a plant by a tenant or a usufructuary
or any person having only a temporary right. (Demolombe, Tit. 9,
No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No.
447; and decisions quoted in Fuzier-Herman ed. Code Napoleon
under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to
the possession or enjoyment of property is not presumed by the law
to have applied movable property belonging to him so as to deprive
him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery
put by the Altagracia Company in the plant belonging to Sanchez did
not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of
the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the
lessor the cost such machinery, and it was expressly stipulated that
the machinery so put in should become a part of the plant belonging
to the owner without compensation to the lessee. Under such
conditions the tenant in putting in the machinery was acting but as
the agent of the owner in compliance with the obligations resting
upon him, and the immobilization of the machinery which resulted
arose in legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is, that
which was placed in the plant by the Altagracia Company, being, as
24
regards Nevers & Callaghan, movable property, it follows that they
had the right to levy on it under the execution upon the judgment in
their favor, and the exercise of that right did not in a legal sense
conflict with the claim of Valdes, since as to him the property was a
part of the realty which, as the result of his obligations under the
lease, he could not, for the purpose of collecting his debt, proceed
separately against. (Valdes vs. Central Altagracia [192], 225 U.S.,
58.)
Finding no reversible error in the record, the judgment appealed from will
be affirmed, the costs of this instance to be paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32917 July 18, 1988
JULIAN S. YAP, petitioner,

vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS
INTERNATIONAL (PHIL.), INC., respondents.
Paterno P. Natinga for private respondent.
NARVASA, J.:
The petition for review on certiorari at bar involves two (2) Orders of
respondent Judge Tañada 1 in Civil Case No. 10984. The first, dated
September 16, 1970, denied petitioner Yap's motion to set aside execution
sale and to quash alias writ of execution. The second, dated November 21,
1970, denied Yap's motion for reconsideration. The issues concerned the
propriety of execution of a judgment claimed to be "incomplete, vague and
non-final," and the denial of petitioner's application to prove and recover
damages resulting from alleged irregularities in the process of execution.
The antecedents will take some time in the telling. The case began in the
City Court of Cebu with the filing by Goulds Pumps International (Phil.),
Inc. of a complaint 2 against Yap and his wife 3 seeking recovery of
P1,459.30 representing the balance of the price and installation cost of a
25
water pump in the latter's premises. 4 The case resulted in a judgment by the
City Court on November 25, 1968, reading as follows:
When this case was called for trial today, Atty. Paterno
Natinga appeared for the plaintiff Goulds and informed the
court that he is ready for trial. However, none of the
defendants appeared despite notices having been served upon
them.
Upon petition Atty. Natinga, the plaintiff is hereby allowed to

present its evidence ex-parte.
After considering the evidence of the plaintiff, the court hereby

renders judgment in favor of the plaintiff and against the
defendant (Yap), ordering the latter to pay to the former the
sum of Pl,459.30 with interest at the rate of 12% per annum
until fully paid, computed from August 12, 1968, date of the
filing of the complaint; to pay the sum of P364.80 as
reasonable attorney's fees, which is equivalent " to 25% of the
unpaid principal obligation; and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to
the sala of respondent Judge Tañada. For failure to appear for pre-trial on
August 28, 1968, this setting being intransferable since the pre-trial had
already been once postponed at his instance, 5 Yap was declared in default
by Order of Judge Tañada dated August 28, 1969, 6 reading as follows:
When this case was called for pre-trial this morning, the
plaintiff and counsel appeared, but neither the defendants nor
his counsel appeared despite the fact that they were duly
notified of the pre-trial set this morning. Instead he filed an Ex-
Parte Motion for Postponement which this Court received only
this morning, and on petition of counsel for the plaintiff that
the Ex-Parte Motion for Postponement was not filed in
accordance with the Rules of Court he asked that the same be
denied and the defendants be declared in default; .. the motion
for the plaintiff being well- grounded, the defendants are
hereby declared in default and the Branch Clerk of Court ..is
hereby authorized to receive evidence for the plaintiff and ..
submit his report within ten (10) days after reception of
evidence.
Goulds presented evidence ex parte and judgment by default was rendered

the following day by Judge Tañada requiring Yap to pay to Goulds (1)
Pl,459.30 representing the unpaid balance of the pump purchased by him;
(2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other
26
expenses in prosecuting the action. Notice of the judgment was served on
Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he

insisted that his motion for postponement should have been granted since it
expressed his desire to explore the possibility of an amicable settlement;
that the court should give the parties time to arrive at an amicable
settlement failing which, he should be allowed to present evidence in
support of his defenses (discrepancy as to the price and breach of warranty).
The motion was not verified or accompanied by any separate affidavit.
Goulds opposed the motion. Its opposition 9 drew attention to the eleventh-
hour motion for postponement of Yap which had resulted in the
cancellation of the prior hearing of June 30, 1969 despite Goulds' vehement
objection, and the re-setting thereof on August 28, 1969 with intransferable
character; it averred that Yap had again sought postponement of this last
hearing by another eleventh-hour motion on the plea that an amicable
settlement would be explored, yet he had never up to that time ever
broached the matter, 10 and that this pattern of seeking to obtain last-minute
postponements was discernible also in the proceedings before the City
Court. In its opposition, Goulds also adverted to the examination made by it
of the pump, on instructions of the City Court, with a view to remedying the
defects claimed to exist by Yap; but the examination had disclosed the
pump's perfect condition. Yap's motion for reconsideration was denied by
Order dated October 10, 1969, notice of which was received by Yap on
October 4, 1969. 11
On October 15, 1969 Judge Tañada issued an Order granting Goulds'

Motion for Issuance of Writ of Execution dated October 14, 1969, declaring
the reasons therein alleged to be meritorious. 12 Yap forthwith filed an
"Urgent Motion for Reconsideration of Order" dated October 17,
1969, 13 contending that the judgment had not yet become final, since
contrary to Goulds' view, his motion for reconsideration was not pro
forma for lack of an affidavit of merit, this not being required under Section
1 (a) of Rule 37 of the Rules of Court upon which his motion was
grounded. Goulds presented an opposition dated October 22, 1969. 14 It
pointed out that in his motion for reconsideration Yap had claimed to have a
valid defense to the action, i.e., ".. discrepancy as to price and breach of
seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's
motion for reconsideration should therefore have been supported by an
affidavit of merit respecting said defenses; the absence thereof rendered the
motion for reconsideration fatally defective with the result that its filing did
not interrupt the running of the period of appeal. The opposition also drew
attention to the failure of the motion for reconsideration to specify the
findings or conclusions in the judgment claimed to be contrary to law or not
supported by the evidence, making it a pro forma motion also incapable of
stopping the running of the appeal period. On October 23, 1969, Judge
Tañada denied Yap's motion for reconsideration and authorized execution
27
of the judgment. 15 Yap sought reconsideration of this order, by another
motion dated October 29, 1969. 16 This motion was denied by Order dated
January 26, 1970. 17 Again Yap moved for reconsideration, and again was
rebuffed, by Order dated April 28, 1970. 18
In the meantime the Sheriff levied on the water pump in question, 19 and by
notice dated November 4, 1969, scheduled the execution sale thereof on
November 14, 1969. 20 But in view of the pendency of Yap's motion for
reconsideration of October 29, 1969, suspension of the sale was directed by
Judge Tañada in an order dated November 6, 1969. 21
Counsel for the plaintiff is hereby given 10 days time to

answer the Motion, dated October 29, 1969, from receipt of
this Order and in the meantime, the Order of October 23, 1969,
insofar as it orders the sheriff to enforce the writ of execution
is hereby suspended.
It appears however that a copy of this Order was not transmitted to the
Sheriff "through oversight, inadvertence and pressure of work" of the
Branch Clerk of Court. 22 So the Deputy Provincial Sheriff went ahead with
the scheduled auction sale and sold the property levied on to Goulds as the
highest bidder. 23 He later submitted the requisite report to the Court dated
November 17, 1969, 24 as well as the "Sheriffs Return of Service" dated
February 13, 1970, 25 in both of which it was stated that execution had been
"partially satisfied." It should be observed that up to this time, February,
1970, Yap had not bestirred himself to take an appeal from the judgment of
August 29, 1969.
On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of

execution on Gould's ex parte motion therefor. 26 Yap received notice of the
Order on June 11. Twelve (1 2) days later, he filed a "Motion to Set Aside
Execution Sale and to Quash Alias Writ of Execution." 27 As regards
the original, partial execution of the judgment, he argued that —
1) "the issuance of the writ of execution on October 16, 1969 was contrary
to law, the judgment sought to be executed not being final and executory;"
and
2) "the sale was made without the notice required by Sec. 18, Rule 39, of
the New Rules of Court," i.e., notice by publication in case of execution
sale of real property, the pump and its accessories being immovable
because attached to the ground with character of permanency (Art. 415,
Civil Code).
And with respect to the alias writ, he argued that it should not have issued
because —
28
1) "the judgment sought to be executed is null and void" as "it deprived the
defendant of his day in court" and "of due process;"
2) "said judgment is incomplete and vague" because there is no starting

point for computation of the interest imposed, or a specification of the
"other expenses incurred in prosecuting this case" which Yap had also been
ordered to pay;
3) "said judgment is defective because it contains no statement of facts but a

mere recital of the evidence; and
4) "there has been a change in the situation of the parties which makes
execution unjust and inequitable" because Yap suffered damages by reason
of the illegal execution.
Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter

denied by Order dated September 16, 1970. Judge Tañada pointed out that
the motion had "become moot and academic" since the decision of August
29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was
promulgated on October 15, 1969." His Honor also stressed that —
The defendant's Motion for Reconsideration of the Courts

decision was in reality one for new trial. Regarded as motion
for new trial it should allege the grounds for new trial,
provided for in the Rules of Court, to be supported by affidavit
of merits; and this the defendant failed to do. If the defendant
sincerely desired for an opportunity to submit to an amicable
settlement, which he failed to do extra judicially despite the
ample time before him, he should have appeared in the pre-
trial to achieve the same purpose.
Judge Tañada thereafter promulgated another Order dated September 21,

1970 granting a motion of Goulds for completion of execution of the
judgment of August 29, 1969 to be undertaken by the City Sheriff of Cebu.
Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the
setting aside not only of this Order of September 21, 1970 but also that
dated September 16, 1970, denying his motion to set aside execution dated
June 23, 1970. He contended that the Order of September 21, 1970
(authorizing execution by the City Sheriff) was premature, since the 30-day
period to appeal from the earlier order of September 16, 1970 (denying his
motion to set aside) had not yet expired. He also reiterated his view that his
motion for reconsideration dated September 15, 1969 did not require that it
be accompanied by an affidavit of merits. This last motion was also denied
for "lack of merits," by Order dated November 21, 1970. 29
29
On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his
intention to appeal to the Supreme Court on certiorari only on questions of
law, "from the Order ... of September 16, 1970 ... and from the Order ... of
November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971,
after obtaining an extension therefor. 30
The errors of law he attributes to the Court a quo are the following: 31
1) refusing to invalidate the execution pursuant to its Order of October 16,

1969 although the judgment had not then become final and executory and
despite its being incomplete and vague;
2) ignoring the fact that the execution sale was carried out although it (the
Court) had itself ordered suspension of execution on November 6, 1969;
3) declining to annul the execution sale of the pump and accessories subject
of the action although made without the requisite notice prescribed for the
sale of immovables; and
4) refusing to allow the petitioner to prove irregularities in the process of

execution which had resulted in damages to him.
Notice of the Trial Court's judgment was served on Yap on September 1,

1969. His motion for reconsideration thereof was filed 15 days thereafter,
on September 16, 1969. Notice of the Order denying the motion was
received by him on October 14, 1969. The question is whether or not the
motion for reconsideration — which was not verified, or accompanied by
an affidavit of merits (setting forth facts constituting his meritorious
defenses to the suit) or other sworn statement (stating facts excusing his
failure to appear at the pre-trial was pro forma and consequently had not
interrupted the running of the period of appeal. It is Yap's contention that
his motion was notpro forma for lack of an affidavit of merits, such a
document not being required by Section 1 (a) of Rule 37 of the Rules of
Court upon which his motion was based. This is incorrect.
Section 2, Rule 37 precisely requires that when the motion for new trial is
founded on Section 1 (a), it should be accompanied by an affidavit of merit.
xxx xxx xxx
When the motion is made for the causes mentioned in

subdivisions (a) and (b) of the preceding section, it shall be
proved in the manner provided for proof of motions. Affidavit
or affidavits of merits shall also be attached to a motion for the
cause mentioned in subdivision (a) which may be rebutted by
counter-affidavits.
30
xxx xxx xxx 32
Since Yap himself asserts that his motion for reconsideration is grounded
on Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable
negligence which ordinary prudence could not have guarded against and by
reason of which ... (the) aggrieved party has probably been impaired in his
rights" — this being in any event clear from a perusal of the motion which
theorizes that he had "been impaired in his rights" because he was denied
the right to present evidence of his defenses (discrepancy as to price and
breach of warranty) — it was a fatal omission to fail to attach to his motion
an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions)
constituting the valid x x defense which the movant may prove in case a
new trial is granted." 34 The requirement of such an affidavit is essential
because obviously "a new trial would be a waste of the court's time if the
complaint turns out to be groundless or the defense ineffective." 35
In his motion for reconsideration, Yap also contended that since he had
expressed a desire to explore the possibility of an amicable settlement, the
Court should have given him time to do so, instead of declaring him in
default and thereafter rendering judgment by default on Gould's ex
parte evidence.
The bona fides of this desire to compromise is however put in doubt by the
attendant circumstances. It was manifested in an eleventh-hour motion for
postponement of the pre-trial which had been scheduled with intransferable
character since it had already been earlier postponed at Yap's instance; it
had never been mentioned at any prior time since commencement of the
litigation; such a possible compromise (at least in general or preliminary
terms) was certainly most appropriate for consideration at the pre-trial; in
fact Yap was aware that the matter was indeed a proper subject of a pre-trial
agenda, yet he sought to avoid appearance at said pre-trial which he knew
to be intransferable in character. These considerations and the dilatory
tactics thus far attributable to him-seeking postponements of hearings, or
failing to appear therefor despite notice, not only in the Court of First
Instance but also in the City Court — proscribe belief in the sincerity of his
avowed desire to negotiate a compromise. Moreover, the disregard by Yap
of the general requirement that "(n)otice of a motion shall be served by the
applicant to all parties concerned at least three (3) days before the hearing
thereof, together with a copy of the motion, and of any affidavits and other
papers accompanying it," 36 for which no justification whatever has been
offered, also militates against the bona fides of Yap's expressed wish for an
amicable settlement. The relevant circumstances do not therefore justify
condemnation, as a grave abuse of discretion, or a serious mistake, of the
refusal of the Trial Judge to grant postponement upon this proferred ground.
The motion for reconsideration did not therefore interrupt the running of the
period of appeal. The time during which it was pending before the court —
from September 16, 1969 when it was filed with the respondent Court until
31
October 14, 1969 when notice of the order denying the motion was received
by the movant — could not be deducted from the 30-day period of
appeal. 37 This is the inescapable conclusion from a consideration of Section
3 of Rule 41 which in part declares that, "The "time during which a motion
to set aside the judgment or order or for a new trial has been pending shall
be deducted, unless such motion fails to satisfy the requirements of Rule
37. 38
Notice of the judgment having been received by Yap on September 1, 1969,

and the period of appeal therefrom not having been interrupted by his
motion for reconsideration filed on September 16, 1969, the reglementary
period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then
became final and executory; Yap could no longer take an appeal therefrom
or from any other subsequent orders; and execution of judgment correctly
issued on October 15, 1969, "as a matter of right." 39
The next point discussed by Yap, that the judgment is incomplete and
vague, is not well taken. It is true that the decision does not fix the starting
time of the computation of interest on the judgment debt, but this is
inconsequential since that time is easily determinable from the opinion, i.e.,
from the day the buyer (Yap) defaulted in the payment of his
obligation, 40 on May 31, 1968. 41 The absence of any disposition regarding
his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and
despite notice, which caused the declaration of his default, was a waiver of
his right to controvert the plaintiff s proofs and of his right to prove the
averments of his answer, inclusive of the counterclaim therein pleaded.
Moreover, the conclusion in the judgment of the merit of the plaintiff s
cause of action was necessarily and at the same time a determination of the
absence of merit of the defendant's claim of untenability of the complaint
and of malicious prosecution.
Yap's next argument that the water pump had become immovable property
by its being installed in his residence is also untenable. The Civil Code
considers as immovable property, among others, anything "attached to an
immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the
object." 42 The pump does not fit this description. It could be, and was in
fact separated from Yap's premises without being broken or suffering
deterioration. Obviously the separation or removal of the pump involved
nothing more complicated than the loosening of bolts or dismantling of
other fasteners.
Yap's last claim is that in the process of the removal of the pump from his
house, Goulds' men had trampled on the plants growing there, destroyed the
shed over the pump, plugged the exterior casings with rags and cut the
electrical and conduit pipes; that he had thereby suffered actual-damages in
32
an amount of not less than P 2,000.00, as well as moral damages in the sum
of P 10,000.00 resulting from his deprivation of the use of his water supply;
but the Court had refused to allow him to prove these acts and recover the
damages rightfully due him. Now, as to the loss of his water supply, since
this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly
is not entitled to claim moral or any other form of damages therefor.
WHEREFORE, the petition is DENIED and the appeal DISMISSED, and

the Orders of September 16, 1970 and November 21, 1970 subject thereof,
AFFIRMED in toto. Costs against petitioner.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,

vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.

Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the Province of
Tarlac on the 14th day of December 1924. The facts are about as conflicting
as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano
Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of
execution issued by the Court of First Instance of Pampanga, attached and
sold to the defendant Emiliano J. Valdez the sugar cane planted by the
plaintiff and his tenants on seven parcels of land described in the complaint
in the third paragraph of the first cause of action; that within one year from
the date of the attachment and sale the plaintiff offered to redeem said sugar
33
cane and tendered to the defendant Valdez the amount sufficient to cover
the price paid by the latter, the interest thereon and any assessments or taxes
which he may have paid thereon after the purchase, and the interest
corresponding thereto and that Valdez refused to accept the money and to
return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant

Emiliano J. Valdez was attempting to harvest the palay planted in four of
the seven parcels mentioned in the first cause of action; that he had
harvested and taken possession of the palay in one of said seven parcels and
in another parcel described in the second cause of action, amounting to 300
cavans; and that all of said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the

defendant Emiliano J. Valdez his attorneys and agents, restraining them (1)
from distributing him in the possession of the parcels of land described in
the complaint; (2) from taking possession of, or harvesting the sugar cane in
question; and (3) from taking possession, or harvesting the palay in said
parcels of land. Plaintiff also prayed that a judgment be rendered in his
favor and against the defendants ordering them to consent to the redemption
of the sugar cane in question, and that the defendant Valdez be condemned
to pay to the plaintiff the sum of P1,056 the value of palay harvested by him
in the two parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon
approval of the bond for P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally

and specifically each and every allegation of the complaint and step up the
following defenses:
(a) That the sugar cane in question had the nature of personal
property and was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first
cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by

reason of the preliminary injunction he was unable to gather the sugar cane,
sugar-cane shoots (puntas de cana dulce) palay in said parcels of land,
representing a loss to him of P8,375.20 and that, in addition thereto, he
suffered damages amounting to P3,458.56. He prayed, for a judgment (1)
absolving him from all liability under the complaint; (2) declaring him to be
34
the absolute owner of the sugar cane in question and of the palay in parcels
1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of
P11,833.76, representing the value of the sugar cane and palay in question,
including damages.
Upon the issues thus presented by the pleadings the cause was brought on
for trial. After hearing the evidence, and on April 28, 1926, the Honorable
Cayetano Lukban, judge, rendered a judgment against the plaintiff and in
favor of the defendants —
(1) Holding that the sugar cane in question was personal property
and, as such, was not subject to redemption;
(2) Absolving the defendants from all liability under the complaint;
and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the

defendant was not able to raise by reason of the injunction, at
P4 cavan. 9,439.08 From that judgment the plaintiff appealed
and in his assignments of error contends that the lower court
erred: (1) In holding that the sugar cane in question was
personal property and, therefore, not subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to

Valdez, as well as parcels 7 and 8, and that the palay therein was
planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction

failed to realized P6,757.40 from the sugar cane and P1,435.68 from
sugar-cane shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on
time, the defendant was unable to raise palay on the land, which
would have netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the

defendant the sum of P9,439.08.
It appears from the record:

35
(1) That on May 11, 1923, the deputy sheriff of the Province of
Tarlac, by virtue of writ of execution in civil case No. 20203 of the
Court of First Instance of Manila (Macondray & Co., Inc. vs. Leon
Sibal),levied an attachment on eight parcels of land belonging to said
Leon Sibal, situated in the Province of Tarlac, designated in the
second of attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B,
Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight
parcels of land, at the auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid for the said parcels
separately as follows (Exhibit C, and 2-A):
Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 ..................................................................... 1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on
the 24th day of September, 1923, the judgment debtor, Leon Sibal,
paid P2,000 to Macondray & Co., Inc., for the account of the
redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The
redemption price said eight parcels was reduced, by virtue of said
transaction, to P2,579.97 including interest (Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution in
civil case No. 1301 of the Province of Pampanga (Emiliano J.
Valdez vs. Leon Sibal 1.º — the same parties in the present case),
attached the personal property of said Leon Sibal located in Tarlac,
36
among which was included the sugar cane now in question in the
seven parcels of land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public
auction said personal properties of Leon Sibal, including the sugar
cane in question to Emilio J. Valdez, who paid therefor the sum of
P1,550, of which P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ
of execution, also attached the real property of said Leon Sibal in
Tarlac, including all of his rights, interest and participation therein,
which real property consisted of eleven parcels of land and a house
and camarin situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the
house and the camarin, were bought by Emilio J. Valdez at the
auction held by the sheriff for the sum of P12,200. Said eight parcels
were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10
and 11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the
sheriff as parcels 2, 12, and 13, were released from the attachment by
virtue of claims presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and
interest in the eight parcels of land acquired by it at public auction
held by the deputy sheriff of Tarlac in connection with civil case No.
20203 of the Court of First Instance of Manila, as stated above. Said
amount represented the unpaid balance of the redemption price of
said eight parcels, after payment by Leon Sibal of P2,000 on
September 24, 1923, fro the account of the redemption price, as
stated above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located
in the seven parcels of land described in the first cause of action of
the complaint at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of
eight parcels of land situated in the Province of Tarlac belonging to
Leon Sibal and that on September 24, 1923, Leon Sibal paid to
Macondray & Co. P2,000 for the account of the redemption price of
said parcels.
37
(3) That on June 25, 1924, Emilio J. Valdez acquired from
Macondray & Co. all of its rights and interest in the said eight parcels
of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the
rights and interest which Leon Sibal had or might have had on said
eight parcels by virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight
parcels of land.
The first question raised by the appeal is, whether the sugar cane in
question is personal or real property. It is contended that sugar cane comes
under the classification of real property as "ungathered products" in
paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334
enumerates as real property the following: Trees, plants, and ungathered
products, while they are annexed to the land or form an integral part of any
immovable property." That article, however, has received in recent years an
interpretation by the Tribunal Supremo de España, which holds that, under
certain conditions, growing crops may be considered as personal property.
(Decision of March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing

section 334 of the Civil Code, in view of the recent decisions of the
supreme Court of Spain, admits that growing crops are sometimes
considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos

autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja),
y a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos del arrendario,
para recolectar o percibir los frutos correspondientes al año agricola,
dentro del que nacieron aquellos derechos, cuando el arrendor ha
percibido a su vez el importe de la renta integra correspondiente, aun
cuando lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria al
desahucio un alcance que no tiene, sino en que, y esto es lo
interesante a nuestro proposito, la consideracion de inmuebles que el
articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les
priva del caracter de productos pertenecientes, como tales, a quienes
a ellos tenga derecho, Ilegado el momento de su recoleccion.
xxx xxx xxx
38
Mas actualmente y por virtud de la nueva edicion de la Ley
Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas
introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto
expreso que disponga lo contrario, y cualquiera que sea la naturaleza
y forma de la obligacion que garantice, no comprende los
frutos cualquiera que sea la situacion en que se encuentre. (3
Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending
fruits and ungathered products may be sold and transferred as personal
property; (2) that the Supreme Court of Spain, in a case of ejectment of a
lessee of an agricultural land, held that the lessee was entitled to gather the
products corresponding to the agricultural year, because said fruits did not
go with the land but belonged separately to the lessee; and (3) that under the
Spanish Mortgage Law of 1909, as amended, the mortgage of a piece of
land does not include the fruits and products existing thereon, unless the
contract expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana may

give us some light on the question which we are discussing. Article 465 of
the Civil Code of Louisiana, which corresponds to paragraph 2 of article
334 of our Civil Code, provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are likewise immovable, and
are considered as part of the land to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that

provision, held that in some cases "standing crops" may be considered and
dealt with as personal property. In the case of Lumber Co. vs. Sheriff and
Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465
of the Civil Code it is provided that 'standing crops and the fruits of trees
not gathered and trees before they are cut down . . . are considered as part of
the land to which they are attached, but the immovability provided for is
only one in abstracto and without reference to rights on or to the crop
acquired by others than the owners of the property to which the crop is
attached. . . . The existence of a right on the growing crop is a mobilization
by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired therein. Our jurisprudence recognizes the
possible mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31
La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27
La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs.
Bodin (28 La. An., 761) that "article 465 of the Revised Code says that
standing crops are considered as immovable and as part of the land to which
they are attached, and article 466 declares that the fruits of an immovable
gathered or produced while it is under seizure are considered as making part
thereof, and incurred to the benefit of the person making the seizure. But
the evident meaning of these articles, is where the crops belong to the
39
owner of the plantation they form part of the immovable, and where it is
seized, the fruits gathered or produced inure to the benefit of the seizing
creditor.
A crop raised on leased premises in no sense forms part of the

immovable. It belongs to the lessee, and may be sold by him, whether
it be gathered or not, and it may be sold by his judgment creditors. If
it necessarily forms part of the leased premises the result would be
that it could not be sold under execution separate and apart from the
land. If a lessee obtain supplies to make his crop, the factor's lien
would not attach to the crop as a separate thing belonging to his
debtor, but the land belonging to the lessor would be affected with
the recorded privilege. The law cannot be construed so as to result in
such absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an
immovable, it would be destructive of the very objects of the act, it
would render the pledge of the crop objects of the act, it would render
the pledge of the crop impossible, for if the crop was an inseparable
part of the realty possession of the latter would be necessary to that of
the former; but such is not the case. True, by article 465 C. C. it is
provided that "standing crops and the fruits of trees not gathered and
trees before they are cut down are likewise immovable and are
considered as part of the land to which they are attached;" but the
immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by other than the owners
of the property to which the crop was attached. The immovability of
a growing crop is in the order of things temporary, for the crop passes
from the state of a growing to that of a gathered one, from an
immovable to a movable. The existence of a right on the growing
crop is a mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right acquired
thereon. The provision of our Code is identical with the Napoleon
Code 520, and we may therefore obtain light by an examination of
the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de

España but by the Supreme Court of Louisiana, is followed in practically
every state of the Union.
From an examination of the reports and codes of the State of California and
other states we find that the settle doctrine followed in said states in
connection with the attachment of property and execution of judgment is,
that growing crops raised by yearly labor and cultivation are considered
personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23
Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254; Norris vs. Watson,
40
55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on
Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and
Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45
Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment,
sec. 249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though
not yet actually in existence, is reasonably certain to come into existence as
the natural increment or usual incident of something already in existence,
and then belonging to the vendor, and then title will vest in the buyer the
moment the thing comes into existence. (Emerson vs. European Railway
Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.)
Things of this nature are said to have a potential existence. A man may sell
property of which he is potentially and not actually possessed. He may
make a valid sale of the wine that a vineyard is expected to produce; or the
gain a field may grow in a given time; or the milk a cow may yield during
the coming year; or the wool that shall thereafter grow upon sheep; or what
may be taken at the next cast of a fisherman's net; or fruits to grow; or
young animals not yet in existence; or the good will of a trade and the like.
The thing sold, however, must be specific and identified. They must be also
owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of

the Civil Code has been modified by section 450 of the Code of Civil
Procedure as well as by Act No. 1508, the Chattel Mortgage Law. Said
section 450 enumerates the property of a judgment debtor which may be
subjected to execution. The pertinent portion of said section reads as
follows: "All goods, chattels, moneys, and other property, both real and
personal, * * * shall be liable to execution. Said section 450 and most of the
other sections of the Code of Civil Procedure relating to the execution of
judgment were taken from the Code of Civil Procedure of California. The
Supreme Court of California, under section 688 of the Code of Civil
Procedure of that state (Pomeroy, p. 424) has held, without variation, that
growing crops were personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing
crops are personal property. Section 2 of said Act provides: "All personal
property shall be subject to mortgage, agreeably to the provisions of this
Act, and a mortgage executed in pursuance thereof shall be termed a chattel
mortgage." Section 7 in part provides: "If growing crops be mortgaged the
mortgage may contain an agreement stipulating that the mortgagor binds
himself properly to tend, care for and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on
the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated, that
paragraph 2 of article 334 of the Civil Code has been modified by section
41
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered
products" as mentioned in said article of the Civil Code have the nature of
personal property. In other words, the phrase "personal property" should be
understood to include "ungathered products."
At common law, and generally in the United States, all annual crops
which are raised by yearly manurance and labor, and essentially owe
their annual existence to cultivation by man, . may be levied on as
personal property." (23 C. J., p. 329.) On this question Freeman, in
his treatise on the Law of Executions, says: "Crops, whether growing
or standing in the field ready to be harvested, are, when produced by
annual cultivation, no part of the realty. They are, therefore, liable to
voluntary transfer as chattels. It is equally well settled that they may
be seized and sold under execution. (Freeman on Executions, vol. p.
438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil

Code has been modified by section 450 of the Code of Civil Procedure and
by Act No. 1508, in the sense that, for the purpose of attachment and
execution, and for the purposes of the Chattel Mortgage Law, "ungathered
products" have the nature of personal property. The lower court, therefore,
committed no error in holding that the sugar cane in question was personal
property and, as such, was not subject to redemption.
All the other assignments of error made by the appellant, as above stated,
relate to questions of fact only. Before entering upon a discussion of said
assignments of error, we deem it opportune to take special notice of the
failure of the plaintiff to appear at the trial during the presentation of
evidence by the defendant. His absence from the trial and his failure to
cross-examine the defendant have lent considerable weight to the evidence
then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first cause
of action of the complaint, the plaintiff made a futile attempt to show that
said two parcels belonged to Agustin Cuyugan and were the identical parcel
2 which was excluded from the attachment and sale of real property of Sibal
to Valdez on June 25, 1924, as stated above. A comparison of the
description of parcel 2 in the certificate of sale by the sheriff (Exhibit A)
and the description of parcels 1 and 2 of the complaint will readily show
that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado Leon

Sibal 1.º en una parcela de terreno de la pertenencia del citado
ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de unas
dos hectareas poco mas o menos de superficie.
42
2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal
1.º, Ilamado Alejandro Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban,
Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as
follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de

177,090 metros cuadrados de superficie, linda al N. con Canuto
Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con Francisco
Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro
Santos and Melecio Mañu; y al O. con Alejandro Dayrit and Paulino
Vergara. Tax No. 2854, vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show that
parcels 1 and 2 of the complaint were included among the parcels bought by
Valdez from Macondray on June 25, 1924, and corresponded to parcel 4 in
the deed of sale (Exhibit B and 2), and were also included among the
parcels bought by Valdez at the auction of the real property of Leon Sibal
on June 25, 1924, and corresponded to parcel 3 in the certificate of sale
made by the sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and
parcel 3 (Exhibit A) is as follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de

Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de
superficie, lindante al Norte con Road of the barrio of Culubasa that
goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño
y Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado
asciende a la suma de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of

the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But,
inasmuch as the plaintiff did not care to appear at the trial when the
defendant offered his evidence, we are inclined to give more weight to the
evidence adduced by him that to the evidence adduced by the plaintiff, with
respect to the ownership of parcels 1 and 2 of the compliant. We, therefore,
conclude that parcels 1 and 2 of the complaint belong to the defendant,
having acquired the same from Macondray & Co. on June 25, 1924, and
from the plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and
harvested therefrom 190 cavans. There being no evidence of bad faith on
his part, he is therefore entitled to one-half of the crop, or 95 cavans. He
should therefore be condemned to pay to the defendant for 95 cavans only,
at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as
held by the lower court.
43
As to the ownership of parcel 7 of the complaint, the evidence shows that
said parcel corresponds to parcel 1 of the deed of sale of Macondray & Co,
to Valdez (Exhibit B and 2), and to parcel 4 in the certificate of sale to
Valdez of real property belonging to Sibal, executed by the sheriff as above
stated (Exhibit A). Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in

paragraph 3 of the second cause of action, it appears from the testimony of
the plaintiff himself that said parcel corresponds to parcel 8 of the deed of
sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed
of sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is
therefore the absolute owner of said parcel, having acquired the interest of
both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of
land were attached under said execution. Said parcels of land were sold to
Macondray & Co. on the 30th day of July, 1923. Rice paid P4,273.93. On
September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal

was attached, including the sugar cane in question. (Exhibit A) The said
personal property so attached, sold at public auction May 9 and 10, 1924.
April 29, 1924, the real property was attached under the execution in favor
of Valdez (Exhibit A). June 25, 1924, said real property was sold and
purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had
purchased at public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the
evidence shows that the sugar cane in question covered an area of 22
hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have
yielded an average crop of 1039 picos and 60 cates; that one-half of the
quantity, or 519 picos and 80 cates would have corresponded to the
defendant, as owner; that during the season the sugar was selling at P13 a
pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have
netted P 6,757.40 from the sugar cane in question. The evidence also shows
that the defendant could have taken from the sugar cane 1,017,000 sugar-
cane shoots (puntas de cana) and not 1,170,000 as computed by the lower
court. During the season the shoots were selling at P1.20 a thousand
(Exhibits 6 and 7). The defendant therefore would have netted P1,220.40
from sugar-cane shoots and not P1,435.68 as allowed by the lower court.
44
As to the palay harvested by the plaintiff in parcels 1 and 2 of the
complaint, amounting to 190 cavans, one-half of said quantity should
belong to the plaintiff, as stated above, and the other half to the defendant.
The court erred in awarding the whole crop to the defendant. The plaintiff
should therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or
P323 instead of P646 as allowed by the lower court.
The evidence also shows that the defendant was prevented by the acts of the
plaintiff from cultivating about 10 hectares of the land involved in the
litigation. He expected to have raised about 600 cavans of palay, 300
cavans of which would have corresponded to him as owner. The lower
court has wisely reduced his share to 150 cavans only. At P4 a cavan, the
palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified.

The plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos
Sibal are hereby ordered to pay to the defendant jointly and severally the
sum of P8,900.80, instead of P9,439.08 allowed by the lower court, as
follows:
P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;
for the palay harvested by plaintiff in parcels 1 and
323.00
2;
600.00 for the palay which defendant could have raised.
8,900.80
============
In all other respects, the judgment appealed from is hereby affirmed, with
costs. So ordered.
Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.
45
SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,

vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE
INSURANCE COMPANY, MABALACAT SUGAR COMPANY and
THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.

Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the

judgment of the Court of First Instance of Manila, dismissing said plaintiff's
complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as

committed by the trial court in its decision in question which will be
discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement
incorporated with the central are subject to the mortgage deed executed in
favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar
Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first
mortgage constituted on two parcels and land "with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus,
utensils and whatever forms part or is necessary complement of said sugar-
cane mill, steel railway, telephone line, now existing or that may in the
future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar
central by buying additional machinery and equipment, so that instead of
milling 150 tons daily, it could produce 250. The estimated cost of said
additional machinery and equipment was approximately P100,000. In order
46
to carry out this plan, B.A. Green, president of said corporation, proposed to
the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising to reimburse him as
soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a
letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th
of the same year, delivered the sum of P1,710 to B.A. Green, president of
the Mabalacat Sugar Co., Inc., the total amount supplied by him to said
B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a
credit of P22,000 against said corporation for unpaid salary. With the loan
of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc.,
applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as
security the additional machinery and equipment acquired by said B.A.
Green and installed in the sugar central after the execution of the original
mortgage deed, on April 27, 1927, together with whatever additional
equipment acquired with said loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions,

improvements, growing fruits, and rents not collected when the
obligation falls due, and the amount of any indemnities paid or due
the owner by the insurers of the mortgaged property or by virtue of
the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate
continues in the possession of the person who mortgaged it or
whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12
Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES

IMPROVEMENTS AND FIXTURES. — It is a rule, established by
the Civil Code and also by the Mortgage Law, with which the
decisions of the courts of the United States are in accord, that in a
mortgage of real estate, the improvements on the same are included;
therefore, all objects permanently attached to a mortgaged building or
land, although they may have been placed there after the mortgage
was constituted, are also included. (Arts. 110 and 111 of the
Mortgage Law, and 1877 of the Civil Code; decision of U.S.
Supreme Court in the matter of Royal Insurance Co. vs. R. Miller,
liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
47
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY,
ETC. — In order that it may be understood that the machinery and
other objects placed upon and used in connection with a mortgaged
estate are excluded from the mortgage, when it was stated in the
mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that the
exclusion thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment
claimed by him in the sugar central of the Mabalacat Sugar Company, Inc.,
was not permanent in character inasmuch as B.A. Green, in proposing to
him to advance the money for the purchase thereof, made it appear in the
letter, Exhibit E, that in case B.A. Green should fail to obtain an additional
loan from the defendants Cu Unjieng e Hijos, said machinery and
equipment would become security therefor, said B.A. Green binding
himself not to mortgage nor encumber them to anybody until said plaintiff
be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money

obtained as loan from the plaintiff-appellant by B.A. Green, as president of
the Mabalacat Sugar Co., Inc., the latter became owner of said machinery
and equipment, otherwise B.A. Green, as such president, could not have
offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real
property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with
any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central

of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar industry, converted them into real property by
reason of their purpose, it cannot be said that their incorporation therewith
was not permanent in character because, as essential and principal elements
of a sugar central, without them the sugar central would be unable to
function or carry on the industrial purpose for which it was established.
Inasmuch as the central is permanent in character, the necessary machinery
and equipment installed for carrying on the sugar industry for which it has
been established must necessarily be permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H.
Berkenkotter to hold said machinery and equipment as security for the
payment of the latter's credit and to refrain from mortgaging or otherwise
encumbering them until Berkenkotter has been fully reimbursed therefor, is
not incompatible with the permanent character of the incorporation of said
machinery and equipment with the sugar central of the Mabalacat Sugar
48
Co., Inc., as nothing could prevent B.A. Green from giving them as security
at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and
appellant after they had been permanently incorporated with sugar central
of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on
said sugar central to Cu Unjieng e Hijos remained in force, only the right of
redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central
with which said machinery and equipment had been incorporated, was
transferred thereby, subject to the right of the defendants Cu Unjieng e
Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1)
That the installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out
the industrial functions of the latter and increasing production, constitutes a
permanent improvement on said sugar central and subjects said machinery
and equipment to the mortgage constituted thereon (article 1877, Civil
Code); (2) that the fact that the purchaser of the new machinery and
equipment has bound himself to the person supplying him the purchase
money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment
with the central; and (3) that the sale of the machinery and equipment in
question by the purchaser who was supplied the purchase money, as a loan,
to the person who supplied the money, after the incorporation thereof with
the mortgaged sugar central, does not vest the creditor with ownership of
said machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all

its parts, with costs to the appellant. So ordered.
49
SUPREME COURT
Manila
EN BANC
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,

vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.

Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos

Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of
Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of
money. On the same date, he obtained a writ of attachment, which levied
upon a house, built by Rivera on a land situated in Manila and leased to
him, by filing copy of said writ and the corresponding notice of attachment
with the Office of the Register of Deeds of Manila, on June 8, 1949. In due
course, judgment was rendered in favor of Evangelista, who, on October 8,
1951, bought the house at public auction held in compliance with the writ
of execution issued in said case. The corresponding definite deed of sale
was issued to him on October 22, 1952, upon expiration of the period of
redemption. When Evangelista sought to take possession of the house,
Rivera refused to surrender it, upon the ground that he had leased the
property from the Alto Surety & Insurance Co., Inc. — respondent herein
— and that the latter is now the true owner of said property. It appears that
on May 10, 1952, a definite deed of sale of the same house had been issued
to respondent, as the highest bidder at an auction sale held, on September
29, 1950, in compliance with a writ of execution issued in Civil Case No.
6268 of the same court, entitled "Alto Surety & Insurance Co.,
Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in
which judgment, for the sum of money, had been rendered in favor
respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista
instituted the present action against respondent and Ricardo Rivera, for the
purpose of establishing his (Evangelista) title over said house, securing
possession thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to

the house, because the sale made, and the definite deed of sale executed, in
its favor, on September 29, 1950 and May 10, 1952, respectively, precede
50
the sale to Evangelista (October 8, 1951) and the definite deed of sale in his
favor (October 22, 1952). It, also, made some special defenses which are
discussed hereafter. Rivera, in effect, joined forces with respondent. After
due trial, the Court of First Instance of Manila rendered judgment for
Evangelista, sentencing Rivera and respondent to deliver the house in
question to petitioner herein and to pay him, jointly and severally, forty
pesos (P40.00) a month from October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of

Appeals, which absolved said respondent from the complaint, upon the
ground that, although the writ of attachment in favor of Evangelista had
been filed with the Register of Deeds of Manila prior to the sale in favor of
respondent, Evangelista did not acquire thereby a preferential lien, the
attachment having been levied as if the house in question were immovable
property, although in the opinion of the Court of Appeals, it is "ostensibly a
personal property." As such, the Court of Appeals held, "the order of
attachment . . . should have been served in the manner provided in
subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:
The property of the defendant shall be attached by the officer

executing the order in the following manner:
(e) Debts and credits, and other personal property not capable of
manual delivery, by leaving with the person owing such debts, or
having in his possession or under his control, such credits or other
personal property, or with, his agent, a copy of the order, and a
notice that the debts owing by him to the defendant, and the credits
and other personal property in his possession, or under his control,
belonging to the defendant, are attached in pursuance of such order.
(Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that
the house of Rivera should have been attached in accordance with
subsection (c) of said section 7, as "personal property capable of manual
delivery, by taking and safely keeping in his custody", for it declared that
"Evangelists could not have . . . validly purchased Ricardo Rivera's house
from the sheriff as the latter was not in possession thereof at the time he
sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court

of Appeals. In this connection, it is not disputed that although the sale to the
respondent preceded that made to Evangelists, the latter would have a better
right if the writ of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This question, in turn,
depends upon whether the house of Ricardo Rivera is real property or not.
In the affirmative case, the applicable provision would be subsection (a) of
section 7, Rule 59 of the Rules of Court, pursuant to which the attachment
should be made "by filing with the registrar of deeds a copy of the order,
51
together with a description of the property attached, and a notice that it is
attached, and by leaving a copy of such order, description, and notice with
the occupant of the property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that

Rivera's house is personal property, the levy upon which must be made in
conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence,
the main issue before us is whether a house, constructed the lessee of the
land on which it is built, should be dealt with, for purpose, of attachment, as
immovable property, or as personal property.
It is, our considered opinion that said house is not personal property, much
less a debt, credit or other personal property not capable of manual delivery,
but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off.
Gaz., 5374), "a true building (not merely superimposed on the soil) is
immovable or real property, whether it is erected by the owner of the land
or by usufructuary or lessee. This is the doctrine of our Supreme Court in
Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply
supported by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider
a house as personal property for purposes of said contract
(Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New
York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil.,
464). However, this view is good only insofar as thecontracting parties are
concerned. It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said contract. Much
less is it in point where there has been no contractwhatsoever, with respect
to the status of the house involved, as in the case at bar. Apart from this,
in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the
parties entering into a contract regarding a house gave said property
the consideration of personal property in their contract, bind the
sheriff in advertising the property's sale at public auction as personal
property? It is to be remembered that in the case at bar the action was
to collect a loan secured by a chattel mortgage on the house. It is also
to be remembered that in practice it is the judgment creditor who
points out to the sheriff the properties that the sheriff is to levy upon
in execution, and the judgment creditor in the case at bar is the party
in whose favor the owner of the house had conveyed it by way of
chattel mortgage and, therefore, knew its consideration as personal
property.
These considerations notwithstanding, we hold that the rules on

execution do not allow, and, we should notinterpret them in such a
way as to allow, the special consideration that parties to a contract
may have desired to impart to real estate, for example, as personal
52
property, when they are, not ordinarily so. Sales on execution affect
the public and third persons. The regulation governing sales on
execution are for public officials to follow. The form of proceedings
prescribed for each kind of property is suited to its character, not to
the character, which the parties have given to it or desire to give it.
When the rules speak of personal property, property which is
ordinarily so considered is meant; and when real property is spoken
of, it means property which is generally known as real property. The
regulations were never intended to suit the consideration that parties
may have privately given to the property levied upon. Enforcement of
regulations would be difficult were the convenience or agreement of
private parties to determine or govern the nature of the proceedings.
We therefore hold that the mere fact that a house was the subject of
the chattel mortgage and was considered as personal property by the
parties does not make said house personal property for purposes of
the notice to be given for its sale of public auction. This ruling is
demanded by the need for a definite, orderly and well defined
regulation for official and public guidance and would prevent
confusion and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon
on execution, although subject of a contract of chattel mortgage
between the owner and a third person, is real property within the
purview of Rule 39, section 16, of the Rules of Court as it has become
a permanent fixture of the land, which, is real property. (42 Am. Jur.
199-200; Leung Yee vs. Strong Machinery Co., 37 Phil., 644;
Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et
al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for
the levy of attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable

property, its attachment by Evangelista was void or ineffective, because, in
the language of the Court of Appeals, "after presenting a Copy of the order
of attachment in the Office of the Register of Deeds, the person who might
then be in possession of the house, the sheriff took no pains to serve
Ricardo Rivera, or other copies thereof." This finding of the Court of
Appeals is neither conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that
petitioner alleged, in paragraph 3 of the complaint, that he acquired the
house in question "as a consequence of the levy of an attachment and
execution of the judgment in Civil Case No. 8235" of the Court of First
Instance of Manila. In his answer (paragraph 2), Ricardo
Rivera admitted said attachment execution of judgment. He alleged,
however, by way a of special defense, that the title of respondent
"is superior to that of plaintiff because it is based on a public instrument,"
53
whereas Evangelista relied upon a "promissory note" which "is only a
private instrument"; that said Public instrument in favor of respondent
"is superior also to the judgment in Civil Case No. 8235"; and that
plaintiff's claim against Rivera amounted only to P866, "which is much
below the real value" of said house, for which reason it would be "grossly
unjust to acquire the property for such an inadequate consideration."
Thus, Rivera impliedly admitted that his house had been attached, that the
house had been sold to Evangelista in accordance with the requisite
formalities, and that said attachment was valid, although allegedly inferior
to the rights of respondent, and the consideration for the sale to Evangelista
was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the

complaint, but only " for the reasons stated in its special defenses" namely:
(1) that by virtue of the sale at public auction, and the final deed executed
by the sheriff in favor of respondent, the same became the "legitimate
owner of the house" in question; (2) that respondent "is a buyer in good
faith and for value"; (3) that respondent "took possession and control of said
house"; (4) that "there was no valid attachment by the plaintiff and/or the
Sheriff of Manila of the property in question as neither took actual or
constructive possession or control of the property at any time"; and (5) "that
the alleged registration of plaintiff's attachment, certificate of sale and final
deed in the Office of Register of Deeds, Manila, if there was any, is
likewise, not valid as there is no registry of transactions covering houses
erected on land belonging to or leased from another." In this manner,
respondent claimed a better right, merely under the theory that, in case of
double sale of immovable property, the purchaser who first obtains
possession in good faith, acquires title, if the sale has not been "recorded . .
. in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and
that the writ of attachment and the notice of attachment in favor of
Evangelista should be considered unregistered, "as there is no registry of
transactions covering houses erected on land belonging to or leased from
another." In fact, said article 1544 of the Civil Code of the Philippines,
governing double sales, was quoted on page 15 of the brief for respondent
in the Court of Appeals, in support of its fourth assignment of error therein,
to the effect that it "has preference or priority over the sale of the same
property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of
attachment had been served on Rivera. No evidence whatsoever, to the
effect that Rivera had not been served with copies of said writ and notice,
was introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies
were served by the sheriff upon Rivera. Service thereof on Rivera had been
impliedly admitted by the defendants, in their respective answers, and by
their behaviour throughout the proceedings in the Court of First Instance,
and, as regards respondent, in the Court of Appeals. In fact, petitioner
54
asserts in his brief herein (p. 26) that copies of said writ and notice were
delivered to Rivera, simultaneously with copies of the complaint, upon
service of summons, prior to the filing of copies of said writ and notice with
the register deeds, and the truth of this assertion has not been directly and
positively challenged or denied in the brief filed before us by respondent
herein. The latter did not dare therein to go beyond making a statement —
for the first time in the course of these proceedings, begun almost five (5)
years ago (June 18, 1953) — reproducing substantially the aforementioned
finding of the Court of Appeals and then quoting the same.
Considering, therefore, that neither the pleadings, nor the briefs in the
Court of Appeals, raised an issue on whether or not copies of the writ of
attachment and notice of attachment had been served upon Rivera; that the
defendants had impliedly admitted-in said pleadings and briefs, as well as
by their conduct during the entire proceedings, prior to the rendition of the
decision of the Court of Appeals — that Rivera had received copies of said
documents; and that, for this reason, evidently, no proof was introduced
thereon, we, are of the opinion, and so hold that the finding of the Court of
Appeals to the effect that said copies had not been served upon Rivera is
based upon a misapprehension of the specific issues involved therein and
goes beyond the range of such issues, apart from being contrary to the
aforementioned admission by the parties, and that, accordingly, a grave
abuse of discretion was committed in making said finding, which is,
furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and

another one shall be entered affirming that of the Court of First Instance of
Manila, with the costs of this instance against respondent, the Alto Surety
and Insurance Co., Inc. It is so ordered.

SUPREME COURT
Manila
EN BANC
G.R. No. 155076 January 13, 2009
LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial
Court, Makati City, Branch 150, PEOPLE OF THE PHILIPPINES &
PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY Respondents.
RESOLUTION
55
YNARES-SANTIAGO, J.:
On February 27, 2006, this Court’s First Division rendered judgment in this
case as follows:
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

assailed Orders of the Regional Trial Court and the Decision of the Court of
Appeals are REVERSED and SET ASIDE. The Regional Trial Court is
directed to issue an order granting the motion of the petitioner to quash the
Amended Information.
SO ORDERED.1
By way of brief background, petitioner is one of the accused in Criminal

Case No. 99-2425, filed with the Regional Trial Court of Makati City,
Branch 150. The Amended Information charged the accused with theft
under Article 308 of the Revised Penal Code, committed as follows:
On or about September 10-19, 1999, or prior thereto in Makati City, and

within the jurisdiction of this Honorable Court, the accused, conspiring and
confederating together and all of them mutually helping and aiding one
another, with intent to gain and without the knowledge and consent of the
Philippine Long Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international long
distance calls belonging to PLDT by conducting International Simple
Resale (ISR), which is a method of routing and completing international
long distance calls using lines, cables, antenae, and/or air wave frequency
which connect directly to the local or domestic exchange facilities of the
country where the call is destined, effectively stealing this business from
PLDT while using its facilities in the estimated amount of P20,370,651.92
to the damage and prejudice of PLDT, in the said amount.
CONTRARY TO LAW.2
Petitioner filed a "Motion to Quash (with Motion to Defer Arraignment),"

on the ground that the factual allegations in the Amended Information do
not constitute the felony of theft. The trial court denied the Motion to Quash
the Amended Information, as well petitioner’s subsequent Motion for
Reconsideration.
Petitioner’s special civil action for certiorari was dismissed by the Court of
Appeals. Thus, petitioner filed the instant petition for review with this
Court.
In the above-quoted Decision, this Court held that the Amended

Information does not contain material allegations charging petitioner with
theft of personal property since international long distance calls and the
56
business of providing telecommunication or telephone services are not
personal properties under Article 308 of the Revised Penal Code.
Respondent Philippine Long Distance Telephone Company (PLDT) filed a

Motion for Reconsideration with Motion to Refer the Case to the Supreme
Court En Banc. It maintains that the Amended Information charging
petitioner with theft is valid and sufficient; that it states the names of all the
accused who were specifically charged with the crime of theft of PLDT’s
international calls and business of providing telecommunication or
telephone service on or about September 10 to 19, 1999 in Makati City by
conducting ISR or International Simple Resale; that it identifies the
international calls and business of providing telecommunication or
telephone service of PLDT as the personal properties which were
unlawfully taken by the accused; and that it satisfies the test of sufficiency
as it enabled a person of common understanding to know the charge against
him and the court to render judgment properly.
PLDT further insists that the Revised Penal Code should be interpreted in
the context of the Civil Code’s definition of real and personal property. The
enumeration of real properties in Article 415 of the Civil Code is exclusive
such that all those not included therein are personal properties. Since
Article 308 of the Revised Penal Code used the words "personal property"
without qualification, it follows that all "personal properties" as understood
in the context of the Civil Code, may be the subject of theft under Article
308 of the Revised Penal Code. PLDT alleges that the international calls
and business of providing telecommunication or telephone service are
personal properties capable of appropriation and can be objects of theft.
PLDT also argues that "taking" in relation to theft under the Revised Penal
Code does not require "asportation," the sole requisite being that the object
should be capable of "appropriation." The element of "taking" referred to in
Article 308 of the Revised Penal Code means the act of depriving another
of the possession and dominion of a movable coupled with the intention, at
the time of the "taking," of withholding it with the character of permanency.
There must be intent to appropriate, which means to deprive the lawful
owner of the thing. Thus, the term "personal properties" under Article 308
of the Revised Penal Code is not limited to only personal properties which
are "susceptible of being severed from a mass or larger quantity and of
being transported from place to place."
PLDT likewise alleges that as early as the 1930s, international telephone

calls were in existence; hence, there is no basis for this Court’s finding that
the Legislature could not have contemplated the theft of international
telephone calls and the unlawful transmission and routing of electronic
voice signals or impulses emanating from such calls by unlawfully
tampering with the telephone device as within the coverage of the Revised
Penal Code.
57
According to respondent, the "international phone calls" which are "electric
currents or sets of electric impulses transmitted through a medium, and
carry a pattern representing the human voice to a receiver," are personal
properties which may be subject of theft. Article 416(3) of the Civil Code
deems "forces of nature" (which includes electricity) which are brought
under the control by science, are personal property.
In his Comment to PLDT’s motion for reconsideration, petitioner Laurel

claims that a telephone call is a conversation on the phone or a
communication carried out using the telephone. It is not synonymous to
electric current or impulses. Hence, it may not be considered as personal
property susceptible of appropriation. Petitioner claims that the analogy
between generated electricity and telephone calls is misplaced. PLDT does
not produce or generate telephone calls. It only provides the facilities or
services for the transmission and switching of the calls. He also insists that
"business" is not personal property. It is not the "business" that is protected
but the "right to carry on a business." This right is what is considered as
property. Since the services of PLDT cannot be considered as "property,"
the same may not be subject of theft.
The Office of the Solicitor General (OSG) agrees with respondent PLDT
that "international phone calls and the business or service of providing
international phone calls" are subsumed in the enumeration and definition
of personal property under the Civil Code hence, may be proper subjects of
theft. It noted that the cases of United States v. Genato,3 United States v.
Carlos4 and United States v. Tambunting,5 which recognized intangible
properties like gas and electricity as personal properties, are deemed
incorporated in our penal laws. Moreover, the theft provision in the Revised
Penal Code was deliberately couched in broad terms precisely to be all-
encompassing and embracing even such scenario that could not have been
easily anticipated.
According to the OSG, prosecution under Republic Act (RA) No. 8484 or
the Access Device Regulations Act of 1998 and RA 8792 or the Electronic
Commerce Act of 2000 does not preclude prosecution under the Revised
Penal Code for the crime of theft. The latter embraces unauthorized
appropriation or use of PLDT’s international calls, service and business, for
personal profit or gain, to the prejudice of PLDT as owner thereof. On the
other hand, the special laws punish the surreptitious and advanced technical
means employed to illegally obtain the subject service and business. Even
assuming that the correct indictment should have been under RA 8484, the
quashal of the information would still not be proper. The charge of theft as
alleged in the Information should be taken in relation to RA 8484 because it
is the elements, and not the designation of the crime, that control.
Considering the gravity and complexity of the novel questions of law

involved in this case, the Special First Division resolved to refer the same to
the Banc.
58
We resolve to grant the Motion for Reconsideration but remand the case to
the trial court for proper clarification of the Amended Information.
Article 308 of the Revised Penal Code provides:
Art. 308. Who are liable for theft. – Theft is committed by any person who,
with intent to gain but without violence against, or intimidation of persons
nor force upon things, shall take personal property of another without the
latter’s consent.
The elements of theft under Article 308 of the Revised Penal Code are as
follows: (1) that there be taking of personal property; (2) that said property
belongs to another; (3) that the taking be done with intent to gain; (4) that
the taking be done without the consent of the owner; and (5) that the taking
be accomplished without the use of violence against or intimidation of
persons or force upon things.
Prior to the passage of the Revised Penal Code on December 8, 1930, the
definition of the term "personal property" in the penal code provision on
theft had been established in Philippine jurisprudence. This Court, in United
States v. Genato, United States v. Carlos, and United States v. Tambunting,
consistently ruled that any personal property, tangible or intangible,
corporeal or incorporeal, capable of appropriation can be the object of theft.
Moreover, since the passage of the Revised Penal Code on December 8,

1930, the term "personal property" has had a generally accepted definition
in civil law. In Article 335 of the Civil Code of Spain, "personal property"
is defined as "anything susceptible of appropriation and not included in the
foregoing chapter (not real property)." Thus, the term "personal property" in
the Revised Penal Code should be interpreted in the context of the Civil
Code provisions in accordance with the rule on statutory construction that
where words have been long used in a technical sense and have been
judicially construed to have a certain meaning, and have been adopted by
the legislature as having a certain meaning prior to a particular statute, in
which they are used, the words used in such statute should be construed
according to the sense in which they have been previously used.6 In fact,
this Court used the Civil Code definition of "personal property" in
interpreting the theft provision of the penal code in United States v. Carlos.
Cognizant of the definition given by jurisprudence and the Civil Code of

Spain to the term "personal property" at the time the old Penal Code was
being revised, still the legislature did not limit or qualify the definition of
"personal property" in the Revised Penal Code. Neither did it provide a
restrictive definition or an exclusive enumeration of "personal property" in
the Revised Penal Code, thereby showing its intent to retain for the term an
extensive and unqualified interpretation.1avvphi1.zw+ Consequently, any
property which is not included in the enumeration of real properties under
59
the Civil Code and capable of appropriation can be the subject of theft
under the Revised Penal Code.
The only requirement for a personal property to be the object of theft under
the penal code is that it be capable of appropriation. It need not be capable
of "asportation," which is defined as "carrying away."7 Jurisprudence is
settled that to "take" under the theft provision of the penal code does not
require asportation or carrying away.8
To appropriate means to deprive the lawful owner of the thing. 9 The word
"take" in the Revised Penal Code includes any act intended to transfer
possession which, as held in the assailed Decision, may be committed
through the use of the offenders’ own hands, as well as any mechanical
device, such as an access device or card as in the instant case. This includes
controlling the destination of the property stolen to deprive the owner of the
property, such as the use of a meter tampering, as held in Natividad v. Court
of Appeals,10 use of a device to fraudulently obtain gas, as held in United
States v. Tambunting, and the use of a jumper to divert electricity, as held
in the cases of United States v. Genato, United States v. Carlos, and United
States v. Menagas.11
As illustrated in the above cases, appropriation of forces of nature which are

brought under control by science such as electrical energy can be achieved
by tampering with any apparatus used for generating or measuring such
forces of nature, wrongfully redirecting such forces of nature from such
apparatus, or using any device to fraudulently obtain such forces of nature.
In the instant case, petitioner was charged with engaging in International
Simple Resale (ISR) or the unauthorized routing and completing of
international long distance calls using lines, cables, antennae, and/or air
wave frequency and connecting these calls directly to the local or domestic
exchange facilities of the country where destined.
As early as 1910, the Court declared in Genato that ownership over

electricity (which an international long distance call consists of), as well as
telephone service, is protected by the provisions on theft of the Penal Code.
The pertinent provision of the Revised Ordinance of the City of Manila,
which was involved in the said case, reads as follows:
Injury to electric apparatus; Tapping current; Evidence. – No person shall

destroy, mutilate, deface, or otherwise injure or tamper with any wire,
meter, or other apparatus installed or used for generating, containing,
conducting, or measuring electricity, telegraph or telephone service, nor tap
or otherwise wrongfully deflect or take any electric current from such wire,
meter, or other apparatus.
No person shall, for any purpose whatsoever, use or enjoy the benefits of
any device by means of which he may fraudulently obtain any current of
electricity or any telegraph or telephone service; and the existence in any
60
building premises of any such device shall, in the absence of satisfactory
explanation, be deemed sufficient evidence of such use by the persons
benefiting thereby.
It was further ruled that even without the above ordinance the acts of
subtraction punished therein are covered by the provisions on theft of the
Penal Code then in force, thus:
Even without them (ordinance), the right of the ownership of electric

current is secured by articles 517 and 518 of the Penal Code; the application
of these articles in cases of subtraction of gas, a fluid used for lighting, and
in some respects resembling electricity, is confirmed by the rule laid down
in the decisions of the supreme court of Spain of January 20, 1887, and
April 1, 1897, construing and enforcing the provisions of articles 530 and
531 of the Penal Code of that country, articles 517 and 518 of the code in
force in these islands.
The acts of "subtraction" include: (a) tampering with any wire, meter, or
other apparatus installed or used for generating, containing, conducting, or
measuring electricity, telegraph or telephone service; (b) tapping or
otherwise wrongfully deflecting or taking any electric current from such
wire, meter, or other apparatus; and (c) using or enjoying the benefits of any
device by means of which one may fraudulently obtain any current of
electricity or any telegraph or telephone service.
In the instant case, the act of conducting ISR operations by illegally

connecting various equipment or apparatus to private respondent PLDT’s
telephone system, through which petitioner is able to resell or re-route
international long distance calls using respondent PLDT’s facilities
constitutes all three acts of subtraction mentioned above.
The business of providing telecommunication or telephone service is

likewise personal property which can be the object of theft under Article
308 of the Revised Penal Code. Business may be appropriated under
Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be object of
theft:
Section 2. Any sale, transfer, mortgage, or assignment of a stock of goods,

wares, merchandise, provisions, or materials otherwise than in the ordinary
course of trade and the regular prosecution of the business of the vendor,
mortgagor, transferor, or assignor, or any sale, transfer, mortgage, or
assignment of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor or assignor, or all, or
substantially all, of the fixtures and equipment used in and about the
business of the vendor, mortgagor, transferor, or assignor, shall be deemed
to be a sale and transfer in bulk, in contemplation of the Act. x x x.
In Strochecker v. Ramirez,12 this Court stated:

61
With regard to the nature of the property thus mortgaged which is one-half
interest in the business above described, such interest is a personal property
capable of appropriation and not included in the enumeration of real
properties in article 335 of the Civil Code, and may be the subject of
mortgage.
Interest in business was not specifically enumerated as personal property in

the Civil Code in force at the time the above decision was rendered. Yet,
interest in business was declared to be personal property since it is capable
of appropriation and not included in the enumeration of real properties.
Article 414 of the Civil Code provides that all things which are or may be
the object of appropriation are considered either real property or personal
property. Business is likewise not enumerated as personal property under
the Civil Code. Just like interest in business, however, it may be
appropriated. Following the ruling in Strochecker v. Ramirez, business
should also be classified as personal property. Since it is not included in the
exclusive enumeration of real properties under Article 415, it is therefore
personal property.13
As can be clearly gleaned from the above disquisitions, petitioner’s acts

constitute theft of respondent PLDT’s business and service, committed by
means of the unlawful use of the latter’s facilities. In this regard, the
Amended Information inaccurately describes the offense by making it
appear that what petitioner took were the international long distance
telephone calls, rather than respondent PLDT’s business.
A perusal of the records of this case readily reveals that petitioner and
respondent PLDT extensively discussed the issue of ownership of telephone
calls. The prosecution has taken the position that said telephone calls
belong to respondent PLDT. This is evident from its Comment where it
defined the issue of this case as whether or not "the unauthorized use or
appropriation of PLDT international telephone calls, service and facilities,
for the purpose of generating personal profit or gain that should have
otherwise belonged to PLDT, constitutes theft."14
In discussing the issue of ownership, petitioner and respondent PLDT gave

their respective explanations on how a telephone call is generated.15 For its
part, respondent PLDT explains the process of generating a telephone call
as follows:
38. The role of telecommunication companies is not limited to merely

providing the medium (i.e. the electric current) through which the human
voice/voice signal of the caller is transmitted. Before the human voice/voice
signal can be so transmitted, a telecommunication company, using its
facilities, must first break down or decode the human voice/voice signal
into electronic impulses and subject the same to further augmentation and
enhancements. Only after such process of conversion will the resulting
electronic impulses be transmitted by a telecommunication company, again,
62
through the use of its facilities. Upon reaching the destination of the call,
the telecommunication company will again break down or decode the
electronic impulses back to human voice/voice signal before the called
party receives the same. In other words, a telecommunication company both
converts/reconverts the human voice/voice signal and provides the medium
for transmitting the same.
39. Moreover, in the case of an international telephone call, once the

electronic impulses originating from a foreign telecommunication company
country (i.e. Japan) reaches the Philippines through a local
telecommunication company (i.e. private respondent PLDT), it is the latter
which decodes, augments and enhances the electronic impulses back to the
human voice/voice signal and provides the medium (i.e. electric current) to
enable the called party to receive the call. Thus, it is not true that the foreign
telecommunication company provides (1) the electric current which
transmits the human voice/voice signal of the caller and (2) the electric
current for the called party to receive said human voice/voice signal.
40. Thus, contrary to petitioner Laurel’s assertion, once the electronic

impulses or electric current originating from a foreign telecommunication
company (i.e. Japan) reaches private respondent PLDT’s network, it is
private respondent PLDT which decodes, augments and enhances the
electronic impulses back to the human voice/voice signal and provides the
medium (i.e. electric current) to enable the called party to receive the call.
Without private respondent PLDT’s network, the human voice/voice signal
of the calling party will never reach the called party.16
In the assailed Decision, it was conceded that in making the international

phone calls, the human voice is converted into electrical impulses or
electric current which are transmitted to the party called. A telephone call,
therefore, is electrical energy. It was also held in the assailed Decision that
intangible property such as electrical energy is capable of appropriation
because it may be taken and carried away. Electricity is personal property
under Article 416 (3) of the Civil Code, which enumerates "forces of nature
which are brought under control by science."17
Indeed, while it may be conceded that "international long distance calls,"

the matter alleged to be stolen in the instant case, take the form of electrical
energy, it cannot be said that such international long distance calls were
personal properties belonging to PLDT since the latter could not have
acquired ownership over such calls. PLDT merely encodes, augments,
enhances, decodes and transmits said calls using its complex
communications infrastructure and facilities. PLDT not being the owner of
said telephone calls, then it could not validly claim that such telephone calls
were taken without its consent. It is the use of these communications
facilities without the consent of PLDT that constitutes the crime of theft,
which is the unlawful taking of the telephone services and business.
63
Therefore, the business of providing telecommunication and the telephone
service are personal property under Article 308 of the Revised Penal Code,
and the act of engaging in ISR is an act of "subtraction" penalized under
said article. However, the Amended Information describes the thing taken
as, "international long distance calls," and only later mentions "stealing the
business from PLDT" as the manner by which the gain was derived by the
accused. In order to correct this inaccuracy of description, this case must be
remanded to the trial court and the prosecution directed to amend the
Amended Information, to clearly state that the property subject of the theft
are the services and business of respondent PLDT. Parenthetically, this
amendment is not necessitated by a mistake in charging the proper offense,
which would have called for the dismissal of the information under Rule
110, Section 14 and Rule 119, Section 19 of the Revised Rules on Criminal
Procedure. To be sure, the crime is properly designated as one of theft. The
purpose of the amendment is simply to ensure that the accused is fully and
sufficiently apprised of the nature and cause of the charge against him, and
thus guaranteed of his rights under the Constitution.
ACCORDINGLY, the motion for reconsideration is GRANTED. The

assailed Decision dated February 27, 2006 is RECONSIDERED and SET
ASIDE. The Decision of the Court of Appeals in CA-G.R. SP No. 68841
affirming the Order issued by Judge Zeus C. Abrogar of the Regional Trial
Court of Makati City, Branch 150, which denied the Motion to Quash (With
Motion to Defer Arraignment) in Criminal Case No. 99-2425 for theft, is
AFFIRMED. The case is remanded to the trial court and the Public
Prosecutor of Makati City is hereby DIRECTED to amend the Amended
Information to show that the property subject of the theft were services and
business of the private offended party.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
64
SUPREME COURT
Manila
EN BANC
G.R. No. L-17500 May 16, 1967
PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND

PACIFIC CO. OF MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN
LUMBER CORPORATION and CONNELL BROS. CO.
(PHIL.), defendants-appellants.
Angel S. Gamboa for defendants-appellants.

Laurel Law Offices for plaintiffs-appellants.
DIZON, J.:
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West

Virginia corporation licensed to do business in the Philippines —
hereinafter referred to as ATLANTIC — sold and assigned all its rights in
the Dahican Lumber concession to Dahican Lumber Company —
hereinafter referred to as DALCO — for the total sum of $500,000.00, of
which only the amount of $50,000.00 was paid. Thereafter, to develop the
concession, DALCO obtained various loans from the People's Bank & Trust
Company — hereinafter referred to as the BANK — amounting, as of July
13, 1950, to P200,000.00. In addition, DALCO obtained, through the
BANK, a loan of $250,000.00 from the Export-Import Bank of Washington
D.C., evidenced by five promissory notes of $50,000.00 each, maturing on
different dates, executed by both DALCO and the Dahican America
Lumber Corporation, a foreign corporation and a stockholder of DALCO,
— hereinafter referred to as DAMCO, all payable to the BANK or its order.
As security for the payment of the abovementioned loans, on July 13, 1950
DALCO executed in favor of the BANK — the latter acting for itself and as
trustee for the Export-Import Bank of Washington D.C. — a deed of
mortgage covering five parcels of land situated in the province of
Camarines Norte together with all the buildings and other improvements
existing thereon and all the personal properties of the mortgagor located in
its place of business in the municipalities of Mambulao and Capalonga,
Camarines Norte (Exhibit D). On the same date, DALCO executed a second
mortgage on the same properties in favor of ATLANTIC to secure payment
of the unpaid balance of the sale price of the lumber concession amounting
to the sum of $450,000.00 (Exhibit G). Both deeds contained the following
provision extending the mortgage lien to properties to be subsequently
65
acquired — referred to hereafter as "after acquired properties" — by the
mortgagor:
All property of every nature and description taken in exchange or

replacement, and all buildings, machinery, fixtures, tools equipment
and other property which the Mortgagor may hereafter acquire,
construct, install, attach, or use in, to, upon, or in connection with the
premises, shall immediately be and become subject to the lien of this
mortgage in the same manner and to the same extent as if now
included therein, and the Mortgagor shall from time to time during
the existence of this mortgage furnish the Mortgagee with an accurate
inventory of such substituted and subsequently acquired property.
Both mortgages were registered in the Office of the Register of Deeds of

Camarines Norte. In addition thereto DALCO and DAMCO pledged to the
BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to
secure the same obligations.
Upon DALCO's and DAMCO's failure to pay the fifth promissory note
upon its maturity, the BANK paid the same to the Export-Import Bank of
Washington D.C., and the latter assigned to the former its credit and the
first mortgage securing it. Subsequently, the BANK gave DALCO and
DAMCO up to April 1, 1953 to pay the overdue promissory note.
After July 13, 1950 — the date of execution of the mortgages mentioned
above — DALCO purchased various machineries, equipment, spare parts
and supplies in addition to, or in replacement of some of those already
owned and used by it on the date aforesaid. Pursuant to the provision of the
mortgage deeds quoted theretofore regarding "after acquired properties,"
the BANK requested DALCO to submit complete lists of said properties
but the latter failed to do so. In connection with these purchases, there
appeared in the books of DALCO as due to Connell Bros. Company
(Philippines) — a domestic corporation who was acting as the general
purchasing agent of DALCO — thereinafter called CONNELL — the sum
of P452,860.55 and to DAMCO, the sum of P2,151,678.34.
On December 16, 1952, the Board of Directors of DALCO, in a special

meeting called for the purpose, passed a resolution agreeing to rescind the
alleged sales of equipment, spare parts and supplies by CONNELL and
DAMCO to it. Thereafter, the corresponding agreements of rescission of
sale were executed between DALCO and DAMCO, on the one hand and
between DALCO and CONNELL, on the other.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC,
demanded that said agreements be cancelled but CONNELL and DAMCO
refused to do so. As a result, on February 12, 1953; ATLANTIC and the
BANK, commenced foreclosure proceedings in the Court of First Instance
of Camarines Norte against DALCO and DAMCO. On the same date they
66
filed an ex-parte application for the appointment of a Receiver and/or for
the issuance of a writ of preliminary injunction to restrain DALCO from
removing its properties. The court granted both remedies and appointed
George H. Evans as Receiver. Upon defendants' motion, however, the court,
in its order of February 21, 1953, discharged the Receiver.
On March 2, 1953, defendants filed their answer denying the material

allegations of the complaint and alleging several affirmative defenses and a
counterclaim.
On March 4 of the same year, CONNELL, filed a motion for intervention

alleging that it was the owner and possessor of some of the equipments,
spare parts and supplies which DALCO had acquired subsequent to the
execution of the mortgages sought to be foreclosed and which plaintiffs
claimed were covered by the lien. In its order of March 18,1953 the Court
granted the motion, as well as plaintiffs' motion to set aside the order
discharging the Receiver. Consequently, Evans was reinstated.
On April 1, 1953, CONNELL filed its answer denying the material

averment of the complaint, and asserting affirmative defenses and a
counterclaim.
Upon motion of the parties the Court, on September 30, 1953, issued an
order transferring the venue of the action to the Court of First Instance of
Manila where it was docketed as Civil Case No. 20987.
On August 30, 1958, upon motion of all the parties, the Court ordered the
sale of all the machineries, equipment and supplies of DALCO, and the
same were subsequently sold for a total consideration of P175,000.00 which
was deposited in court pending final determination of the action. By a
similar agreement one-half (P87,500.00) of this amount was considered as
representing the proceeds obtained from the sale of the "undebated
properties" (those not claimed by DAMCO and CONNELL), and the other
half as representing those obtained from the sale of the "after acquired
properties".
After due trial, the Court, on July 15, 1960, rendered judgment as follows:
IN VIEW WHEREFORE, the Court:
1. Condemns Dahican Lumber Co. to pay unto People's Bank the

sum of P200,000,00 with 7% interest per annum from July 13, 1950,
Plus another sum of P100,000.00 with 5% interest per annum from
July 13, 1950; plus 10% on both principal sums as attorney's fees;
2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum
of P900,000.00 with 4% interest per annum from July 3, 1950, plus
10% on both principal as attorney's fees;
67
3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum
of P425,860.55, and to pay unto Dahican American Lumber Co. the
sum of P2,151,678.24 both with legal interest from the date of the
filing of the respective answers of those parties, 10% of the principals
as attorney's fees;
4. Orders that of the sum realized from the sale of the properties of
P175,000.00, after deducting the recognized expenses, one-half
thereof be adjudicated unto plaintiffs, the court no longer specifying
the share of each because of that announced intention under the
stipulation of facts to "pool their resources"; as to the other one-half,
the same should be adjudicated unto both plaintiffs, and defendant
Dahican American and Connell Bros. in the proportion already set
forth on page 9, lines 21, 22 and 23 of the body of this decision; but
with the understanding that whatever plaintiffs and Dahican
American and Connell Bros. should receive from the P175,000.00
deposited in the Court shall be applied to the judgments particularly
rendered in favor of each;
5. No other pronouncement as to costs; but the costs of the

receivership as to the debated properties shall be borne by People's
Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber
Co., pro-rata.
On the following day, the Court issued the following supplementary

decision:
IN VIEW WHEREOF, the dispositive part of the decision is hereby

amended in order to add the following paragraph 6:
6. If the sums mentioned in paragraphs 1 and 2 are not paid within

ninety (90) days, the Court orders the sale at public auction of the
lands object of the mortgages to satisfy the said mortgages and costs
of foreclosure.
From the above-quoted decision, all the parties appealed.
Main contentions of plaintiffs as appellants are the following: that the "after
acquired properties" were subject to the deeds of mortgage mentioned
heretofore; that said properties were acquired from suppliers other than
DAMCO and CONNELL; that even granting that DAMCO and CONNELL
were the real suppliers, the rescission of the sales to DALCO could not
prejudice the mortgage lien in favor of plaintiffs; that considering the
foregoing, the proceeds obtained from the sale of the "after acquired
properties" as well as those obtained from the sale of the "undebated
properties" in the total sum of P175,000.00 should have been awarded
exclusively to plaintiffs by reason of the mortgage lien they had thereon;
that damages should have been awarded to plaintiffs against defendants, all
68
of them being guilty of an attempt to defraud the former when they sought
to rescind the sales already mentioned for the purpose of defeating their
mortgage lien, and finally, that defendants should have been made to bear
all the expenses of the receivership, costs and attorney's fees.
On the other hand, defendants-appellants contend that the trial court erred:
firstly, in not holding that plaintiffs had no cause of action against them
because the promissory note sued upon was not yet due when the action to
foreclose the mortgages was commenced; secondly, in not holding that the
mortgages aforesaid were null and void as regards the "after acquired
properties" of DALCO because they were not registered in accordance with
the Chattel Mortgage Law, the court erring, as a consequence, in holding
that said properties were subject to the mortgage lien in favor of plaintiffs;
thirdly, in not holding that the provision of the fourth paragraph of each of
said mortgages did not automatically make subject to such mortgages the
"after acquired properties", the only meaning thereof being that the
mortgagor was willing to constitute a lien over such properties; fourthly, in
not ruling that said stipulation was void as against DAMCO and
CONNELL and in not awarding the proceeds obtained from the sale of the
"after acquired properties" to the latter exclusively; fifthly, in appointing a
Receiver and in holding that the damages suffered by DAMCO and
CONNELL by reason of the depreciation or loss in value of the "after
acquired properties" placed under receivership was damnum absque
injuria and, consequently, in not awarding, to said parties the corresponding
damages claimed in their counterclaim; lastly, in sentencing DALCO and
DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL
to pay the costs of the Receivership, instead of sentencing plaintiffs to pay
attorney's fees.
Plaintiffs' brief as appellants submit six assignments of error, while that of

defendants also as appellants submit a total of seventeen. However, the
multifarious issues thus before Us may be resolved, directly or indirectly,
by deciding the following issues:
Firstly, are the so-called "after acquired properties" covered by and subject
to the deeds of mortgage subject of foreclosure?; secondly, assuming that
they are subject thereto, are the mortgages valid and binding on the
properties aforesaid inspite of the fact that they were not registered in
accordance with the provisions of the Chattel Mortgage Law?; thirdly,
assuming again that the mortgages are valid and binding upon the "after
acquired properties", what is the effect thereon, if any, of the rescission of
sales entered into, on the one hand, between DAMCO and DALCO, and
between DALCO and CONNELL, on the other?; and lastly, was the action
to foreclose the mortgages premature?
A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear

that all property of every nature and description taken in exchange or
replacement, as well as all buildings, machineries, fixtures, tools,
69
equipments, and other property that the mortgagor may acquire, construct,
install, attach; or use in, to upon, or in connection with the premises — that
is, its lumber concession — "shall immediately be and become subject to
the lien" of both mortgages in the same manner and to the same extent as if
already included therein at the time of their execution. As the language thus
used leaves no room for doubt as to the intention of the parties, We see no
useful purpose in discussing the matter extensively. Suffice it to say that the
stipulation referred to is common, and We might say logical, in all cases
where the properties given as collateral are perishable or subject to
inevitable wear and tear or were intended to be sold, or to be used — thus
becoming subject to the inevitable wear and tear — but with the
understanding — express or implied — that they shall be replaced with
others to be thereafter acquired by the mortgagor. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by circumstances, the original value of the properties given as
security. Indeed, if such properties were of the nature already referred to, it
would be poor judgment on the part of the creditor who does not see to it
that a similar provision is included in the contract.
B. But defendants contend that, granting without admitting, that the deeds
of mortgage in question cover the "after acquired properties" of DALCO,
the same are void and ineffectual because they were not registered in
accordance with the Chattel Mortgage Law. In support of this and of the
proposition that, even if said mortgages were valid, they should not
prejudice them, the defendants argue (1) that the deeds do not describe the
mortgaged chattels specifically, nor were they registered in accordance with
the Chattel Mortgage Law; (2) that the stipulation contained in the fourth
paragraph thereof constitutes "mere executory agreements to give a lien"
over the "after acquired properties" upon their acquisition; and (3) that any
mortgage stipulation concerning "after acquired properties" should not
prejudice creditors and other third persons such as DAMCO and
CONNELL.
The stipulation under consideration strongly belies defendants contention.

As adverted to hereinbefore, it states that all property of every nature,
building, machinery etc. taken in exchange or replacement by the
mortgagor "shall immediately be and become subject to the lien of this
mortgage in the same manner and to the same extent as if now included
therein". No clearer language could have been chosen.
Conceding, on the other hand, that it is the law in this jurisdiction that, to
affect third persons, a chattel mortgage must be registered and must
describe the mortgaged chattels or personal properties sufficiently to enable
the parties and any other person to identify them, We say that such law does
not apply to this case.
As the mortgages in question were executed on July 13, 1950 with the old
Civil Code still in force, there can be no doubt that the provisions of said
70
code must govern their interpretation and the question of their validity. It
happens however, that Articles 334 and 1877 of the old Civil Code are
substantially reproduced in Articles 415 and 2127, respectively, of the new
Civil Code. It is, therefore, immaterial in this case whether we take the
former or the latter as guide in deciding the point under consideration.
Article 415 does not define real property but enumerates what are
considered as such, among them being machinery, receptacles, instruments
or replacements intended by owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and shall tend
directly to meet the needs of the said industry or works.
On the strength of the above-quoted legal provisions, the lower court held
that inasmuch as "the chattels were placed in the real properties mortgaged
to plaintiffs, they came within the operation of Art. 415, paragraph 5 and
Art. 2127 of the New Civil Code".
We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334,
paragraph 5 of the Civil Code (old) gives the character of real property to
machinery, liquid containers, instruments or replacements intended by the
owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the
requirements of such trade or industry.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held
that a mortgage constituted on a sugar central includes not only the land on
which it is built but also the buildings, machinery and accessories installed
at the time the mortgage was constituted as well as the buildings, machinery
and accessories belonging to the mortgagor, installed after the constitution
thereof .
It is not disputed in the case at bar that the "after acquired properties" were
purchased by DALCO in connection with, and for use in the development
of its lumber concession and that they were purchased in addition to, or in
replacement of those already existing in the premises on July 13, 1950. In
Law, therefore, they must be deemed to have been immobilized, with the
result that the real estate mortgages involved herein — which were
registered as such — did not have to be registered a second time as chattel
mortgages in order to bind the "after acquired properties" and affect third
parties.
But defendants, invoking the case of Davao Sawmill Company vs. Castillo,
61 Phil. 709, claim that the "after acquired properties" did not
become immobilized because DALCO did not own the whole area of its
lumber concession all over which said properties were scattered.
71
The facts in the Davao Sawmill case, however, are not on all fours with the
ones obtaining in the present. In the former, the Davao Sawmill Company,
Inc., had repeatedly treated the machinery therein involved as personal
property by executing chattel mortgages thereon in favor of third parties,
while in the present case the parties had treated the "after acquired
properties" as real properties by expressly and unequivocally agreeing that
they shall automatically become subject to the lien of the real estate
mortgages executed by them. In the Davao Sawmill decision it was, in fact,
stated that "the characterization of the property as chattels by the appellant
is indicative of intention and impresses upon the property the character
determined by the parties" (61 Phil. 112, emphasis supplied). In the present
case, the characterization of the "after acquired properties" as real property
was made not only by one but by both interested parties. There is, therefore,
more reason to hold that such consensus impresses upon the properties the
character determined by the parties who must now be held in estoppel to
question it.
Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central
Altagracia, Inc. (225 U.S. 58) where it was held that while under the
general law of Puerto Rico, machinery placed on property by a tenant does
not become immobilized, yet, when the tenant places it there pursuant to
contract that it shall belong to the owner, it then becomes immobilized as to
that tenant and even as against his assignees and creditors who had
sufficient notice of such stipulation. In the case at bar it is not disputed that
DALCO purchased the "after acquired properties" to be placed on, and be
used in the development of its lumber concession, and agreed further that
the same shall become immediately subject to the lien constituted by the
questioned mortgages. There is also abundant evidence in the record that
DAMCO and CONNELL had full notice of such stipulation and had never
thought of disputed validity until the present case was filed. Consequently
all of them must be deemed barred from denying that the properties in
question had become immobilized.
What We have said heretofore sufficiently disposes all the arguments

adduced by defendants in support their contention that the mortgages under
foreclosure are void, and, that, even if valid, are ineffectual as against
DAMCO and CONNELL.
Now to the question of whether or not DAMCO CONNELL have rights

over the "after acquired properties" superior to the mortgage lien constituted
thereon in favor of plaintiffs. It is defendants' contention that in relation to
said properties they are "unpaid sellers"; that as such they had not only a
superior lien on the "after acquired properties" but also the right to rescind
the sales thereof to DALCO.
This contention — it is obvious — would have validity only if it were true

that DAMCO and CONNELL were the suppliers or vendors of the "after
acquired properties". According to the record, plaintiffs did not know their
72
exact identity and description prior to the filing of the case bar because
DALCO, in violation of its obligation under the mortgages, had failed and
refused theretofore to submit a complete list thereof. In the course of the
proceedings, however, when defendants moved to dissolve the order of
receivership and the writ of preliminary injunction issued by the lower
court, they attached to their motion the lists marked as Exhibits 1, 2 and 3
describing the properties aforesaid. Later on, the parties agreed to consider
said lists as identifying and describing the "after acquire properties," and
engaged the services of auditors to examine the books of DALCO so as to
bring out the details thereof. The report of the auditors and its annexes
(Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL had
supplied any of the goods of which they respective claimed to be the unpaid
seller; that all items were supplied by different parties, neither of whom
appeared to be DAMCO or CONNELL that, in fact, CONNELL collected a
5% service charge on the net value of all items it claims to have sold to
DALCO and which, in truth, it had purchased for DALCO as the latter's
general agent; that CONNELL had to issue its own invoices in addition to
those o f the real suppliers in order to collect and justify such service
charge.
Taking into account the above circumstances together with the fact that
DAMCO was a stockholder and CONNELL was not only a stockholder but
the general agent of DALCO, their claim to be the suppliers of the "after
acquired required properties" would seem to be preposterous. The most that
can be claimed on the basis of the evidence is that DAMCO and
CONNELL probably financed some of the purchases. But if DALCO still
owes them any amount in this connection, it is clear that, as financiers, they
can not claim any right over the "after acquired properties" superior to the
lien constituted thereon by virtue of the deeds of mortgage under
foreclosure. Indeed, the execution of the rescission of sales mentioned
heretofore appears to be but a desperate attempt to better or improve
DAMCO and CONNELL's position by enabling them to assume the role of
"unpaid suppliers" and thus claim a vendor's lien over the "after acquired
properties". The attempt, of course, is utterly ineffectual, not only because
they are not the "unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both DAMCO and
CONNELL had known and admitted from the beginning that the "after
acquired properties" of DALCO were meant to be included in the first and
second mortgages under foreclosure.
The claim that Belden, of ATLANTIC, had given his consent to the
rescission, expressly or otherwise, is of no consequence and does not make
the rescission valid and legally effective. It must be stated clearly, however,
in justice to Belden, that, as a member of the Board of Directors of
DALCO, he opposed the resolution of December 15, 1952 passed by said
Board and the subsequent rescission of the sales.
73
Finally, defendants claim that the action to foreclose the mortgages filed on
February 12, 1953 was premature because the promissory note sued upon
did not fall due until April 1 of the same year, concluding from this that,
when the action was commenced, the plaintiffs had no cause of action.
Upon this question the lower court says the following in the appealed
judgment;
The other is the defense of prematurity of the causes of action in that

plaintiffs, as a matter of grace, conceded an extension of time to pay
up to 1 April, 1953 while the action was filed on 12 February, 1953,
but, as to this, the Court taking it that there is absolutely no debate
that Dahican Lumber Co., was insolvent as of the date of the filing of
the complaint, it should follow that the debtor thereby lost the benefit
to the period.
x x x unless he gives a guaranty or security for the debt . . . (Art.

1198, New Civil Code);
and as the guaranty was plainly inadequate since the claim of

plaintiffs reached in the aggregate, P1,200,000 excluding interest
while the aggregate price of the "after-acquired" chattels claimed by
Connell under the rescission contracts was P1,614,675.94, Exh. 1,
Exh. V, report of auditors, and as a matter of fact, almost all the
properties were sold afterwards for only P175,000.00, page 47, Vol.
IV, and the Court understanding that when the law permits the debtor
to enjoy the benefits of the period notwithstanding that he is insolvent
by his giving a guaranty for the debt, that must mean a new and
efficient guaranty, must concede that the causes of action for
collection of the notes were not premature.
Very little need be added to the above. Defendants, however, contend that
the lower court had no basis for finding that, when the action was
commenced, DALCO was insolvent for purposes related to Article 1198,
paragraph 1 of the Civil Code. We find, however, that the finding of the
trial court is sufficiently supported by the evidence particularly the
resolution marked as Exhibit K, which shows that on December 16, 1952
— in the words of the Chairman of the Board — DALCO was "without
funds, neither does it expect to have any funds in the foreseeable future." (p.
64, record on appeal).
The remaining issues, namely, whether or not the proceeds obtained from
the sale of the "after acquired properties" should have been awarded
exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law
they should be distributed among said parties, whether or not the
distribution should be pro-rata or otherwise; whether or not plaintiffs are
entitled to damages; and, lastly, whether or not the expenses incidental to
the Receivership should be borne by all the parties on a pro-rata basis or
74
exclusively by one or some of them are of a secondary nature as they are
already impliedly resolved by what has been said heretofore.
As regard the proceeds obtained from the sale of the of after acquired
properties" and the "undebated properties", it is clear, in view of our
opinion sustaining the validity of the mortgages in relation thereto, that said
proceeds should be awarded exclusively to the plaintiffs in payment of the
money obligations secured by the mortgages under foreclosure.
On the question of plaintiffs' right to recover damages from the defendants,

the law (Articles 1313 and 1314 of the New Civil Code) provides that
creditors are protected in cases of contracts intended to defraud them; and
that any third person who induces another to violate his contract shall be
liable for damages to the other contracting party. Similar liability is
demandable under Arts. 20 and 21 — which may be given retroactive effect
(Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.
The facts of this case, as stated heretofore, clearly show that DALCO and
DAMCO, after failing to pay the fifth promissory note upon its maturity,
conspired jointly with CONNELL to violate the provisions of the fourth
paragraph of the mortgages under foreclosure by attempting to defeat
plaintiffs' mortgage lien on the "after acquired properties". As a result, the
plaintiffs had to go to court to protect their rights thus jeopardized.
Defendants' liability for damages is therefore clear.
However, the measure of the damages suffered by the plaintiffs is not what
the latter claim, namely, the difference between the alleged total obligation
secured by the mortgages amounting to around P1,200,000.00, plus the
stipulated interest and attorney's fees, on the one hand, and the proceeds
obtained from the sale of "after acquired properties", and of those that were
not claimed neither by DAMCO nor CONNELL, on the other. Considering
that the sale of the real properties subject to the mortgages under
foreclosure has not been effected, and considering further the lack of
evidence showing that the true value of all the properties already sold was
not realized because their sale was under stress, We feel that We do not
have before Us the true elements or factors that should determine the
amount of damages that plaintiffs are entitled recover from defendants. It is,
however, our considered opinion that, upon the facts established, all the
expenses of the Receivership, which was deemed necessary to safeguard the
rights of the plaintiffs, should be borne by the defendants, jointly and
severally, in the same manner that all of them should pay to the plaintiffs,
jointly a severally, attorney's fees awarded in the appealed judgment.
In consonance with the portion of this decision concerning the damages that
the plaintiffs are entitled to recover from the defendants, the record of this
case shall be remanded below for the corresponding proceedings.
75
Modified as above indicated, the appealed judgment is affirmed in all other
respects. With costs.
Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P.,

Zaldivar, Sanchez and Castro, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,

vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
Ross, Lawrence and Selph for petitioner.

City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent,

Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, seeking a
peremptory mandamusto compel the respondent to record in the proper
register a document purporting to be a chattel mortgage executed in the City
of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard
Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la

Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the City of
Manila and owner of the house of strong materials built thereon, upon
which date she executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage both the
leasehold interest in said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus

mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the

mortgage, by way of mortgage, the following described personal
property, situated in the City of Manila, and now in possession of the
mortgagor, to wit:
76
(1) All of the right, title, and interest of the mortgagor in and to the
contract of lease hereinabove referred to, and in and to the premises
the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid

leased premises.
After said document had been duly acknowledge and delivered, the
petitioner caused the same to be presented to the respondent, Joaquin
Jaramillo, as register of deeds of the City of Manila, for the purpose of
having the same recorded in the book of record of chattel mortgages. Upon
examination of the instrument, the respondent was of the opinion that it was
not a chattel mortgage, for the reason that the interest therein mortgaged did
not appear to be personal property, within the meaning of the Chattel
Mortgage Law, and registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is untenable;
and it is his duty to accept the proper fee and place the instrument on
record. The duties of a register of deeds in respect to the registration of
chattel mortgage are of a purely ministerial character; and no provision of
law can be cited which confers upon him any judicial or quasi-judicial
power to determine the nature of any document of which registration is
sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of

the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496;
but these have been transferred to section 198 of the Administrative Code,
where they are now found. There is nothing in any of these provisions
conferring upon the register of deeds any authority whatever in respect to
the "qualification," as the term is used in Spanish law, of chattel mortgage.
His duties in respect to such instruments are ministerial only. The efficacy
of the act of recording a chattel mortgage consists in the fact that it operates
as constructive notice of the existence of the contract, and the legal effects
of the contract must be discovered in the instrument itself in relation with
the fact of notice. Registration adds nothing to the instrument, considered as
a source of title, and affects nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for
discriminating between real property and personal property for purpose of
the application of the Chattel Mortgage Law. Those articles state rules
which, considered as a general doctrine, are law in this jurisdiction; but it
must not be forgotten that under given conditions property may have
character different from that imputed to it in said articles. It is undeniable
that the parties to a contract may by agreement treat as personal property
that which by nature would be real property; and it is a familiar
phenomenon to see things classed as real property for purposes of taxation
which on general principle might be considered personal property. Other
situations are constantly arising, and from time to time are presented to this
77
court, in which the proper classification of one thing or another as real or
personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8,

1914, in an administrative ruling promulgated by the Honorable James A.
Ostrand, now a Justice of this Court, but acting at that time in the capacity
of Judge of the fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be here added
to the observations contained in said ruling. We accordingly quote
therefrom as follows:
It is unnecessary here to determine whether or not the property

described in the document in question is real or personal; the
discussion may be confined to the point as to whether a register of
deeds has authority to deny the registration of a document purporting
to be a chattel mortgage and executed in the manner and form
prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508),
his Honor continued:
Based principally upon the provisions of section quoted the Attorney-

General of the Philippine Islands, in an opinion dated August 11,
1909, held that a register of deeds has no authority to pass upon the
capacity of the parties to a chattel mortgage which is presented to
him for record. A fortiori a register of deeds can have no authority to
pass upon the character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real instead
of personal the chattel mortgage would no doubt be held ineffective
as against third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil.,
644), this court held that where the interest conveyed is of the nature of
real, property, the placing of the document on record in the chattel
mortgage register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function of the register
of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass
upon the point whether the interests conveyed in the instrument now in
question are real or personal; and we declare it to be the duty of the register
of deeds to accept the estimate placed upon the document by the petitioner
and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from
the date of the notification hereof, the respondent shall interpose a sufficient
78
answer to the petition, the writ of mandamus will be issued, as prayed, but
without costs. So ordered.
Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ.,

concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY and J. G.
WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.

Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-

cleaning machinery company from the defendant machinery company, and
executed a chattel mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of strong materials in
which the machinery was installed, without any reference to the land on
which it stood. The indebtedness secured by this instrument not having
been paid when it fell due, the mortgaged property was sold by the sheriff,
in pursuance of the terms of the mortgage instrument, and was bought in by
the machinery company. The mortgage was registered in the chattel
mortgage registry, and the sale of the property to the machinery company in
satisfaction of the mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the

"Compañia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of sale,
although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear to
have been executed for the purpose of curing any defects which might be
found to exist in the machinery company's title to the building under the
sheriff's certificate of sale. The machinery company went into possession of
79
the building at or about the time when this sale took place, that is to say, the
month of December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the
machinery company, the mortgagor, the "Compañia Agricola Filipina"
executed another mortgage to the plaintiff upon the building, separate and
apart from the land on which it stood, to secure payment of the balance of
its indebtedness to the plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for
that amount, levied execution upon the building, bought it in at the sheriff's
sale on or about the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land registry of the Province of
Cavite.
At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding the release of the
property from the levy. Thereafter, upon demand of the sheriff, the plaintiff
executed an indemnity bond in favor of the sheriff in the sum of P12,000, in
reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the

building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that the
company had its title to the building registered prior to the date of registry
of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first
taken possession thereof in good faith, if it should be personal
property.
Should it be real property, it shall belong to the person acquiring it

who first recorded it in the registry.
Should there be no entry, the property shall belong to the person who
first took possession of it in good faith, and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it
must be apparent that the annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given the legal effect of an
80
inscription in the registry of real property. By its express terms, the Chattel
Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is
to provide for the registry of "Chattel mortgages," that is to say, mortgages
of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning
machinery was installed by the "Compañia Agricola Filipina" was real
property, and the mere fact that the parties seem to have dealt with it
separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any
effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be

sustained on the ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the ground that the agreed
statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriff's certificate of
sale in his favor was made in good faith, and that the machinery company
must be held to be the owner of the property under the third paragraph of
the above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the sheriff's sale to
the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil
Code require "good faith," in express terms, in relation to "possession" and
"title," but contain no express requirement as to "good faith" in relation to
the "inscription" of the property on the registry, it must be presumed that
good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the legislator to base the
preferential right secured under this article of the code upon an inscription
of title in bad faith. Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The public records
cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law
to an inscription in a public record presupposes the good faith of him who
enters such inscription; and rights created by statute, which are predicated
upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the
inscription.
Construing the second paragraph of this article of the code, the supreme
court of Spain held in its sentencia of the 13th of May, 1908, that:
81
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that
the second purchasers who record their purchase had knowledge of
the previous sale, the question is to be decided in accordance with the
following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title
of conveyance of ownership of the real property that is first recorded
in the registry shall have preference, this provision must always be
understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality which, in
given cases, does not obtain even in real disputes between third
persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of
the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he
bought the building at the sheriff's sale and inscribed his title in the land
registry, was duly notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time when
the sheriff executed his levy. The execution of an indemnity bond by the
plaintiff in favor of the sheriff, after the machinery company had filed its
sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the
time of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the
sheriff's certificate of sale to the plaintiff was not made in good faith, we
should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common debtor.
No criticism can properly be made of the exercise of the utmost diligence
by the plaintiff in asserting and exercising his right to recover the amount of
his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building
and in buying it at the sheriff's sale, he considered that he was doing no
more than he had a right to do under all the circumstances, and it is highly
possible and even probable that he thought at that time that he would be
able to maintain his position in a contest with the machinery company.
There was no collusion on his part with the common debtor, and no thought
82
of the perpetration of a fraud upon the rights of another, in the ordinary
sense of the word. He may have hoped, and doubtless he did hope, that the
title of the machinery company would not stand the test of an action in a
court of law; and if later developments had confirmed his unfounded hopes,
no one could question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's

claim of ownership when he executed the indemnity bond and bought in the
property at the sheriff's sale, and it appearing further that the machinery
company's claim of ownership was well founded, he cannot be said to have
been an innocent purchaser for value. He took the risk and must stand by
the consequences; and it is in this sense that we find that he was not a
purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in
his vendor cannot claim that he has acquired title thereto in good faith as
against the true owner of the land or of an interest therein; and the same rule
must be applied to one who has knowledge of facts which should have put
him upon such inquiry and investigation as might be necessary to acquaint
him with the defects in the title of his vendor. A purchaser cannot close his
eyes to facts which should put a reasonable man upon his guard, and then
claim that he acted in good faith under the belief that there was no defect in
the title of the vendor. His mere refusal to believe that such defect exists, or
his willful closing of his eyes to the possibility of the existence of a defect
in his vendor's title, will not make him an innocent purchaser for value, if
afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defects as would have led to its discovery had he
acted with that measure of precaution which may reasonably be acquired of
a prudent man in a like situation. Good faith, or lack of it, is in its analysis a
question of intention; but in ascertaining the intention by which one is
actuated on a given occasion, we are necessarily controlled by the evidence
as to the conduct and outward acts by which alone the inward motive may,
with safety, be determined. So it is that "the honesty of intention," "the
honest lawful intent," which constitutes good faith implies a "freedom from
knowledge and circumstances which ought to put a person on inquiry," and
so it is that proof of such knowledge overcomes the presumption of good
faith in which the courts always indulge in the absence of proof to the
contrary. "Good faith, or the want of it, is not a visible, tangible fact that
can be seen or touched, but rather a state or condition of mind which can
only be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman,
55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the
decision and judgment entered in the court below should be affirmed with
costs of this instance against the appellant. So ordered.
83
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
Torres, Avanceña and Fisher, JJ., took no part.

SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 124293 January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G.
Summit Holdings, Inc. for reconsideration of our Resolution dated
September 24, 2003 and to elevate this case to the Court En Banc. The
petitioner questions the Resolution which reversed our Decision of
November 20, 2000, which in turn reversed and set aside a Decision of the
Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of

September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development

Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation and management of
the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the
JVA, the NIDC and KAWASAKI will contribute P330 million for the
capitalization of PHILSECO in the proportion of 60%-40% respectively.
One of its salient features is the grant to the parties of the right of first
84
refusal should either of them decide to sell, assign or transfer its interest in
the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [PHILSECO] to any third party without giving the other under the
same terms the right of first refusal. This provision shall not apply if the
transferee is a corporation owned or controlled by the GOVERNMENT or
by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to,
and possession of, conserve, manage and dispose of non-performing assets
of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT
wherein the latter was named the trustee of the National Government's share
in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO
to settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and
the APT deemed it best to sell the National Government's share in
PHILSECO to private entities. After a series of negotiations between the
APT and KAWASAKI, they agreed that the latter's right of first refusal
under the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI)1 would exercise its right
to top.
At the pre-bidding conference held on September 18, 1993, interested

bidders were given copies of the JVA between NIDC and KAWASAKI,
and of the Asset Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions of the
ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Government's equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECO's
outstanding capital stock), which will be sold as a whole block in
accordance with the rules herein enumerated.
85
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Government's 87.67% equity in
PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of
Trustees at its regular meeting following the bidding, for the purpose of
determining whether or not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the same. The APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]

Holdings, Inc. exercise their "Option to Top the Highest Bid," they shall so
notify the APT about such exercise of their option and deposit with APT the
amount equivalent to ten percent (10%) of the highest bid plus five percent
(5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0
above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder
and they shall have a period of ninety (90) days from the receipt of the
APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]

Holdings, Inc. fail to exercise their "Option to Top the Highest Bid" within
the thirty (30)-day period, APT will declare the highest bidder as the
winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate
care these rules, the official bid forms, including any addenda or
amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and all
86
conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidder's proposal. Failure on the part of the bidder to so examine
and inform itself shall be its sole risk and no relief for error or omission will
be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc.2 submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to

thirty (30) days to act on APT's recommendation based on the result of this
bidding. Should the COP approve the highest bid, APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified
in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the
offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel,
SM Group, ICTSI and Insular Life violated the ASBR because the last four
(4) companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise
the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be
exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7, 1994,
the APT notified petitioner that PHI had exercised its option to top the
highest bid and that the COP had approved the same on January 6, 1994.
On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said petition was
referred to the Court of Appeals. On July 18, 1995, the Court of Appeals
denied the same for lack of merit. It ruled that the petition for mandamus
was not the proper remedy to question the constitutionality or legality of the
right of first refusal and the right to top that was exercised by
87
KAWASAKI/PHI, and that the matter must be brought "by the proper party
in the proper forum at the proper time and threshed out in a full blown
trial." The Court of Appeals further ruled that the right of first refusal and
the right to top are prima facie legal and that the petitioner, "by
participating in the public bidding, with full knowledge of the right to top
granted to KAWASAKI/[PHILYARDS] is…estopped from questioning the
validity of the award given to [PHILYARDS] after the latter exercised the
right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of
said Decision which was denied on March 15, 1996. Petitioner thus filed a
Petition for Certiorari with this Court alleging grave abuse of discretion on
the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling

among others that the Court of Appeals erred when it dismissed the petition
on the sole ground of the impropriety of the special civil action of
mandamus because the petition was also one of certiorari. It further ruled
that a shipyard like PHILSECO is a public utility whose capitalization must
be sixty percent (60%) Filipino-owned. Consequently, the right to top
granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR)
drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal — not only because it violates the rules on
competitive bidding — but more so, because it allows foreign corporations
to own more than 40% equity in the shipyard. It also held that "although the
petitioner had the opportunity to examine the ASBR before it participated in
the bidding, it cannot be estopped from questioning the unconstitutional,
illegal and inequitable provisions thereof." Thus, this Court voided the
transfer of the national government's 87.67% share in PHILSECO to
Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED.

The assailed Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid
price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid
deposit plus interests upon the finality of this Decision. In turn, APT is
ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of

stocks representing 87.6% of PHILSECO's total capitalization;
88
(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three

basic issues for x x x resolution: (1) Whether PHILSECO is a public utility;
(2) Whether under the 1977 JVA, KAWASAKI can exercise its right of
first refusal only up to 40% of the total capitalization of PHILSECO; and
(3) Whether the right to top granted to KAWASAKI violates the principles
of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the
respondents. On the first issue, we held that Philippine Shipyard and
Engineering Corporation (PHILSECO) is not a public utility, as by nature, a
shipyard is not a public utility4 and that no law declares a shipyard to be a
public utility.5 On the second issue, we found nothing in the 1977 Joint
Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd.
of Kobe, Japan (KAWASAKI) from acquiring more than 40% of
PHILSECO’s total capitalization.6 On the final issue, we held that the right
to top granted to KAWASAKI in exchange for its right of first refusal did
not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and
a Motion to Elevate This Case to the Court En Banc.9 Public respondents
Committee on Privatization (COP) and Asset Privatization Trust (APT),
and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for
Reconsideration and Motion to Elevate This Case to the Court En Banc on
January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation
are the following:
1. Whether there are sufficient bases to elevate the case at bar to the
Court en banc.
2. Whether the motion for reconsideration raises any new matter or

cogent reason to warrant a reconsideration of this Court’s Resolution
of September 24, 2003.
Motion to Elevate this Case to the
89
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the
following grounds:
1. The main issue of the propriety of the bidding process involved in

the present case has been confused with the policy issue of the
supposed fate of the shipping industry which has never been an issue
that is determinative of this case.10
2. The present case may be considered under the Supreme Court

Resolution dated February 23, 1984 which included among en
banc cases those involving a novel question of law and those where a
doctrine or principle laid down by the Court en banc or in division
may be modified or reversed.11
3. There was clear executive interference in the judicial functions of

the Court when the Honorable Jose Isidro Camacho, Secretary of
Finance, forwarded to Chief Justice Davide, a memorandum dated
November 5, 2001, attaching a copy of the Foreign Chambers Report
dated October 17, 2001, which matter was placed in the agenda of the
Court and noted by it in a formal resolution dated November 28,
2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS

points out the petitioner’s inconsistency in
previously opposing PHILYARDS’ Motion to Refer the Case to the
Court En Banc. PHILYARDS contends that J.G. Summit should now be
estopped from asking that the case be referred to the Court en banc.
PHILYARDS further contends that the Supreme Court en banc is not an
appellate court to which decisions or resolutions of its divisions may be
appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel question of law
involved in the present case as the assailed Resolution was based on well-
settled jurisprudence. Likewise, PHILYARDS stresses that the Resolution
was merely an outcome of the motions for reconsideration filed by it and
the COP and APT and is "consistent with the inherent power of courts to
‘amend and control its process and orders so as to make them conformable
to law and justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the
petitioner’s allegations regarding the change in ponente and the alleged
executive interference as shown by former Secretary of Finance Jose Isidro
Camacho’s memorandum dated November 5, 2001 arguing that these do
not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En

Banc should be granted, J.G. Summit further argued that: its Opposition to
the Office of the Solicitor General’s Motion to Refer is different from its
own Motion to Elevate; different grounds are invoked by the two motions;
90
there was unwarranted "executive interference"; and the change
in ponente is merely noted in asserting that this case should be decided by
the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the bidding

process involved in the present case has been confused with the policy issue
of the fate of the shipping industry which, petitioner maintains, has never
been an issue that is determinative of this case. The Court’s Resolution of
September 24, 2003 reveals a clear and definitive ruling on the propriety of
the bidding process. In discussing whether the right to top granted to
KAWASAKI in exchange for its right of first refusal violates the principles
of competitive bidding, we made an exhaustive discourse on the rules and
principles of public bidding and whether they were complied with in the
case at bar.16 This Court categorically ruled on the petitioner’s argument
that PHILSECO, as a shipyard, is a public utility which should maintain a
60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing
so, we recognized the impact of our ruling on the shipbuilding industry
which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered

under the Supreme Court Resolution dated February 23, 1984 which
included among en banc cases those involving a novel question of law and
those where a doctrine or principle laid down by the court en banc or in
division may be modified or reversed. The case was resolved based on basic
principles of the right of first refusal in commercial law and estoppel in
civil law. Contractual obligations arising from rights of first refusal are not
new in this jurisdiction and have been recognized in numerous
cases.18 Estoppel is too known a civil law concept to require an elongated
discussion. Fundamental principles on public bidding were likewise used to
resolve the issues raised by the petitioner. To be sure, petitioner leans on the
right to top in a public bidding in arguing that the case at bar involves a
novel issue. We are not swayed. The right to top was merely a condition or
a reservation made in the bidding rules which was fully disclosed to all
bidding parties. In Bureau Veritas, represented by Theodor H.
Hunermann v. Office of the President, et al., 19 we dealt with this
conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v.

Aytona, et al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an
"invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidding shall be subject to the right of the government to
reject any and all bids subject to its discretion. In the case at bar, the
government has made its choice and unless an unfairness or injustice is
shown, the losing bidders have no cause to complain nor right to
dispute that choice. This is a well-settled doctrine in this jurisdiction
and elsewhere."
91
The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to
the authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The
exercise of this discretion is a policy decision that necessitates prior inquiry,
investigation, comparison, evaluation, and deliberation. This task can best
be discharged by the Government agencies concerned, not by the Courts.
The role of the Courts is to ascertain whether a branch or instrumentality of
the Government has transgressed its constitutional boundaries. But the
Courts will not interfere with executive or legislative discretion exercised
within those boundaries. Otherwise, it strays into the realm of policy
decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts
will set aside the award of a contract made by a government entity. Grave
abuse of discretion implies a capricious, arbitrary and whimsical exercise of
power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935,
30 September 1988, 166 SCRA 155). The abuse of discretion must be so
patent and gross as to amount to an evasion of positive duty or to a virtual
refusal to perform a duty enjoined by law, as to act at all in contemplation
of law, where the power is exercised in an arbitrary and despotic manner by
reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et
al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on
the part of public respondents when they awarded the CISS contract to
Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C,"
supra), the CISS Committee made an express reservation of the right of
the Government to "reject any or all bids or any part thereof or waive
any defects contained thereon and accept an offer most advantageous
to the Government." It is a well-settled rule that where such
reservation is made in an Invitation to Bid, the highest or lowest
bidder, as the case may be, is not entitled to an award as a matter of
right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120
SCRA 112). Even the lowest Bid or any Bid may be rejected or, in the
exercise of sound discretion, the award may be made to another than the
lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur.,
788). (emphases supplied)1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a
condition imposed by the government in the bidding rules which was made
known to all parties. It was a condition imposed on all bidders equally,
based on the APT’s exercise of its discretion in deciding on how best to
privatize the government’s shares in PHILSECO. It was not a whimsical
or arbitrary condition plucked from the ether and inserted in the bidding
rules but a condition which the APT approved as the best way the
92
government could comply with its contractual obligations to KAWASAKI
under the JVA and its mandate of getting the most advantageous deal for
the government. The right to top had its history in the mutual right of first
refusal in the JVA and was reached by agreement of the government and
KAWASAKI.
Further, there is no "executive interference" in the functions of this Court

by the mere filing of a memorandum by Secretary of Finance Jose Isidro
Camacho. The memorandum was merely "noted" to acknowledge its filing.
It had no further legal significance. Notably too, the assailed Resolution
dated September 24, 2003 was decided unanimously by the Special
First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of

the Supreme Court20 and the Court en banc is not an appellate court to
which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the
Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for

Reconsideration. First, that a fair resolution of the case should be based on
contract law, not on policy considerations; the contracts do not authorize
the right to top to be derived from the right of first refusal. 22 Second, that
neither the right of first refusal nor the right to top can be legally exercised
by the consortium which is not the proper party granted such right under
either the JVA or the Asset Specific Bidding Rules (ASBR). 23 Third, that
the maintenance of the 60%-40% relationship between the National
Investment and Development Corporation (NIDC) and KAWASAKI arises
from contract and from the Constitution because PHILSECO is a
landholding corporation and need not be a public utility to be bound by the
60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G.

Summit has not been able to show compelling reasons to warrant a
reconsideration of the Decision of the Court.25 PHILYARDS denies that the
Decision is based mainly on policy considerations and points out that it is
premised on principles governing obligations and contracts and corporate
law such as the rule requiring respect for contractual stipulations, upholding
rights of first refusal, and recognizing the assignable nature of contracts
rights.26 Also, the ruling that shipyards are not public utilities relies on
established case law and fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKI’s right of first refusal or even the
right to top is not limited to the 40% equity of the latter.27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that
this is a non-issue and even involves a question of fact. Even assuming that
93
this Court can take cognizance of such question of fact even without the
benefit of a trial, PHILYARDS opines that landholding by PHILSECO at
the time of the bidding is irrelevant because what is essential is that
ultimately a qualified entity would eventually hold PHILSECO’s real estate
properties.28 Further, given the assignable nature of the right of first refusal,
any applicable nationality restrictions, including landholding limitations,
would not affect the right of first refusal itself, but only the manner of its
exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of
J.G. Summit’s allegations of fact regarding PHILSECO’s landholding, it
must also recognize PHILYARDS’ assertions that PHILSECO’s
landholdings were sold to another corporation.30 As regards the right of first
refusal, private respondent explains that KAWASAKI’s reduced
shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss
of its contractually granted right of first refusal.31 Also, the bidding was
valid because PHILYARDS exercised the right to top and it was of no
moment that losing bidders later joined PHILYARDS in raising the
purchase price.32
In cadence with the private respondent PHILYARDS, public respondents

COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5%

does not violate any provision in the JVA between NIDC and
KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by

the constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the

proceedings of the public bidding as it voluntarily submitted itself to
the terms of the ASBR which included the provision on the right to
top.
4. The right to top was exercised by PHILYARDS as the nominee of

KAWASAKI and the fact that PHILYARDS formed a consortium to
raise the required amount to exercise the right to top the highest bid
by 5% does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the

acquisition of lands does not apply to PHILSECO because as
admitted by petitioner itself, PHILSECO no longer owns real
property.
6. Petitioner’s motion to elevate the case to the Court en banc is

baseless and would only delay the termination of this case. 33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered

the arguments of the public and private respondents in this wise:
94
1. The award by the APT of 87.67% shares of PHILSECO to
PHILYARDS with losing bidders through the exercise of a right to
top, which is contrary to law and the constitution is null and void for
being violative of substantive due process and the abuse of right
provision in the Civil Code.
a. The bidders[’] right to top was actually exercised by losing

bidders.
b. The right to top or the right of first refusal cannot co-exist

with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of
this case but is shamelessly ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of

first refusal was agreed upon and at the time of the bidding are
most relevant.
d. Whether a shipyard is a public utility is not the core issue in

this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent

right of first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud
and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in

this case.
a. Estoppel is unavailing as it would stamp validity to an act

that is prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive

nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from the
right of first refusal is not new and we have already ruled on the issue in our
95
Resolution of September 24, 2003. We upheld the mutual right of first
refusal in the JVA.34 We also ruled that nothing in the JVA prevents
KAWASAKI from acquiring more than 40% of PHILSECO’s total
capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion
of the right of first refusal to the right to top. In sum, nothing new and of
significance in the petitioner’s pleading warrants a reconsideration of our
ruling.
Likewise, we already disposed of the argument that neither the right of first
refusal nor the right to top can legally be exercised by the consortium which
is not the proper party granted such right under either the JVA or the
ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel,
SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined
PHILYARDS in the latter's effort to raise P2.131 billion necessary in
exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised) or
KAWASAKI/PHI (should it exercise its right to top as it did), to raise the
purchase price. The petitioner did not allege, nor was it shown by
competent evidence, that the participation of the losing bidders in the public
bidding was done with fraudulent intent. Absent any proof of fraud, the
formation by [PHILYARDS] of a consortium is legitimate in a free
enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the
National Government's shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking

funding from parties who were losing bidders. This is a purely commercial
decision over which the State should not interfere absent any legal
infirmity. It is emphasized that the case at bar involves the disposition of
shares in a corporation which the government sought to privatize. As such,
the persons with whom PHILYARDS desired to enter into business with in
order to raise funds to purchase the shares are basically its business. This is
in contrast to a case involving a contract for the operation of or construction
of a government infrastructure where the identity of the buyer/bidder or
financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest
by ensuring that the parties with which it is contracting have the ability to
satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a

landholding company, KAWASAKI could exercise its right of first refusal
only up to 40% of the shares of PHILSECO due to the constitutional
prohibition on landholding by corporations with more than 40% foreign-
owned equity. It further argues that since KAWASAKI already held at least
40% equity in PHILSECO, the right of first refusal was inutile and as such,
96
could not subsequently be converted into the right to top. 37 Petitioner also
asserts that, at present, PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than 40% foreign-
owned.38 PHILYARDS admits that it may have previously held land but
had already divested such landholdings.39 It contends, however, that even if
PHILSECO owned land, this would not affect the right of first refusal but
only the exercise thereof. If the land is retained, the right of first refusal,
being a property right, could be assigned to a qualified party. In the
alternative, the land could be divested before the exercise of the right of
first refusal. In the case at bar, respondents assert that since the right of first
refusal was validly converted into a right to top, which was exercised not by
KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e.,
60% of its shares are owned by Filipinos), then there is no violation of the
Constitution.40 At first, it would seem that questions of fact beyond
cognizance by this Court were involved in the issue. However, the records
show that PHILYARDS admits it had owned land up until the time of
the bidding.41 Hence, the only issue is whether KAWASAKI had a valid
right of first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the time of the bidding
and KAWASAKI already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a
property right of PHILSECO shareholders, KAWASAKI and NIDC, under
the terms of their JVA. This right allows them to purchase the shares of
their co-shareholder before they are offered to a third party. The agreement
of co-shareholders to mutually grant this right to each other, by itself,
does not constitute a violation of the provisions of the Constitution
limiting land ownership to Filipinos and Filipino corporations. As
PHILYARDS correctly puts it, if PHILSECO still owns land, the right of
first refusal can be validly assigned to a qualified Filipino entity in order to
maintain the 60%-40% ratio. This transfer, by itself, does not amount to a
violation of the Anti-Dummy Laws, absent proof of any fraudulent intent.
The transfer could be made either to a nominee or such other party which
the holder of the right of first refusal feels it can comfortably do business
with. Alternatively, PHILSECO may divest of its landholdings, in which
case KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the
foreign stockholders’ ownership of the shares which is adversely
affected but the capacity of the corporation to own land – that is, the
corporation becomes disqualified to own land. This finds support under the
basic corporate law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal over shares
pertains to the shareholders whereas the capacity to own land pertains to the
corporation. Hence, the fact that PHILSECO owns land cannot deprive
stockholders of their right of first refusal. No law disqualifies a person
97
from purchasing shares in a landholding corporation even if the latter
will exceed the allowed foreign equity, what the law disqualifies is the
corporation from owning land. This is the clear import of the following
provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and under such terms and conditions as
may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be

transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public
domain.42(emphases supplied)
The petitioner further argues that "an option to buy land is void in itself
(Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The
right of first refusal granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void."43 Contrary to the contention of petitioner, the case
of Lui She did not that say "an option to buy land is void in itself," for we
ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So

is an option giving an alien the right to buy real property on condition
that he is granted Philippine citizenship. As this Court said in Krivenko
vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of
lands for residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease contract
which is not forbidden by the Constitution. Should they desire to remain
here forever and share our fortunes and misfortunes, Filipino citizenship is
not impossible to acquire.
98
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi)
but also of the right to dispose of it (jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition, and so on,
until ultimately all the rights of which ownership is made up are
consolidated in an alien. And yet this is just exactly what the parties in this
case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be
done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in
grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a

virtual transfer of ownership as the owner could not sell or dispose of his
properties. The contract in Lui She prohibited the owner of the land from
selling, donating, mortgaging, or encumbering the property during the 50-
year period of the option to buy. This is not so in the case at bar where the
mutual right of first refusal in favor of NIDC and KAWASAKI does not
amount to a virtual transfer of land to a non-Filipino. In fact, the case at bar
involves a right of first refusal over shares of stock while the Lui
She case involves an option to buy the land itself. As discussed earlier,
there is a distinction between the shareholder’s ownership of shares and the
corporation’s ownership of land arising from the separate juridical
personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that
PHILSECO continues to violate the Constitution as its foreign equity is
above 40% and yet owns long-term leasehold rights which are real
rights.45 It cites Article 415 of the Civil Code which includes in the
definition of immovable property, "contracts for public works, and
servitudes and other real rights over immovable property."46 Any existing
landholding, however, is denied by PHILYARDS citing its recent financial
statements.47 First, these are questions of fact, the veracity of which would
require introduction of evidence. The Court needs to validate these factual
allegations based on competent and reliable evidence. As such, the Court
cannot resolve the questions they pose. Second, J.G. Summit misreads the
provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private
respondent is not a 60%-40% corporation, and this violates the Constitution
x x x The violation continues to this day because under the law, it
continues to own real property…
99
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article

XIV of the 1973 Constitution (the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be

transferred or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987
Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or

hold lands of the public domain are corporations at least 60% of which is
owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended).
(emphases supplied)
As correctly observed by the public respondents, the prohibition in the

Constitution applies only to ownership of land.48 It does not extend to
immovable or real property as defined under Article 415 of the Civil
Code.Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the
land49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioner’s Motion for

Reconsideration is DENIED WITH FINALITY and the decision appealed
from is AFFIRMED. The Motion to Elevate This Case to the Court En
Banc is likewise DENIED for lack of merit.
SO ORDERED.
Republic of the Philippine
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191667 April 17, 2013
LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
100
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari1 is the March 26, 2010
Decision2 of the Court of Appeals (CA) in CA-G.R. CV. No. 89732 which
affirmed with modification the April 10, 2007 Decision3 of the Regional
Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the
nullity of the loan agreements entered into by petitioner Land Bank of the
Philippines (Land Bank) and the Municipality of Agoo, La Union
(Municipality).
The Facts
From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed

certain resolutions to implement a multi-phased plan (Redevelopment Plan)
to redevelop the Agoo Public Plaza (Agoo Plaza) where the Imelda Garden
and Jose Rizal Monument were situated.
To finance phase 1 of the said plan, the SB initially passed Resolution No.
68-20054 on April 19, 2005, authorizing then Mayor Eufranio Eriguel
(Mayor Eriguel) to obtain a loan from Land Bank and incidental thereto,
mortgage a 2,323.75 square meter lot situated at the southeastern portion of
the Agoo Plaza (Plaza Lot) as collateral. To serve as additional security, it
further authorized the assignment of a portion of its internal revenue
allotment (IRA) and the monthly income from the proposed project in favor
of Land Bank.5 The foregoing terms were confirmed, approved and ratified
on October 4, 2005 through Resolution No. 139-2005.6 Consequently, on
November 21, 2005, Land Bank extended a P4,000,000.00 loan in favor of
the Municipality (First Loan),7 the proceeds of which were used to construct
ten (10) kiosks at the northern and southern portions of the Imelda Garden.
After completion, these kiosks were rented out.8
On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the

construction of a commercial center on the Plaza Lot as part of phase II of
the Redevelopment Plan. To finance the project, Mayor Eriguel was again
authorized to obtain a loan from Land Bank, posting as well the same
securities as that of the First Loan. All previous representations and
warranties of Mayor Eriguel related to the negotiation and obtention of the
new loan10 were ratified on September 5, 2006 through Resolution No. 128-
2006.11 In consequence, Land Bank granted a second loan in favor of the
Municipality on October 20, 2006 in the principal amount
of P28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the construction of the

commercial center at the Agoo Plaza was vehemently objected to by some
residents of the Municipality. Led by respondent Eduardo Cacayuran
(Cacayuran), these residents claimed that the conversion of the Agoo Plaza
into a commercial center, as funded by the proceeds from the First and
Second Loans (Subject Loans), were "highly irregular, violative of the law,
101
and detrimental to public interests, and will result to wanton desecration of
the said historical and public park."13 The foregoing was embodied in a
Manifesto,14 launched through a signature campaign conducted by the
residents and Cacayuran.
In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed

to Mayor Eriguel, Vice Mayor Antonio Eslao (Vice Mayor Eslao), and the
members of the SB namely, Violeta Laroya-Balbin, Jaime Boado, Jr.,
Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo Fronda,
Josephus Komiya, Erwina Eriguel, Felizardo Villanueva, and Gerard
Mamuyac (Implicated Officers), expressing the growing public clamor
against the conversion of the Agoo Plaza into a commercial center. He then
requested the foregoing officers to furnish him certified copies of various
documents related to the aforementioned conversion including, among
others, the resolutions approving the Redevelopment Plan as well as the
loan agreements for the sake of public information and transparency.
Unable to get any response, Cacayuran, invoking his right as a taxpayer,

filed a Complaint16 against the Implicated Officers and Land Bank,
assailing, among others, the validity of the Subject Loans on the ground that
the Plaza Lot used as collateral thereof is property of public dominion and
therefore, beyond the commerce of man.17
Upon denial of the Motion to Dismiss dated December 27, 2006,18 the
Implicated Officers and Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not privy to the Implicated
Officers’ acts of destroying the Agoo Plaza. It further asserted that
Cacayuran did not have a cause of action against it since he was not privy to
any of the Subject Loans.19
During the pendency of the proceedings, the construction of the commercial

center was completed and the said structure later became known as the
Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal Ordinance No. 02-

2007,20 declaring the area where the APC stood as patrimonial property of
the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran,
declaring the nullity of the Subject Loans.22 It found that the resolutions
approving the said loans were passed in a highly irregular manner and thus,
ultra vires; as such, the Municipality is not bound by the same.23 Moreover,
it found that the Plaza Lot is proscribed from collateralization given its
nature as property for public use.24
102
Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On
the other hand, the Implicated Officers’ appeal was deemed abandoned and
dismissed for their failure to file an appellants’ brief despite due notice. 26 In
this regard, only Land Bank’s appeal was given due course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA affirmed with modification
the RTC’s ruling, excluding Vice Mayor Eslao from any personal liability
arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had locus standi to file his
complaint, considering that (a) he was born, raised and a bona fide resident
of the Municipality; and (b) the issue at hand involved public interest of
transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005, 58-
2006, 128-2006 and all other related resolutions (Subject Resolutions) were
invalidly passed due to the SB’s non-compliance with certain sections of
Republic Act No. 7160, otherwise known as the "Local Government Code
of 1991" (LGC); (3) the Plaza Lot, which served as collateral for the
Subject Loans, is property of public dominion and thus, cannot be
appropriated either by the State or by private persons;30 and (4) the Subject
Loans are ultra vires because they were transacted without proper authority
and their collateralization constituted improper disbursement of public
funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the Court’s resolution: (1)
whether Cacayuran has standing to sue; (2) whether the Subject Resolutions
were validly passed; and (3) whether the Subject Loans are ultra vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have any standing to contest the
construction of the APC as it was funded through the proceeds coming from
the Subject Loans and not from public funds. Besides, Cacayuran was not
even a party to any of the Subject Loans and is thus, precluded from
questioning the same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed to sue where there is a

claim that public funds are illegally disbursed, or that public money is being
103
deflected to any improper purpose, or that there is wastage of public funds
through the enforcement of an invalid or unconstitutional law. A person
suing as a taxpayer, however, must show that the act complained of directly
involves the illegal disbursement of public funds derived from taxation. In
other words, for a taxpayer’s suit to prosper, two requisites must be met
namely, (1) public funds derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and (2) the petitioner is directly affected by the
alleged act.31
Records reveal that the foregoing requisites are present in the instant case.
First, although the construction of the APC would be primarily sourced

from the proceeds of the Subject Loans, which Land Bank insists are not
taxpayer’s money, there is no denying that public funds derived from
taxation are bound to be expended as the Municipality assigned a portion of
its IRA as a security for the foregoing loans. Needless to state, the
Municipality’s IRA, which serves as the local government unit’s just share
in the national taxes,32 is in the nature of public funds derived from
taxation. The Court believes, however, that although these funds may be
posted as a security, its collateralization should only be deemed effective
during the incumbency of the public officers who approved the same, else
those who succeed them be effectively deprived of its use.
In any event, it is observed that the proceeds from the Subject Loans had
already been converted into public funds by the Municipality’s receipt
thereof. Funds coming from private sources become impressed with the
characteristics of public funds when they are under official custody.33
Accordingly, the first requisite has been clearly met.
Second, as a resident-taxpayer of the Municipality, Cacayuran is directly

affected by the conversion of the Agoo Plaza which was funded by the
proceeds of the Subject Loans. It is well-settled that public plazas are
properties for public use34 and therefore, belongs to the public
dominion.35 As such, it can be used by anybody and no one can exercise
over it the rights of a private owner. 36 In this light, Cacayuran had a direct
interest in ensuring that the Agoo Plaza would not be exploited for
commercial purposes through the APC’s construction. Moreover,
Cacayuran need not be privy to the Subject Loans in order to proffer his
objections thereto. In Mamba v. Lara, it has been held that a taxpayer need
not be a party to the contract to challenge its validity; as long as taxes are
involved, people have a right to question contracts entered into by the
government.37
Therefore, as the above-stated requisites obtain in this case, Cacayuran has

standing to file the instant suit.
104
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions provided ample authority for
Mayor Eriguel to contract the Subject Loans. It posits that Section
444(b)(1)(vi) of the LGC merely requires that the municipal mayor be
authorized by the SB concerned and that such authorization need not be
embodied in an ordinance.38
A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the
authorization of the municipal mayor need not be in the form of an
ordinance, the obligation which the said local executive is authorized to
enter into must be made pursuant to a law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties, Functions and

Compensation. -
xxxx
(b) For efficient, effective and economical governance the purpose of which
is the general welfare of the municipality and its inhabitants pursuant to
Section 16 of this Code, the municipal mayor shall:
xxxx
(vi) Upon authorization by the sangguniang bayan, represent the

municipality in all its business transactions and sign on its behalf all bonds,
contracts, and obligations, and such other documents made pursuant to law
or ordinance; (Emphasis and underscoring supplied)
In the present case, while Mayor Eriguel’s authorization to contract the

Subject Loans was not contained – as it need not be contained – in the form
of an ordinance, the said loans and even the Redevelopment Plan itself were
not approved pursuant to any law or ordinance but through mere
resolutions. The distinction between ordinances and resolutions is well-
perceived. While ordinances are laws and possess a general and permanent
character, resolutions are merely declarations of the sentiment or opinion of
a lawmaking body on a specific matter and are temporary in nature.39 As
opposed to ordinances, "no rights can be conferred by and be inferred from
a resolution."40 In this accord, it cannot be denied that the SB violated
Section 444(b)(1)(vi) of the LGC altogether.
Noticeably, the passage of the Subject Resolutions was also tainted with
other irregularities, such as (1) the SB’s failure to submit the Subject
Resolutions to the Sangguniang Panlalawigan of La Union for its review
contrary to Section 56 of the LGC;41 and (2) the lack of publication and
posting in contravention of Section 59 of the LGC.42
105
In fine, Land Bank cannot rely on the Subject Resolutions as basis to
validate the Subject Loans.
C. Ultra vires nature of the Subject
Loans
Neither can Land Bank claim that the Subject Loans do not constitute ultra
vires acts of the officers who approved the same.
Generally, an ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
beyond the powers conferred upon it by law.43 There are two (2) types of
ultra vires acts. As held in Middletown Policemen's Benevolent Association
v. Township of Middletown:44
There is a distinction between an act utterly beyond the jurisdiction of a

municipal corporation and the irregular exercise of a basic power under the
legislative grant in matters not in themselves jurisdictional. The former are
ultra vires in the primary sense and void; the latter, ultra vires only in a
secondary sense which does not preclude ratification or the application of
the doctrine of estoppel in the interest of equity and essential justice.
(Emphasis and underscoring supplied)
In other words, an act which is outside of the municipality’s jurisdiction is

considered as a void ultra vires act, while an act attended only by an
irregularity but remains within the municipality’s power is considered as an
ultra vires act subject to ratification and/or validation. To the former
belongs municipal contracts which (a) are entered into beyond the express,
implied or inherent powers of the local government unit; and (b) do not
comply with the substantive requirements of law e.g., when expenditure of
public funds is to be made, there must be an actual appropriation and
certificate of availability of funds; while to the latter belongs those which
(a) are entered into by the improper department, board, officer of agent; and
(b)do not comply with the formal requirements of a written contract e.g.,
the Statute of Frauds.45
Applying these principles to the case at bar, it is clear that the Subject
Loans belong to the first class of ultra vires acts deemed as void.
Records disclose that the said loans were executed by the Municipality for
the purpose of funding the conversion of the Agoo Plaza into a commercial
center pursuant to the Redevelopment Plan. However, the conversion of the
said plaza is beyond the Municipality’s jurisdiction considering the
property’s nature as one for public use and thereby, forming part of the
public dominion. Accordingly, it cannot be the object of appropriation
either by the State or by private persons.46 Nor can it be the subject of lease
or any other contractual undertaking.47 In Villanueva v. Castañeda,
106
Jr.,48 citing Espiritu v. Municipal Council of Pozorrubio,49 the Court
pronounced that:
x x x Town plazas are properties of public dominion, to be devoted to

public use and to be made available to the public in general. They are
outside the commerce of man and cannot be disposed of or even leased by
the municipality to private parties.1âwphi1
In this relation, Article 1409(1) of the Civil Code provides that a contract
whose purpose is contrary to law, morals, good customs, public order or
public policy is considered void50 and as such, creates no rights or
obligations or any juridical relations.51 Consequently, given the unlawful
purpose behind the Subject Loans which is to fund the commercialization of
the Agoo Plaza pursuant to the Redevelopment Plan, they are considered as
ultra vires in the primary sense thus, rendering them void and in effect, non-
binding on the Municipality.
At this juncture, it is equally observed that the land on which the Agoo
Plaza is situated cannot be converted into patrimonial property – as the SB
tried to when it passed Municipal Ordinance No. 02-200752 – absent any
express grant by the national government.53 As public land used for public
use, the foregoing lot rightfully belongs to and is subject to the
administration and control of the Republic of the Philippines. 54 Hence,
without the said grant, the Municipality has no right to claim it as
patrimonial property.
Nevertheless, while the Subject Loans cannot bind the Municipality for
being ultra vires, the officers who authorized the passage of the Subject
Resolutions are personally liable. Case law states that public officials can
be held personally accountable for acts claimed to have been performed in
connection with official duties where they have acted ultra vires, 55 as in this
case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010

Decision of the Court of Appeals in CA-G.R. CV. No. 89732 is hereby
AFFIRMED.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
107
SUPREME COURT
Manila
EN BANC
G.R. No. 179987 September 3, 2013
HEIRS OF MARIO MALABANAN, (Represented by Sally A.

Malabanan), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
RESOLUTION
BERSAMIN, J.:
For our consideration and resolution are the motions for reconsideration of
the parties who both assail the decision promulgated on April 29, 2009,
whereby we upheld the ruling of the Court of Appeals (CA) denying the
application of the petitioners for the registration of a parcel of land situated
in Barangay Tibig, Silang, Cavite on the ground that they had not
established by sufficient evidence their right to the registration in
accordance with either Section 14(1) or Section 14(2) of Presidential
Decree No. 1529 (Property Registration Decree).
Antecedents
The property subject of the application for registration is a parcel of land

situated in Barangay Tibig, Silang Cavite, more particularly identified as
Lot 9864-A, Cad-452-D, with an area of 71,324-square meters. On
February 20, 1998, applicant Mario Malabanan, who had purchased the
property from Eduardo Velazco, filed an application for land registration
covering the property in the Regional Trial Court (RTC) in Tagaytay City,
Cavite, claiming that the property formed part of the alienable and
disposable land of the public domain, and that he and his predecessors-in-
interest had been in open, continuous, uninterrupted, public and adverse
possession and occupation of the land for more than 30 years, thereby
entitling him to the judicial confirmation of his title. 1
To prove that the property was an alienable and disposable land of the
public domain, Malabanan presented during trial a certification dated June
11, 2001 issued by the Community Environment and Natural Resources
Office (CENRO) of the Department of Environment and Natural Resources
(DENR), which reads:
This is to certify that the parcel of land designated as Lot No. 9864 Cad
452-D, Silang Cadastre as surveyed for Mr. Virgilio Velasco located at
108
Barangay Tibig, Silang, Cavite containing an area of 249,734 sq. meters as
shown and described on the Plan Ap-04-00952 is verified to be within the
Alienable or Disposable land per Land Classification Map No. 3013
established under Project No. 20-A and approved as such under FAO 4-
1656 on March 15, 1982.2
After trial, on December 3, 2002, the RTC rendered judgment granting

Malabanan’s application for land registration, disposing thusly:
WHEREFORE, this Court hereby approves this application for registration

and thus places under the operation of Act 141, Act 496 and/or P.D. 1529,
otherwise known as Property Registration Law, the lands described in Plan
Csd-04-0173123-D, Lot 9864-A and containing an area of Seventy One
Thousand Three Hundred Twenty Four (71,324) Square Meters, as
supported by its technical description now forming part of the record of this
case, in addition to other proofs adduced in the name of MARIO
MALABANAN, who is of legal age, Filipino, widower, and with residence
at Munting Ilog, Silang, Cavite.
Once this Decision becomes final and executory, the corresponding decree
of registration shall forthwith issue.
SO ORDERED.3
The Office of the Solicitor General (OSG) appealed the judgment to the
CA, arguing that Malabanan had failed to prove that the property belonged
to the alienable and disposable land of the public domain, and that the RTC
erred in finding that he had been in possession of the property in the manner
and for the length of time required by law for confirmation of imperfect
title.
On February 23, 2007, the CA promulgated its decision reversing the RTC
and dismissing the application for registration of Malabanan. Citing the
ruling in Republic v. Herbieto (Herbieto),4 the CA declared that under
Section 14(1) of the Property Registration Decree, any period of possession
prior to the classification of the land as alienable and disposable was
inconsequential and should be excluded from the computation of the period
of possession. Noting that the CENRO-DENR certification stated that the
property had been declared alienable and disposable only on March 15,
1982, Velazco’s possession prior to March 15, 1982 could not be tacked for
purposes of computing Malabanan’s period of possession.
Due to Malabanan’s intervening demise during the appeal in the CA, his
heirs elevated the CA’s decision of February 23, 2007 to this Court through
a petition for review on certiorari.
The petitioners assert that the ruling in Republic v. Court of Appeals and
Corazon Naguit5 (Naguit) remains the controlling doctrine especially if the
109
property involved is agricultural land. In this regard, Naguit ruled that any
possession of agricultural land prior to its declaration as alienable and
disposable could be counted in the reckoning of the period of possession to
perfect title under the Public Land Act (Commonwealth Act No. 141) and
the Property Registration Decree. They point out that the ruling in Herbieto,
to the effect that the declaration of the land subject of the application for
registration as alienable and disposable should also date back to June 12,
1945 or earlier, was a mere obiter dictum considering that the land
registration proceedings therein were in fact found and declared void ab
initio for lack of publication of the notice of initial hearing.
The petitioners also rely on the ruling in Republic v. T.A.N. Properties,

Inc.6 to support their argument that the property had been ipso jure
converted into private property by reason of the open, continuous, exclusive
and notorious possession by their predecessors-in-interest of an alienable
land of the public domain for more than 30 years. According to them, what
was essential was that the property had been "converted" into private
property through prescription at the time of the application without regard
to whether the property sought to be registered was previously classified as
agricultural land of the public domain.
As earlier stated, we denied the petition for review on certiorari because

Malabanan failed to establish by sufficient evidence possession and
occupation of the property on his part and on the part of his predecessors-in
interest since June 12, 1945, or earlier.
Petitioners’ Motion for Reconsideration
In their motion for reconsideration, the petitioners submit that the mere
classification of the land as alienable or disposable should be deemed
sufficient to convert it into patrimonial property of the State. Relying on the
rulings in Spouses De Ocampo v. Arlos,7 Menguito v. Republic8 and
Republic v. T.A.N. Properties, Inc.,9 they argue that the reclassification of
the land as alienable or disposable opened it to acquisitive prescription
under the Civil Code; that Malabanan had purchased the property from
Eduardo Velazco believing in good faith that Velazco and his predecessors-
in-interest had been the real owners of the land with the right to validly
transmit title and ownership thereof; that consequently, the ten-year period
prescribed by Article 1134 of the Civil Code, in relation to Section 14(2) of
the Property Registration Decree, applied in their favor; and that when
Malabanan filed the application for registration on February 20, 1998, he
had already been in possession of the land for almost 16 years reckoned
from 1982, the time when the land was declared alienable and disposable by
the State.
The Republic’s Motion for Partial Reconsideration
110
The Republic seeks the partial reconsideration in order to obtain a
clarification with reference to the application of the rulings in Naguit and
Herbieto.
Chiefly citing the dissents, the Republic contends that the decision has
enlarged, by implication, the interpretation of Section 14(1) of the Property
Registration Decree through judicial legislation. It reiterates its view that an
applicant is entitled to registration only when the land subject of the
application had been declared alienable and disposable since June 12, 1945
or earlier.
Ruling
We deny the motions for reconsideration.
In reviewing the assailed decision, we consider to be imperative to discuss

the different classifications of land in relation to the existing applicable land
registration laws of the Philippines.
Classifications of land according to ownership
Land, which is an immovable property,10 may be classified as either of

public dominion or of private ownership.11Land is considered of public
dominion if it either: (a) is intended for public use; or (b) belongs to the
State, without being for public use, and is intended for some public service
or for the development of the national wealth. 12 Land belonging to the State
that is not of such character, or although of such character but no longer
intended for public use or for public service forms part of the patrimonial
property of the State.13 Land that is other than part of the patrimonial
property of the State, provinces, cities and municipalities is of private
ownership if it belongs to a private individual.
Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first

introduced into the country from the West by Spain through the Laws of the
Indies and the Royal Cedulas,14 all lands of the public domain belong to the
State.15 This means that the State is the source of any asserted right to
ownership of land, and is charged with the conservation of such
patrimony.16
All lands not appearing to be clearly under private ownership are presumed
to belong to the State. Also, public lands remain part of the inalienable land
of the public domain unless the State is shown to have reclassified or
alienated them to private persons.17
Classifications of public lands

according to alienability
111
Whether or not land of the public domain is alienable and disposable
primarily rests on the classification of public lands made under the
Constitution. Under the 1935 Constitution,18 lands of the public domain
were classified into three, namely, agricultural, timber and
mineral.19 Section 10, Article XIV of the 1973 Constitution classified lands
of the public domain into seven, specifically, agricultural, industrial or
commercial, residential, resettlement, mineral, timber or forest, and grazing
land, with the reservation that the law might provide other classifications.
The 1987 Constitution adopted the classification under the 1935
Constitution into agricultural, forest or timber, and mineral, but added
national parks.20 Agricultural lands may be further classified by law
according to the uses to which they may be devoted.21 The identification of
lands according to their legal classification is done exclusively by and
through a positive act of the Executive Department.22
Based on the foregoing, the Constitution places a limit on the type of public
land that may be alienated. Under Section 2, Article XII of the 1987
Constitution, only agricultural lands of the public domain may be alienated;
all other natural resources may not be.
Alienable and disposable lands of the State fall into two categories, to wit:
(a) patrimonial lands of the State, or those classified as lands of private
ownership under Article 425 of the Civil Code,23 without limitation; and (b)
lands of the public domain, or the public lands as provided by the
Constitution, but with the limitation that the lands must only be agricultural.
Consequently, lands classified as forest or timber, mineral, or national parks
are not susceptible of alienation or disposition unless they are reclassified as
agricultural.24 A positive act of the Government is necessary to enable such
reclassification,25 and the exclusive prerogative to classify public lands
under existing laws is vested in the Executive Department, not in the
courts.26 If, however, public land will be classified as neither agricultural,
forest or timber, mineral or national park, or when public land is no longer
intended for public service or for the development of the national wealth,
thereby effectively removing the land from the ambit of public dominion, a
declaration of such conversion must be made in the form of a law duly
enacted by Congress or by a Presidential proclamation in cases where the
President is duly authorized by law to that effect.27 Thus, until the
Executive Department exercises its prerogative to classify or reclassify
lands, or until Congress or the President declares that the State no longer
intends the land to be used for public service or for the development of
national wealth, the Regalian Doctrine is applicable.
Disposition of alienable public lands
Section 11 of the Public Land Act (CA No. 141) provides the manner by
which alienable and disposable lands of the public domain, i.e., agricultural
lands, can be disposed of, to wit:
112
Section 11. Public lands suitable for agricultural purposes can be disposed
of only as follows, and not otherwise:
(1) For homestead settlement;
(2) By sale;
(3) By lease; and
(4) By confirmation of imperfect or incomplete titles;
(a) By judicial legalization; or
(b) By administrative legalization (free patent).
The core of the controversy herein lies in the proper interpretation of

Section 11(4), in relation to Section 48(b) of the Public Land Act, which
expressly requires possession by a Filipino citizen of the land since June 12,
1945, or earlier, viz:
Section 48. The following-described citizens of the Philippines, occupying

lands of the public domain or claiming to own any such lands or an interest
therein, but whose titles have not been perfected or completed, may apply
to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title
thereafter, under the Land Registration Act, to wit:
xxxx
(b) Those who by themselves or through their predecessors-in-interest have

been in open, continuous, exclusive, and notorious possession and
occupation of alienable and disposable lands of the public domain, under a
bona fide claim of acquisition of ownership, since June 12, 1945, or earlier,
immediately preceding the filing of the applications for confirmation of
title, except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a
Government grant and shall be entitled to a certificate of title under the
provisions of this chapter. (Bold emphasis supplied)
Note that Section 48(b) of the Public Land Act used the words "lands of the
public domain" or "alienable and disposable lands of the public domain" to
clearly signify that lands otherwise classified, i.e., mineral, forest or timber,
or national parks, and lands of patrimonial or private ownership, are outside
the coverage of the Public Land Act. What the law does not include, it
excludes. The use of the descriptive phrase "alienable and disposable"
further limits the coverage of Section 48(b) to only the agricultural lands of
the public domain as set forth in Article XII, Section 2 of the 1987
Constitution. Bearing in mind such limitations under the Public Land Act,
113
the applicant must satisfy the following requirements in order for his
application to come under Section 14(1) of the Property Registration
Decree,28 to wit:
1. The applicant, by himself or through his predecessor-in-interest,

has been in possession and occupation of the property subject of the
application;
2. The possession and occupation must be open, continuous,

exclusive, and notorious;
3. The possession and occupation must be under a bona fide claim of

acquisition of ownership;
4. The possession and occupation must have taken place since June
12, 1945, or earlier; and
5. The property subject of the application must be an agricultural land

of the public domain.
Taking into consideration that the Executive Department is vested with the
authority to classify lands of the public domain, Section 48(b) of the Public
Land Act, in relation to Section 14(1) of the Property Registration Decree,
presupposes that the land subject of the application for registration must
have been already classified as agricultural land of the public domain in
order for the provision to apply. Thus, absent proof that the land is already
classified as agricultural land of the public domain, the Regalian Doctrine
applies, and overcomes the presumption that the land is alienable and
disposable as laid down in Section 48(b) of the Public Land Act. However,
emphasis is placed on the requirement that the classification required by
Section 48(b) of the Public Land Act is classification or reclassification of a
public land as agricultural.
The dissent stresses that the classification or reclassification of the land as

alienable and disposable agricultural land should likewise have been made
on June 12, 1945 or earlier, because any possession of the land prior to such
classification or reclassification produced no legal effects. It observes that
the fixed date of June 12, 1945 could not be minimized or glossed over by
mere judicial interpretation or by judicial social policy concerns, and
insisted that the full legislative intent be respected.
We find, however, that the choice of June 12, 1945 as the reckoning point
of the requisite possession and occupation was the sole prerogative of
Congress, the determination of which should best be left to the wisdom of
the lawmakers. Except that said date qualified the period of possession and
occupation, no other legislative intent appears to be associated with the
fixing of the date of June 12, 1945. Accordingly, the Court should interpret
only the plain and literal meaning of the law as written by the legislators.
114
Moreover, an examination of Section 48(b) of the Public Land Act indicates
that Congress prescribed no requirement that the land subject of the
registration should have been classified as agricultural since June 12, 1945,
or earlier. As such, the applicant’s imperfect or incomplete title is derived
only from possession and occupation since June 12, 1945, or earlier. This
means that the character of the property subject of the application as
alienable and disposable agricultural land of the public domain determines
its eligibility for land registration, not the ownership or title over it.
Alienable public land held by a possessor, either personally or through his

predecessors-in-interest, openly, continuously and exclusively during the
prescribed statutory period is converted to private property by the mere
lapse or completion of the period.29 In fact, by virtue of this doctrine,
corporations may now acquire lands of the public domain for as long as the
lands were already converted to private ownership, by operation of law, as a
result of satisfying the requisite period of possession prescribed by the
Public Land Act.30 It is for this reason that the property subject of the
application of Malabanan need not be classified as alienable and disposable
agricultural land of the public domain for the entire duration of the requisite
period of possession.
To be clear, then, the requirement that the land should have been classified
as alienable and disposable agricultural land at the time of the application
for registration is necessary only to dispute the presumption that the land is
inalienable.
The declaration that land is alienable and disposable also serves to

determine the point at which prescription may run against the State. The
imperfect or incomplete title being confirmed under Section 48(b) of the
Public Land Act is title that is acquired by reason of the applicant’s
possession and occupation of the alienable and disposable agricultural land
of the public domain. Where all the necessary requirements for a grant by
the Government are complied with through actual physical, open,
continuous, exclusive and public possession of an alienable and disposable
land of the public domain, the possessor is deemed to have acquired by
operation of law not only a right to a grant, but a grant by the Government,
because it is not necessary that a certificate of title be issued in order that
such a grant be sanctioned by the courts.31
If one follows the dissent, the clear objective of the Public Land Act to
adjudicate and quiet titles to unregistered lands in favor of qualified Filipino
citizens by reason of their occupation and cultivation thereof for the number
of years prescribed by law32 will be defeated. Indeed, we should always
bear in mind that such objective still prevails, as a fairly recent legislative
development bears out, when Congress enacted legislation (Republic Act
No. 10023)33 in order to liberalize stringent requirements and procedures in
the adjudication of alienable public land to qualified applicants, particularly
residential lands, subject to area limitations.34
115
On the other hand, if a public land is classified as no longer intended for
public use or for the development of national wealth by declaration of
Congress or the President, thereby converting such land into patrimonial or
private land of the State, the applicable provision concerning disposition
and registration is no longer Section 48(b) of the Public Land Act but the
Civil Code, in conjunction with Section 14(2) of the Property Registration
Decree.35 As such, prescription can now run against the State.
To sum up, we now observe the following rules relative to the disposition
of public land or lands of the public domain, namely:
(1) As a general rule and pursuant to the Regalian Doctrine, all lands
of the public domain belong to the State and are inalienable. Lands
that are not clearly under private ownership are also presumed to
belong to the State and, therefore, may not be alienated or disposed;
(2) The following are excepted from the general rule, to wit:
(a) Agricultural lands of the public domain are rendered

alienable and disposable through any of the exclusive modes
enumerated under Section 11 of the Public Land Act. If the
mode is judicial confirmation of imperfect title under Section
48(b) of the Public Land Act, the agricultural land subject of
the application needs only to be classified as alienable and
disposable as of the time of the application, provided the
applicant’s possession and occupation of the land dated back to
June 12, 1945, or earlier. Thereby, a conclusive presumption
that the applicant has performed all the conditions essential to
a government grant arises,36 and the applicant becomes the
owner of the land by virtue of an imperfect or incomplete title.
By legal fiction, the land has already ceased to be part of the
public domain and has become private property.37
(b) Lands of the public domain subsequently classified or

declared as no longer intended for public use or for the
development of national wealth are removed from the sphere
of public dominion and are considered converted into
patrimonial lands or lands of private ownership that may be
alienated or disposed through any of the modes of acquiring
ownership under the Civil Code. If the mode of acquisition is
prescription, whether ordinary or extraordinary, proof that the
land has been already converted to private ownership prior to
the requisite acquisitive prescriptive period is a condition sine
qua non in observance of the law (Article 1113, Civil Code)
that property of the State not patrimonial in character shall not
be the object of prescription.
116
To reiterate, then, the petitioners failed to present sufficient evidence to
establish that they and their predecessors-in-interest had been in possession
of the land since June 12, 1945. Without satisfying the requisite character
and period of possession - possession and occupation that is open,
continuous, exclusive, and notorious since June 12, 1945, or earlier - the
land cannot be considered ipso jure converted to private property even upon
the subsequent declaration of it as alienable and disposable. Prescription
never began to run against the State, such that the land has remained
ineligible for registration under Section 14(1) of the Property Registration
Decree. Likewise, the land continues to be ineligible for land registration
under Section 14(2) of the Property Registration Decree unless Congress
enacts a law or the President issues a proclamation declaring the land as no
longer intended for public service or for the development of the national
wealth.1âwphi1
WHEREFORE, the Court DENIES the petitioners' Motion for

Reconsideration and the respondent's Partial Motion for Reconsideration for
their lack of merit.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. 179987 September 3, 2013
HEIRS OF MARIO MALABANAN, (Represented by Sally A.

Malabanan), Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
SEPARATE OPINION
BRION, J.:
Prefatory Statement
This Separate Opinion maintains my view that, on the merits, the petition
should be denied, as the petitioners, Heirs of Mario Malabanan, failed to
establish that they and their predecessors-in-interest have a right to the
property applied for through either ordinary or extraordinary prescription. I
117
share this view with the majority; hence, the Court is unanimous in the
result in resolving the issue presented to us for our resolution.
As lawyers and Court watchers know, "unanimity in the result" carries a

technical meaning and implication in the lawyers' world; the term denotes
that differing views exist within the Court to support the conclusion they
commonly reached. The differences may be in the modality of reaching the
unanimous result, or there may just be differences in views on matters
discussed within the majority opinion. A little of both exists in arriving at
the Court's present result, although the latter type of disagreement
predominates.
This Separate Opinion is submitted to state for the record my own (and of
those agreeing with me) view on the question of how Section 48 (b) of the
Public Land Act and Section 14(1) and (2) of the PRD should operate,
particularly in relation with one another, with the Constitution and with the
Civil Code provisions on property and prescription.
A critical point I make relates to what I call the majority's "absurdity

argument" that played a major part in our actual deliberations. The
argument, to me, points to insufficiencies in our laws that the Court wishes
to rectify in its perennial quest "to do justice." I firmly believe though that
any insufficiency there may be - particularly one that relates to the
continuing wisdom of the law - is for the Legislature, not for this Court, to
correct in light of our separate and mutually exclusive roles under the
Constitution. The Court may be all-powerful within its own sphere, but the
rule of law, specifically, the supremacy of the Constitution, dictates that we
recognize our own limitations and that we desist when a problem already
relates to the wisdom of the law before us. All we can do is point out the
insufficiency, if any, for possible legislative or executive action. It is largely
in this sense that I believe our differing views on the grant and disposition
of lands of the public domain should be written and given the widest
circulation.
I wrap up this Prefatory Statement with a cautionary note on how the

discussions in this Resolution should be read and appreciated. Many of the
divergent views expressed, both the majority’s and mine, are not
completely necessary for the resolution of the direct issues submitted to us;
thus, they are, under the given facts of the case and the presented and
resolved issues, mostly obiter dicta. On my part, I nevertheless present them
for the reason I have given above, and as helpful aid for the law
practitioners and the law students venturing into the complex topic of public
land grants, acquisitions, and ownership.
Preliminary Considerations
As a preliminary matter, I submit that:
118
1. the hierarchy of applicable laws must be given full application in
considering lands of the public domain. Foremost in the hierarchy is
the Philippine Constitution (particularly its Article XII), followed by
the applicable special laws — Commonwealth Act No. 141 or the
Public Land Act (PLA) and Presidential Decree (PD) No. 1529 or the
Property Registration Decree (PRD) The Civil Code and other
general laws apply suppletorily and to the extent called for by the
primary laws; and
2. the ponencia’s ruling that the classification of public lands as

alienable and disposable does not need to date back to June 12, 1945
or earlier is incorrect because:
a. under the Constitution's Regalian Doctrine,1 classification is

a required step whose full import should be given full effect
and recognition. The legal recognition of possession prior to
classification runs counter to, and effectively weakens, the
Regalian Doctrine;
b. the terms of the PLA only find full application from the time
a land of the public domain is classified as agricultural and
declared alienable and disposable. Thus, the possession
required under Section 48(b) of this law cannot be recognized
prior to the required classification and declaration;
c. under the Civil Code, "only things and rights which are
susceptible of being appropriated may be the object of
possession."2 Prior to the classification of a public land as
alienable and disposable, a land of the public domain cannot be
appropriated, hence, any claimed possession prior to
classification cannot have legal effects;
d. there are other modes of acquiring alienable and disposable

lands of the public domain under the PLA. This legal reality
renders the ponencia's absurdity argument misplaced; and
e. the alleged absurdity of the law addresses the wisdom of the

law and is a matter for the Legislature, not for this Court, to
address.
In these lights, I submit that all previous contrary rulings (particularly,

Republic of the Phils. v. Court of Appeals [Naguit]3) should – in the proper
case – be abandoned and rejected for being based on legally-flawed
premises and as aberrations in land registration jurisprudence.
I. THE LAWS AFFECTING PUBLIC LANDS
119
I likewise submit the following short overview as an aide memoire in
understanding our basic public land laws.
A. The Overall Scheme at a Glance
1. The Philippine Constitution
The Philippine Constitution is the fountainhead of the laws and rules

relating to lands of the public domain in the Philippines. It starts with
the postulate that all lands of the public domain – classified into
agricultural, forests or timber, mineral lands and national parks – are
owned by the State.4 This principle states the Regalian Doctrine, and
classifies land according to its nature and alienability.
By way of exception to the Regalian Doctrine, the Constitution also

expressly states that "with the exception of agricultural lands which
may be further classified by law according to the uses to which they
may be devoted,5 all other natural resources shall not be
alienated."6 Alienable lands of the public domain shall be limited to
agricultural lands.7
2. The Public Land Act
How and to what extent agricultural lands of the public domain may
be alienated and may pass into private or non-State hands are
determined under the PLA, which governs the classification, grant,
and disposition of alienable and disposable lands of the public
domain and, other than the Constitution, is the country's primary
substantive law on the matter.
As a rule, alienation and disposition of lands of the public domain are

exercises in determining:
a. whether a public land is or has been classified as agricultural

(in order to take the land out of the mass of lands of the public
domain that, by the terms of the Constitution, is inalienable);
b. once classified as agricultural, whether it has been declared

by the State to be alienable and disposable. To reiterate, even
agricultural lands, prior to their declaration as alienable, are
part of the inalienable lands of the public domain; and
c. whether the terms of classification, alienation or disposition

have been complied with. In a confirmation of imperfect title,
there must be possession since June 12, 1945 or earlier, in an
open, continuous, exclusive and notorious manner, by the
applicant himself or by his predecessor-in-interest, of public
agricultural land that since that time has been declared
120
alienable and disposable, as clearly provided under PD No.
1073.
The Civil Code provides that "only things and rights which are
susceptible of being appropriated may be the object of
possession."8 Prior to the classification of a public land as
alienable and disposable, a land of the public domain cannot be
appropriated, hence, any claimed possession cannot have legal
effects;
d. upon compliance with the required period and character of

possession of alienable public agricultural land, the possessor
acquires ownership, thus converting the land to one of private
ownership and entitling the applicant-possessor to
confirmation of title under Section 48(b) of the PLA and
registration under Section 14(1) of the PRD.
3. Classification under the Civil Code
Separately from the classification according to the nature of land under the
Constitution, another system of classification of property is provided under
the Civil Code.
The Civil Code classifies property (as a general term, compared to land
which is only a species of property, labeled under the Civil Code as
immovable property9) in relation with the person to whom it belongs.10
Property under the Civil Code may belong to the public dominion (or
property pertaining to the State for public use, for public service or for the
development of the national wealth)11 or it may be of private ownership
(which classification includes patrimonial property or property held in
private ownership by the State).12 Significantly, the Civil Code expressly
provides that "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."13
What is otherwise a simple classification from the point of view of the

person owning it, assumes a measure of complexity when the property is
land of the public domain, as the Constitution, in unequivocal terms,
requires classification and declarations on the means and manner of
granting, alienating, disposing, and acquiring lands of the public domain
that all originally belong to the State under the Regalian Doctrine.
In a reconciled consideration of the Constitution and the Civil Code

classifications, made necessary because they have their respective
independent focuses and purposes, certain realities will have to be
recognized or deduced:
121
First. As a first principle, in case of any conflict, the terms of the
Constitution prevail. No ifs and buts can be admitted with respect to this
recognition, as the Constitution is supreme over any other law or legal
instrument in the land.
Second. A necessary corollary to the first principle is that all substantive

considerations of land ownership, alienation, or disposition must always
take into account the constitutional requirements.
Third. The classification and the requirements under the Constitution and
under the Civil Code may overlap without any resulting violation of the
Constitution.
A piece of land may fall under both classifications (i.e., under the
constitutional classification based on the legal nature of the land and
alienability, and under the civil law classification based on the ownership of
the land). This can best be appreciated in the discussion below, under the
topic "The PLA, the Civil Code and Prescription."14
4. Prescription under the Civil Code
Prescription is essentially a civil law term and is a mode of acquiring

ownership provided under the Civil Code,15but is not mentioned as one of
the modes of acquiring ownership of alienable public lands of the public
domain under the PLA.16
A point of distinction that should be noted is that the PLA, under its Section
48(b), provides for a system that allows possession since June 12, 1945 or
earlier to ripen into ownership. The PLA, however, does not refer to this
mode as acquisitive prescription but as basis for confirmation of title, and
requires a specified period of possession of alienable agricultural land, not
the periods for ordinary or extraordinary prescription required under the
Civil Code. Ownership that vests under Section 48(b) of the PLA can be
registered under Section 14(1) of the PRD.
The PRD, under its Section 14(2), recognizes that registration of title can
take place as soon as ownership over private land has vested due to
prescription – "those who have acquired ownership of private lands by
prescription under the provisions of existing laws." Thus, prescription was
introduced into the PRD land registration scheme but not into the special
law governing the grant and alienation of lands of the public domain, i.e.,
the PLA.
An important provision that should not be missed in considering

prescription is Article 1108 of the Civil Code, which states that prescription
does not run against the State and its subdivisions. Article 1113 of the Civil
Code is a companion provision stating that "all things which are within the
commerce of men are susceptible of prescription, unless otherwise
122
provided. Property of the State or any of its subdivisions not patrimonial in
character shall not be the object of prescription."
The above-cited rules express civil law concepts, but their results are
effectively replicated in the scheme governing lands of the public domain
since these lands, by constitutional fiat, cannot be alienated and are thus
outside the commerce of man, except under the rigid terms of the
Constitution and the PLA. For example, confirmation of imperfect title –
the possession-based rule under the PLA – can only take place with respect
to agricultural lands already declared alienable and possessed for the
required period (since June 12, 1945 or earlier).
5. The PRD
The PRD was issued in 1978 to update the Land Registration Act (Act No.
496) and relates solely to the registration of property. The law does not
provide the means for acquiring title to land; it refers solely to the means or
procedure of registering and rendering indefeasible title already acquired.
The PRD mainly governs the registration of lands and places them under
the Torrens System. It does not, by itself, create title nor vest one. It simply
confirms a title already created and already vested, rendering it forever
indeafeasible.17
In a side by side comparison, the PLA is the substantive law that classifies
and provides for the disposition of alienable lands of the public domain. On
the other hand, the PRD refers to the manner of bringing registerable title to
lands, among them, alienable public lands, within the coverage of the
Torrens system; in terms of substantive content, the PLA must prevail.18
On this consideration, only land of the public domain that has passed into
private ownership under the terms of the PLA can be registered under the
PRD.
II. THE CASE AND THE ANTECEDENT FACTS
The Case.
Before the Court are the motions separately filed by the petitioners and by
the respondent Republic of the Philippines, both of them seeking
reconsideration of the Court’s Decision dated April 29, 2009 which denied
the petitioners’ petition for review on certiorari under Rule 45 of the Rules
of Court.
The Underlying Facts
The present case traces its roots to the land registration case instituted by
the petitioners’ predecessor, Mario Malabanan (Malabanan). On February
20, 1998, Malabanan filed an application for the registration of a 71,324-
123
square meter land, located in Barangay Tibig, Silang, Cavite, with the
Regional Trial Court (RTC) of Cavite – Tagaytay City, Branch
18.19 Malabanan alleged that he purchased the property from Eduardo
Velazco. The property was originally part of a 22-hectare land owned by
Lino Velazco (Velazco), who was succeeded by his four sons, among them,
Eduardo Velazco.20
Apart from his purchase of the property, Malabanan anchored his

registration petition on his and his predecessors-in-interest’s open,
notorious, continuous, adverse and peaceful possession of the land for more
than 30 years. Malabanan claimed that the land is an alienable and
disposable land of the public domain, presenting as proof the Certification
dated June 11, 2001 of the Community Environment and Natural Resources
Office of the Department of Environment and Natural Resources. The
Certification stated that the land was "verified to be within the Alienable or
Disposable land per Land Classification Map No. 3013 established under
Project No. 20-A and approved as such under FAO 4-1656 on March 15,
1982."21
The Issue Before the Court.
In their motion for reconsideration, the petitioners submit that the mere
classification of the land as alienable or disposable should be deemed
sufficient to convert it into patrimonial property of the State. Relying on the
rulings in Spouses de Ocampo v. Arlos,22 Menguito v. Republic,23 and
Republic v. T.A.N. Properties, Inc.,24 they argue that the reclassification of
the land as alienable or disposable opened it to acquisitive prescription
under the Civil Code; that Malabanan had purchased the property from
Velazco, believing in good faith that Velazco and his predecessors-in-
interest had been the real owners of the land, with the right to validly
transmit title and ownership thereof; that consequently, the 10-year period
prescribed by Article 1134 of the Civil Code, in relation with Section 14(2)
of the PRD, applied in their favor; and that when Malabanan filed his
application for registration on February 20, 1998, he had already been in
possession of the land for almost 16 years, reckoned from 1982, the time
when the land was declared inalienable and disposable by the State.
The respondent seeks the partial reconsideration in order to seek

clarification with reference to the application of the rulings in Naguit and
Republic of the Phils. v. Herbieto.25 It reiterates its view that an applicant is
entitled to registration only when the land subject of the application had
been declared alienable and disposable since June 12, 1945.
As presented in the petition and the subsequent motion for reconsideration,

the direct issue before the Court is whether there had been acquisition of
title, based on ordinary or extraordinary prescription, over a land of the
public domain declared alienable as of March 15, 1982. The issue was not
about confirmation of an imperfect title where possession started on or
124
before June 12, 1945 since possession had not been proven to have dated
back to or before that date.
The Antecedents and the Ruling under Review
On December 3, 2002, the RTC rendered judgment favoring Malabanan,

approving his application for registration of the land "under the operation of
Act 141, Act 496 and/or PD 1529."26
The respondent, represented by the Office of the Solicitor General (OSG),

appealed the RTC decision with the Court of Appeals (CA). The OSG
contended that Malabanan failed to prove: (1) that the property belonged to
the alienable and disposable land of the public domain, and (2) that he had
not been in possession of the property in the manner and for the length of
time required by law for confirmation of imperfect title. During the
pendency of the appeal before the CA, Malabanan died and was substituted
by the petitioners.
In its decision dated February 23, 2007, the CA reversed the RTC decision
and dismissed Malabanan’s application for registration. Applying the
Court’s ruling in Herbieto, the CA held that "under Section 14(1) of the
Property Registration Decree any period of possession prior to the
classification of the lots as alienable and disposable was inconsequential
and should be excluded from the computation of the period of
possession."27Since the land was classified as alienable and disposable only
on March 15, 1982, any possession prior to this date cannot be considered.
The petitioners assailed the CA decision before this Court through a petition
for review on certiorari. On April 29, 2009, the Court denied the petition.
The Court’s majority (through Justice Dante Tinga) summarized its ruling
as follows:
(1) In connection with Section 14(1) of the PRD, Section 48(b) of the
Public Land Act recognizes and confirms that "those who by
themselves or through their predecessors in interest have been in
open, continuous, exclusive, and notorious possession and occupation
of alienable and disposable lands of the public domain, under a bona
fide claim of acquisition of ownership, since June 12, 1945" have
acquired ownership of, and registrable title to, such lands based on
the length and quality of their possession.
(a) Since Section 48(b) merely requires possession since 12

June 1945 and does not require that the lands should have been
alienable and disposable during the entire period of possession,
the possessor is entitled to secure judicial confirmation of his
title thereto as soon as it is declared alienable and disposable,
subject to the timeframe imposed by Section 47 of the Public
Land Act.
125
(b) The right to register granted under Section 48(b) of the
Public Land Act is further confirmed by Section 14(1) of the
Property Registration Decree.
(2) In complying with Section 14(2) of the Property Registration

Decree, consider that under the Civil Code, prescription is recognized
as a mode of acquiring ownership of patrimonial property.
However, public domain lands become only patrimonial property not only
with a declaration that these are alienable or disposable. There must also be
an express government manifestation that the property is already
patrimonial or no longer retained for public service or the development of
national wealth, under Article 422 of the Civil Code. And only when the
property has become patrimonial can the prescriptive period for the
acquisition of property of the public dominion begin to run.
(a) Patrimonial property is private property of the government. The

person acquires ownership of patrimonial property by prescription
under the Civil Code is entitled to secure registration thereof under
Section 14(2) of the Property Registration Decree.
(b) There are two kinds of prescription by which patrimonial property

may be acquired, one ordinary and other extraordinary. Under
ordinary acquisitive prescription, a person acquires ownership of a
patrimonial property through possession for at least ten (10) years, in
good faith and with just title. Under extraordinary acquisitive
prescription, a person's uninterrupted adverse possession of
patrimonial property for at least thirty (30) years, regardless of good
faith or just title, ripens into ownership.28
Based on this ruling, the majority denied the petition, but established the
above rules which embody principles contrary to Section 48(b) of the PLA
and which are not fully in accord with the concept of prescription under
Section 14(2) of the PRD, in relation with the Civil Code provisions on
property and prescription.
In its ruling on the present motions for reconsideration, the ponencia

essentially affirms the above ruling, rendering this Separate Opinion and its
conclusions necessary.
III. DISCUSSION OF THE PRESENTED ISSUES
A. Section 48(b) of the PLA: Confirmation of Imperfect Title
Section 48(b) of the PLA is the core provision on the confirmation of

imperfect title and must be read with its related provision in order to fully
be appreciated.
126
Section 7 of the PLA delegates to the President the authority to administer
and dispose of alienable public lands. Section 8 sets out the public lands
open to disposition or concession, and the requirement that they should be
officially delimited and classified and, when practicable, surveyed. Section
11, a very significant provision, states that —
Section 11. Public lands suitable for agricultural purposes can be disposed
of only as follows, and not otherwise:
(1) For homestead settlement
(2) By sale
(3) By lease
(4) By confirmation of imperfect or incomplete title:
(a) By judicial legalization
(b) By administrative legalization (free patent). [emphases

ours]
Finally, Section 48 of the PLA, on confirmation of imperfect title, embodies

a grant of title to the qualified occupant or possessor of an alienable public
land, under the following terms:
Section 48. The following-described citizens of the Philippines, occupying

lands of the public domain or claiming to own any such lands or an interest
therein, but whose titles have not been perfected or completed, may apply
to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title
therefor, under the Land Registration Act, to wit:
(a) Those who prior to the transfer of sovereignty from Spain to the x
x x United States have applied for the purchase, composition or other
form of grant of lands of the public domain under the laws and royal
decrees then in force and have instituted and prosecuted the
proceedings in connection therewith, but have, with or without
default upon their part, or for any other cause, not received title
therefor, if such applicants or grantees and their heirs have occupied
and cultivated said lands continuously since the filing of their
applications.
(b) Those who by themselves or through their predecessors in interest

have been in open, continuous, exclusive, and notorious possession
and occupation of agricultural lands of the public domain, under a
bona fide claim of acquisition or ownership, except as against the
Government, since July twenty-sixth, eighteen hundred and ninety-
127
four, except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential
to a Government grant and shall be entitled to a certificate of title
under the provisions of this chapter.
(c) Members of the national cultural minorities who by themselves or

through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of lands of the
public domain suitable to agriculture, whether disposable or not,
under a bona fide claim of ownership for at least 30 years shall be
entitled to the rights granted in sub-section (b) hereof. [emphasis
ours]
Subsection (a) has now been deleted, while subsection (b) has been
amended by PD No. 1073 as follows:
Section 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII
of the Public Land Act are hereby amended in the sense that these
provisions shall apply only to alienable and disposable lands of the public
domain which have been in open, continuous, exclusive and notorious
possession and occupation by the applicant himself or thru his predecessor-
in-interest, under a bona fide claim of acquisition of ownership, since June
12, 1945.
Based on these provisions and a narrow reading of the "since June 12,
1945" timeline, the ponencia now rules that the declaration that the land is
agricultural and alienable can be made at the time of application for
registration and need not be from June 12, 1945 or earlier.29 This conclusion
follows the ruling in Naguit (likewise penned by Justice Tinga) that
additionally argued that reckoning the declarations from June 12, 1945
leads to absurdity.
For the reasons outlined below, I cannot agree with these positions and with
the Naguit ruling on which it is based:
First. The constitutional and statutory reasons. The Constitution classifies

public lands into agricultural, mineral, timber lands and national parks. Of
these, only agricultural lands can be alienated.30 Without the requisite
classification, there can be no basis to determine which lands of the public
domain are alienable and which are not. Hence, classification is a
constitutionally-required step whose importance should be given full legal
recognition and effect.
Otherwise stated, without classification into disposable agricultural land,

the land continues to form part of the mass of the public domain that, not
being agricultural, must be mineral, timber land or national parks that are
completely inalienable and, as such, cannot be possessed with legal effects.
To recognize possession prior to any classification is to do violence to the
128
Regalian Doctrine; the ownership and control that the Regalian Doctrine
embodies will be less than full if the possession – that should be with the
State as owner, but is also elsewhere without any solid legal basis – can
anyway be recognized.
Note in this regard that the terms of the PLA do not find full application
until a classification into alienable and disposable agricultural land of the
public domain is made. In this situation, possession cannot be claimed
under Section 48(b) of the PLA.
Likewise, no imperfect title can be confirmed over lands not yet classified
as disposable or alienable because, in the absence of such classification, the
land remains unclassified public land that fully belongs to the State. This is
fully supported by Sections 6, 7, 8, 9, and 10 of the PLA.31 If the land is
either mineral, timber or national parks that cannot be alienated, it defies
legal logic to recognize that possession of these unclassified lands can
produce legal effects.
Parenthetically, PD No. 705 or the Revised Forestry Code states that "Those
lands of public domain still to be classified under the present system shall
continue to remain as part of the public forest."32 It further declares that
public forest covers "the mass of lands of the public domain which has not
been the subject of the present system of classification for the determination
of which lands are needed for forest purposes and which are not."33
Thus, PD No. 705 confirms that all lands of the public domain that remain
unclassified are considered as forest land.34 As forest land, these lands of
the public domain cannot be alienated until they have been reclassified as
agricultural lands. For purposes of the present case, these terms confirm the
position that re/classification is essential at the time possession is acquired
under Section 48(b) of the PLA.
From these perspectives, the legal linkage between (1) the classification of
public land as alienable and disposable and (2) effective possession that can
ripen into a claim under Section 48(b) of the PLA can readily be
appreciated.
The Leonen Opinion
Incidentally, Justice Marvic F. Leonen opines in his Concurring and

Dissenting Opinion that the Regalian Doctrine was not incorporated in our
Constitution and that "there could be land, considered as property, where
ownership has vested as a result of either possession or prescription but
still, as yet undocumented."35
I will respond to this observation that, although relating to the nature of the
land applied for (land of the public domain) and to the Regalian Doctrine,
still raises aspects of these matters that are not exactly material to the direct
129
issues presented in the present case. I respond to correct for the record and
at the earliest opportunity what I consider to be an erroneous view.
The Regalian Doctrine was incorporated in all the Constitutions of the

Philippines (1935, 1973 and 1987) and the statutes governing private
individuals’ land acquisition and registration. In his Separate Opinion in
Cruz v. Sec. of Environment and Natural Resources,36 former Chief Justice
Reynato S. Puno made a brief yet informative historical discussion on how
the Regalian Doctrine was incorporated in our legal system, especially in all
our past and present organic laws. His historical disquisition was quoted in
La Bugal-B’laan Tribal Association, Inc. v. Sec. Ramos37 and the
consolidated cases of The Secretary of the DENR et al. v. Yap and Sacay et
al. v. The Secretary of the DENR,38 which were also quoted in Justice
Lucas P. Bersamin’s Separate Opinion in his very brief discussion on how
the doctrine was carried over from our Spanish and American colonization
up until our present legal system.
Insofar as our organic laws are concerned, La Bugal-B’laan confirms that:
one of the fixed and dominating objectives of the 1935 Constitutional

Convention was the nationalization and conservation of the natural
resources of the country.
There was an overwhelming sentiment in the Convention in favor of the

principle of state ownership of natural resources and the adoption of the
Regalian doctrine. State ownership of natural resources was seen as a
necessary starting point to secure recognition of the state's power to control
their disposition, exploitation, development, or utilization. The delegates to
the Constitutional Convention very well knew that the concept of State
ownership of land and natural resources was introduced by the Spaniards,
however, they were not certain whether it was continued and applied by the
Americans. To remove all doubts, the Convention approved the provision in
the Constitution affirming the Regalian doctrine.
xxxx
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the

ratification of a new Constitution. Article XIV on the National Economy
and Patrimony contained provisions similar to the 1935 Constitution with
regard to Filipino participation in the nation’s natural resources. Section, 8,
Article XIV thereof.
xxxx
The 1987 Constitution retained the Regalian doctrine. The first sentence of
Section 2, Article XII states: "All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential
130
energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State."39
In these lights, I believe that, at this point in our legal history, there can be
no question that the Regalian Doctrine remains in the pure form interpreted
by this Court; it has resiliently endured throughout our colonial history, was
continually confirmed in all our organic laws, and is presently embodied in
Section 2, Article XII of our present Constitution. Short of a constitutional
amendment duly ratified by the people, the views and conclusions of this
Court on the Regalian Doctrine should not and cannot be changed.
Second. The Civil Code reason. Possession is essentially a civil law term
that can best be understood in terms of the Civil Code in the absence of any
specific definition in the PLA, other than in terms of time of possession.40
Article 530 of the Civil Code provides that "only things and rights which
are susceptible of being appropriated may be the object of possession."
Prior to the declaration of alienability, a land of the public domain cannot
be appropriated; hence, any claimed possession cannot have legal effects. In
fact, whether an application for registration is filed before or after the
declaration of alienability becomes immaterial if, in one as in the other, no
effective possession can be recognized prior to and within the proper period
for the declaration of alienability.
To express this position in the form of a direct question: How can

possession before the declaration of alienability be effective when the land
then belonged to the State against whom prescription does not run?
Third. Statutory construction and the cut-off date — June 12, 1945. The
ponencia concludes – based on its statutory construction reasoning and
reading of Section 48(b) of the PLA – that the June 12, 1945 cut-off is only
required for purposes of possession and that it suffices if the land has been
classified as alienable agricultural land at the time of application for
registration.41
This cut-off date was painstakingly set by law and its full import appears
from PD No. 1073 that amended Section 48(b) of the PLA. While the
resulting Section 48(b) of the PLA did not expressly state what PD No.
1073 introduced in terms of exact wording, PD No. 1073 itself, as
formulated, shows the intent to count the alienability from June 12, 1945.
To quote the exact terms of PD No. 1073:
Section 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII
of the Public Land Act are hereby amended in the sense that these
provisions shall apply only to alienable and disposable lands of the public
domain which have been in open, continuous, exclusive and notorious
possession and occupation by the applicant himself or thru his predecessor-
131
in-interest, under a bona fide claim of acquisition of ownership, since June
12, 1945. [emphases and underscores ours]
In reading this provision, it has been claimed that June 12, 1945 refers only
to the required possession and not to the declaration of alienability of the
land applied for. The terms of PD No. 1073, however, are plain and clear
even from the grammatical perspective alone. The term "since June 12,
1945" is unmistakably separated by a comma from the conditions of both
alienability and possession, thus, plainly showing that it refers to both
alienability and possession. This construction – showing the direct,
continuous and seamless linking of the alienable and disposable lands of the
public domain to June 12, 1945 under the wording of the Decree – is clear
and should be respected, particularly if read with the substantive provisions
on ownership of lands of the public domain and the limitations that the law
imposes on possession.
Fourth. Other modes of acquisition of lands under the PLA. The cited
Naguit’s absurdity argument that the ponencia effectively adopted is more
apparent than real, since the use of June 12, 1945 as cut-off date for the
declaration of alienability will not render the grant of alienable public lands
out of reach.
The acquisition of ownership and title may still be obtained by other modes
under the PLA. Among other laws, Republic Act (RA) No. 6940 allowed
the use of free patents.42 It was approved on March 28, 1990; hence,
counting 30 years backwards, possession since April 1960 or thereabouts
qualified a possessor to apply for a free patent.43 Additionally, the other
administrative modes provided under Section 11 of the PLA are still open,
particularly, homestead settlement, sales and lease.
Incidentally, the ponencia mentions RA No. 10023, entitled "An Act

Authorizing the Issuance of Free Patents to Residential Lands," in its
discussions.44 This statute, however, has no relevance to the present case
because its terms apply to alienable and disposable lands of the public
domain (necessarily agricultural lands under the Constitution) that have
been reclassified as residential under Section 9(b) of the PLA.45
Fifth. Addressing the wisdom — or the absurdity — of the law. This Court
acts beyond the limits of the constitutionally-mandated separation of
powers in giving Section 48(b) of the PLA, as amended by PD No. 1073, an
interpretation beyond its plain wording. Even this Court cannot read into
the law an intent that is not there even if the purpose is to avoid an absurd
situation.
If the Court believes that a law already has absurd effects because of the
passage of time, its role under the principle of separation of powers is not to
give the law an interpretation that is not there in order to avoid the
perceived absurdity. If the Court does, it thereby intrudes into the realm of
132
policy — a role delegated by the Constitution to the Legislature. If only for
this reason, the Court should avoid expanding — through the present
ponencia and its cited cases — the plain meaning of Section 48(b) of the
PLA, as amended by PD No. 1073.
In the United States where the governing constitutional rule is likewise the
separation of powers between the Legislative and the Judiciary, Justice
Antonin Scalia (in the book Reading Law co-authored with Bryan A.
Garner) made the pithy observation that:
To the extent that people give this view any credence, the notion that judges
may (even should) improvise on constitutional and statutory text enfeebles
the democratic polity. As Justice John Marshall Harlan warned in the
1960s, an invitation to judicial lawmaking results inevitably in "a lessening,
on the one hand, of judicial independence and, on the other, of legislative
responsibility, thus polluting the bloodstream of our system of
government." Why these alarming outcomes? First, when judges fashion
law rather than fairly derive it from governing texts, they subject
themselves to intensified political pressures – in the appointment process, in
their retention, and in the arguments made to them. Second, every time a
court constitutionalizes a new sliver of law – as by finding a "new
constitutional right" to do this, that, or the other – that sliver becomes
thenceforth untouchable by the political branches. In the American system,
a legislature has no power to abridge a right that has been authoritatively
held to be part of the Constitution – even if that newfound right does not
appear in the text. Over the past 50 years especially, we have seen the
judiciary incrementally take control of larger and larger swaths of territory
that ought to be settled legislatively.
It used to be said that judges do not "make" law – they simply apply it. In
the 20th century, the legal realists convinced everyone that judges do
indeed make law. To the extent that this was true, it was knowledge that the
wise already possessed and the foolish could not be trusted with. It was
true, that is, that judges did not really "find" the common law but invented it
over time. Yet this notion has been stretched into a belief that judges
"make" law through judicial interpretation of democratically enacted
statutes. Consider the following statement by John P. Dawson, intended to
apply to statutory law:
It seems to us inescapable that judges should have a part in creating law –

creating it as they apply it. In deciding the multifarious disputes that are
brought before them, we believe that judges in any legal system invariably
adapt legal doctrines to new situations and thus give them new content.
Now it is true that in a system such as ours, in which judicial decisions have
a stare decisis effect, a court’s application of a statute to a "new situation"
can be said to establish the law applicable to that situation – that is, to
pronounce definitively whether and how the statute applies to that situation.
133
But establishing this retail application of the statute is probably not what
Dawson meant by "creating law," "adapting legal doctrines," and "giving
them new content." Yet beyond that retail application, good judges dealing
with statutes do not make law. They do not "give new content" to the
statute, but merely apply the content that has been there all along, awaiting
application to myriad factual scenarios. To say that they "make law"
without this necessary qualification is to invite the taffy-like stretching of
words – or the ignoring of words altogether.46
In the Philippines, a civil law country where the Constitution is very clear
on the separation of powers and the assignment of constitutional duties, I
believe that this Court should be very careful in delineating the line
between the constitutionally-allowed interpretation and the prohibited
judicial legislation, given the powers that the 1987 Constitution has
entrusted to this Court. As a Court, we are given more powers than the U.S.
Supreme Court; under Section 1, Article VIII of the 1987 Constitution, we
are supposed to act, as a matter of duty, on any grave abuse of discretion
that occurs anywhere in government. While broad, this power should
nevertheless be exercised with due respect for the separation of powers
doctrine that underlies our Constitution.
B. Registration under Section 14(1) and (2) of the PRD
Complementing the substance that the PLA provides are the provisions of
the PRD that set out the registration of the title that has accrued under the
PLA. Section 14 of the PRD provides:
SEC. 14. Who May Apply. — The following persons may file in the proper
Court of First Instance an application for registration of title to land,
whether personally or through their duly authorized representatives:
(1) Those who by themselves or through their predecessors-in-

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

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

abandoned river beds by right of accession or accretion under the
existing laws.
(4) Those who have acquired ownership of land in any other manner
provided for by law. [emphasis and italics ours]
134
As mentioned earlier, the PLA is the substantive law on the grant and
disposition of alienable lands of the public domain. The PRD, on the other
hand, sets out the manner of bringing registrable lands, among them
alienable public lands, within the coverage of the Torrens system. In this
situation, in terms of substantive content, the PLA should prevail.
1. Section 14(1) of the PRD is practically a reiteration of Section

48(b) of the PLA, with the difference that they govern two different
aspects of confirmation of imperfect title relating to alienable lands
of the public domain. The PLA has its own substantive focus, while
Section 14(1) of the PRD, bearing on the same matter, defines what
title may be registered. For this reason, the discussions of Section
48(b) apply with equal force, mutatis mutandis, to Section 14(1) of
the PRD.
2. Section 14(2) of the PRD is another matter. By its express terms,

the prescription that it speaks of applies only to private lands. Thus,
on plain reading, Section 14(2) should not apply to alienable and
disposable lands of the public domain that Section 14(1) covers. This
is the significant difference between Sections 14(1) and 14(2). The
former – Section 14(1) – is relevant when the ownership of an
alienable and disposable land of the public domain vests in the
occupant or possessor under the terms of Section 48(b) of the PLA,
even without the registration of a confirmed title since the land ipso
jure becomes a private land. Section 14(2), on the other hand, applies
to situations when ownership of private lands vests on the basis of
prescription.
The prescription that Section 14(2) of the PRD speaks of finds no

application to alienable lands of the public domain – specifically, to Section
48(b) of the PLA since this provision, as revised by PD No. 1073 in January
1977, simply requires possession and occupation since June 12, 1945 or
earlier, regardless of the period the property was occupied (although when
PD No. 1073 was enacted in 1977, the property would have been possessed
for at least 32 years by the claimant if his possession commenced exactly on
June 12, 1945, or longer if possession took place earlier).
Parenthetically, my original April 29, 2009 Opinion stated that the cut-off
date of June 12, 1945 appeared to be devoid of legal significance as far as
the PLA was concerned. This statement notwithstanding, it should be
appreciated that prior to PD No. 1073, Section 48(b) of the PLA required a
30-year period of possession. This 30-year period was a requirement
imposed under RA No. 1942 in June 1957, under the following provision:
(b) Those who by themselves or through their predecessors in interest have

been in open, continuous, exclusive and notorious possession and
occupation of agricultural lands of the public domain, under a bona fide
claim of acquisition of ownership, for at least thirty years immediately
135
preceding the filing of the application for confirmation of title, except when
prevented by war or force majeure.
When PD No. 1073 was enacted in 1977, it was recognized that a claimant
who had possessed the property for at least 30 years (in compliance with
RA No. 1942) might not be entitled to confirmation of title under PD No.
1073 because his possession commenced only after June 12, 1945. This
possibility constituted a violation of his vested rights that should be
avoided. To resolve this dilemma, the Court, in Abejaron v.
Nabasa,47 opined that where an application has satisfied the requirements of
Section 48(b) of the PLA, as amended by RA No. 1942 (prior to the
effectivity of PD No. 1073), the applicant is entitled to perfect his or her
title even if possession and occupation do not date back to June 12, 1945.
What this leads up to is that possession of land "for the required statutory
period" becomes significant only when the claim of title is based on the
amendment introduced by RA No. 1942. The 30-year period introduced by
RA No. 1942 "did not refer or call into application the Civil Code
provisions on prescription."48 In fact, in The Director of Lands v. IAC49 and
the opinion of Justice Claudio Teehankee in Manila Electric Co. v. Judge
Castro-Bartolome, etc., et al.,50 cited by the ponencia,51 both pertained to
the RA No. 1942 amendment; it was in this sense that both rulings stated
that mere lapse or completion of the required period converts alienable land
to private property.
In sum, if the claimant is asserting his vested right under the RA No. 1942
amendment, then it would be correct to declare that the lapse of the required
statutory period converts alienable land to private property ipso jure.
Otherwise, if the claimant is asserting a right under the PD No. 1073
amendment, then he needs to prove possession of alienable public land as of
June 12, 1945 or earlier. Although a claimant may have possessed the
property for 30 years or more, if his possession commenced after January
24, 1947 (the adjusted date based on Abejaron), the property would not be
converted into private property by the mere lapse of time.
3. As a last point, the ponencia effectively claims 52 that the classification of

property as agricultural land is only necessary at the time of application for
registration of title.
This is completely erroneous. The act of registration merely confirms that

title already exists in favor of the applicant. To require classification of the
property only on application for registration point would imply that during
the process of acquisition of title (specifically, during the period of
possession prior to the application for registration), the property might not
have been alienable for being unclassified land (or a forest land under PD
No. 705) of the public domain. This claim totally contravenes the
constitutional rule that only agricultural lands of the public domain may be
alienated.
136
To translate all these arguments to the facts of the present case, the land
applied for was not classified as alienable on or before June 12, 1945 and
was indisputably only classified as alienable only on March 15, 1982.
Under these facts, the ponencia still asserts that following the Naguit ruling,
possession of the non-classified land during the material period would still
comply with Section 48(b) of the PLA, provided that there is already a
classification at the time of application for registration.
This claim involves essential contradiction in terms as only a land that can
already be registered under Section 48(b) of the PLA can be registered
under Section 14(1) of the PRD. Additionally, the ponencia, in effect,
confirmed that possession prior to declaration of alienability can ripen into
private ownership of a land that, under the Constitution, the PLA, and even
the Civil Code, is not legally allowed.
The ponencia’s position all the more becomes legally preposterous if PD

No. 705 is considered. To recall, this Decree states that all lands of the
public domain that remain unclassified are considered forest lands that
cannot be alienated until they have been reclassified as agricultural lands
and declared alienable.53 Applying this law to the facts of the present case,
the land applied for, prior to March 15, 1982, must have still been forest
land that, under the Constitution, cannot be alienated.
The deeper hole that the ponencia digs for itself in recognizing possession
prior to declaration of alienability becomes apparent when it now cites
Naguit as its authority. Unnoticed perhaps by the ponencia, Naguit itself
explicitly noted PD No. 705 and expressly and unabashedly pronounced
that "a different rule obtains for forest lands, such as those which form part
of a reservation for provincial park purposes the possession of which cannot
ripen into ownership. It is elementary in the law governing natural
resources that forestland cannot be owned by private persons. As held in
Palomo v. Court of Appeals, forest land is not registrable and possession
thereof, no matter how lengthy, cannot convert it into private property,
unless such lands are reclassified and considered disposable and
alienable."54
How the ponencia would square this Naguit statement with the realities of
PD No. 705 and its present ruling would be an interesting exercise to watch.
It would, to say the least, be in a very confused position as it previously
confirmed in Naguit the very same basic precept of law that it now debunks
in its present ruling, citing the same Naguit ruling.
C. The PLA, the Civil Code and Prescription
In reading all the provisions of Book II of the Civil Code on the

classification of property based on the person to whom it belongs, it should
not be overlooked that these provisions refer to properties in general, i.e., to
both movable and immovable properties.55 Thus, the Civil Code provisions
137
on property do not refer to land alone, much less do they refer solely to
alienable and disposable lands of the public domain. For this latter specie of
property, the PLA is the special governing law and, under the Civil Code
itself, the Civil Code provisions shall apply only in case of deficiency. 56
Whether, as in the present case, land of the public domain can be granted
and registered on the basis of extraordinary prescription (i.e., possession by
the applicant and his predecessors-in-interest for a period of at least 30
years), the obvious answer is that the application can only effectively be
allowed upon compliance with the PLA’s terms. Classification as
agricultural land must first take place to remove the land from its status as a
land of the public domain and a declaration of alienability must likewise be
made to render the land available or susceptible to alienation; the required
possession, of course, has to follow and only upon completion does the land
pass to "private" hands.
Whether land classified as "agricultural" and declared "alienable and

disposable" can already be considered "patrimonial" property does not yield
to an easy answer as these concepts involve different classification systems
as discussed above. To be sure, the classification and declaration of a public
land as alienable public agricultural land do not transfer the land into
private hands nor divest it of the character of being State property that can
only be acquired pursuant to the terms of the PLA. Separate from this
requirement, a property – although already declared alienable and
disposable – may conceivably still be held by the State or by any of its
political subdivisions or agencies for public use or public service under the
terms of the Civil Code. In this latter case, the property cannot be
considered patrimonial that is subject to acquisitive prescription.
Based on these considerations, the two concepts of "disposable land of the

public domain" and "patrimonial property" cannot directly be equated with
one another. The requirements for their acquisition, however, must both be
satisfied before they can pass to private hands.
An inevitable related question is the manner of enforcing Article 422 of the

Civil Code that "property of the public dominion, when no longer intended
for public use or public service, shall form part of the patrimonial property
of the State," in light of the implication that patrimonial property may be
acquired through prescription under Article 1113 of the Civil Code
("Property of the State or any of its subdivision not patrimonial in character
shall not be the object of prescription"). This position, incidentally, is what
the original decision in this case claims.
A first simple answer is that the Civil Code provisions must yield when
considered in relation with the PLA and its requirements. In other words,
when the property involved is a land of the public domain, the consideration
that it is not for public use or for public service, or its patrimonial character,
initially becomes immaterial; any grant or alienation must first comply with
138
the mandates of the Constitution on lands of the public domain and with the
requirements of the PLA as a priority requirement.
Thus, if the question is whether such land, considered patrimonial solely

under the terms of Article 422 of the Civil Code, can be acquired through
prescription, the prior questions of whether the land is already alienable
under the terms of the Constitution and the PLA and whether these terms
have been complied with must first be answered. If the response is negative,
then any characterization under Article 422 of the Civil Code is immaterial;
only upon compliance with the terms of the Constitution and the PLA can
Article 422 of the Civil Code be given full force. If the land is already
alienable, Article 422 of the Civil Code, when invoked, can only be
complied with on the showing that the property is no longer intended for
public use or public service.
For all these reasons, alienable and disposable agricultural land cannot be
registered under Section 14(2) of the PRD solely because it is already
alienable and disposable. The alienability must be coupled with the required
declaration under Article 422 of the Civil Code if the land is claimed to be
patrimonial and possession under Section 14(2) of the PRD is invoked as
basis for registration.
As an incidental matter, note that this PRD provision is no longer necessary

for the applicant who has complied with the required possession under
Section 48(b) of the PLA (i.e., that there had been possession since June 12,
1945); he or she does not need to invoke Section 14(2) of the PRD as
registration is available under Section 14(1) of the PRD. On the other hand,
if the required period for possession under Section 48(b) of the PLA (or
Section 14[1] of the PRD) did not take place, then the applicant’s recourse
would still be under the PLA through its other available modes (because a
land of the public domain is involved), but not under its Section
48(b).1âwphi1
Section 14(2) of the PRD will apply only after the land is deemed to be
"private" or has passed through one of the modes of grant and acquisition
under the PLA, and after the requisite time of possession has passed,
counted from the time the land is deemed or recognized to be private. In
short, Section 14(2) of the PLA only becomes available to a possessor of
land already held or deemed to be in private ownership and only after such
possessor complies with the requisite terms of ordinary or extraordinary
prescription. In considering compliance with the required possession,
possession prior to the declaration of alienability cannot of course be
recognized or given legal effect, as already extensively discussed above.
To go back and directly answer now the issue that the petitioners directly
pose in this case, no extraordinary prescription can be recognized in their
favor as their effective possession could have started only after March 15,
1982. Based on the reasons and conclusions in the above discussion, they
139
have not complied with the legal requirements, either from the point of
view of the PLA or the Civil Code. Hence, the denial of their petition must
hold.
ARTURO D. BRION
Associate Justice

SUPREME COURT
Manila
EN BANC
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the

Ninoy Aquino International Airport (NAIA) Complex in Parañaque City
under Executive Order No. 903, otherwise known as the Revised Charter of
the Manila International Airport Authority ("MIAA Charter"). Executive
Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the
MIAA Charter.
As operator of the international airport, MIAA administers the land,

improvements and equipment within the NAIA Complex. The MIAA
Charter transferred to MIAA approximately 600 hectares of land,3 including
the runways and buildings ("Airport Lands and Buildings") then under the
Bureau of Air Transportation.4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or
any other mode unless specifically approved by the President of the
Philippines.5
140
On 21 March 1997, the Office of the Government Corporate Counsel
(OGCC) issued Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real estate tax already
due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax

Delinquency from the City of Parañaque for the taxable years 1992 to 2001.
MIAA's real estate tax delinquency is broken down as follows:
TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLARATION YEAR
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings.
The Mayor of the City of Parañaque threatened to sell at public auction the
Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA
Charter is the proof that MIAA is exempt from real estate tax.
141
On 1 October 2001, MIAA filed with the Court of Appeals an original
petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to restrain the
City of Parañaque from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings. The petition
was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because

MIAA filed it beyond the 60-day reglementary period. The Court of
Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence,
MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of

auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Tambo, Parañaque City; in the public market of Barangay La Huerta; and in
the main lobby of the Parañaque City Hall. The City of Parañaque
published the notices in the 3 and 10 January 2003 issues of the Philippine
Daily Inquirer, a newspaper of general circulation in the Philippines. The
notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the
Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA
filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents — the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
Parañaque, and the City Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO)

effective immediately. The Court ordered respondents to cease and desist
from selling at public auction the Airport Lands and Buildings.
Respondents received the TRO on the same day that the Court issued it.
However, respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro

tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In

compliance with the directive issued during the hearing, MIAA, respondent
City of Parañaque, and the Solicitor General subsequently submitted their
respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out that
142
it cannot claim ownership over these properties since the real owner of the
Airport Lands and Buildings is the Republic of the Philippines. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the
benefit of the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownership of these properties
remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it is
also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by
the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code,

which expressly withdrew the tax exemption privileges of "government-
owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act
excludes all others. An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International

Airport v. Marcos8 where we held that the Local Government Code has
withdrawn the exemption from real estate tax granted to international
airports. Respondents further argue that since MIAA has already paid some
of the real estate tax assessments, it is now estopped from claiming that the
Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws. If
so exempt, then the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
143
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled

corporation, is not exempt from real estate tax. Respondents claim that the
deletion of the phrase "any government-owned or controlled so exempt by
its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations.
The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax
Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is

not exempt from real estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any

agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a

stock or non-stock corporation." MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9provides:
SECTION 10. Capital. — The capital of the Authority to be

contributed by the National Government shall be increased from Two
and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,]
which may be contributed by the National Government or transferred
by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or
144
transfer after making due allowances for depreciation and other
deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986

representing about seventy percentum (70%) of the unremitted share
of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be provided in the
General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one

whose "capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no stockholders
or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members.

Section 87 of the Corporation Code defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its members,
trustees or officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations

are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to

perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
145
corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National

Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate powers, the

instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of
eminent domain,12 police authority13 and the levying of fees and
charges.14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally

autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The
MIAA Charter expressly states that transforming MIAA into a "separate
and autonomous body"16 will make its operation more "financially
viable."17
Many government instrumentalities are vested with corporate powers but

they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-
owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate
entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status
of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the

Local Government Code, which states:
146
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National

Government, its agencies and instrumentalities and local
government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may
only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18
When local governments invoke the power to tax on national government

instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the

taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions
to government agencies may be construed liberally, in favor of non
tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government

instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of
147
essential public services for sound and compelling policy
considerations. There must be express language in the law empowering
local governments to tax national government instrumentalities. Any doubt
whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard,

impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National

Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made

reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies

thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power
to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public

dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:
148
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 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. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 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.
No one can dispute that properties of public dominion mentioned in Article

420 of the Civil Code, like "roads, canals, rivers, torrents, ports and
bridges constructed by the State," are owned by the State. The term
"ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of
the Civil Code, the MIAA Airport Lands and Buildings are properties of
public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they
are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government
of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the
property whether it is of public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one "intended for public use."
Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions
as the rest of the public. The charging of fees, the limitation on the kind of
149
vehicles that can use the road, the speed restrictions and other conditions for
the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed
user's tax. This means taxing those among the public who actually use a
public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable — a principle of
taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and domestic air
traffic,"22 are properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably belong
to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and
thus are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are outside the commerce of man. The
Court has ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use
in provinces and in towns comprises the provincial and town roads,
the squares, streets, fountains, and public waters, the promenades,
and public works of general service supported by said towns or
provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude
from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said
plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by
executing a contract over a thing of which it could not dispose, nor is
it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895,
which says: "Communal things that cannot be sold because they
150
are by their very nature outside of commerce are those for public
use, such as the plazas, streets, common lands, rivers, fountains,
etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties

of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted

to public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by
private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said
temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the 600-hectare
runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands and
Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth
Act No. 141, which "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,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of

Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations
for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public
151
parks, public quarries, public fishponds, working men's village and
other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the

provisions of Section eighty-three shall be non-alienable and shall
not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of
this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport

Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As
long as the Airport Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14,
Chapter 4, Title I, Book III of the Administrative Code of 1987, which
states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain
of the Government. — (1) The President shall have the power to
reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which
is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings
are withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for
the Republic. Section 48, Chapter 12, Book I of the Administrative Code
allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever

real property of the Government is authorized by law to be conveyed,
152
the deed of conveyance shall be executed in behalf of the government
by the following:
(1) For property belonging to and titled in the name of the Republic
of the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(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)
In MIAA's case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the President of the Republic
can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the
Airport Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport Authority.

—xxxx
The land where the Airport is presently located as well as the

surrounding land area of approximately six hundred hectares,
are hereby transferred, conveyed and assigned to the ownership
and administration of the Authority, subject to existing rights, if
any. The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area transferred
within one year from the promulgation of this Executive Order and
the corresponding title to be issued in the name of the Authority. Any
portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the
Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets.

— All existing public airport facilities, runways, lands, buildings
and other property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating
to airport works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)
153
SECTION 25. Abolition of the Manila International Airport as a
Division in the Bureau of Air Transportation and Transitory
Provisions. — The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock since
MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport

of the Philippines for both international and domestic air traffic, is
required to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other

facilities, have to be upgraded to meet the current and future air
traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated

that the objectives of providing high standards of accommodation
and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by

Presidential Decree No. 1772, the President of the Philippines is
given continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies
and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of
these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a
separate and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely by
the Republic. No party claims any ownership rights over MIAA's assets
adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings
"shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines." This only
means that the Republic retained the beneficial ownership of the Airport
154
Lands and Buildings because under Article 428 of the Civil Code, only the
"owner has the right to x x x dispose of a thing." Since MIAA cannot
dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the
Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is the
only one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong
to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax
any "[r]eal property owned by the Republic of the Philippines." Section
234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following

are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or

any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies
andinstrumentalities x x x." The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from
real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its
tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local
155
Government Code. Thus, even if we assume that the Republic has granted
to MIAA the beneficial use of the Airport Lands and Buildings, such fact
does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to ataxable person and therefore
such land area is subject to real estate tax. In Lung Center of the
Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private

entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax
because Section 193 of the Local Government Code of 1991 withdrew the
tax exemption of "all persons, whether natural or juridical" upon the
effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless

otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The

minority argues that since the Local Government Code withdrew the tax
exemption of all juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government

Code that the withdrawn exemptions from realty tax cover not
just GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is
only clarificatory or illustrative of the explicit provision.
156
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons.
Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but
whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt
from local taxation is its status — whether MIAA is a juridical person or
not. The minority also insists that "Sections 193 and 234 may be examined
in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local
Government Code expressly withdrew the tax exemption of all juridical
persons "[u]nless otherwise provided in this Code." Now, Section 133(o)
of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax
on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local

Government Units. – Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government,

its agencies and instrumentalities, and local government units.
(Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments

cannot impose any kind of tax on national government instrumentalities like
the MIAA. Local governments are devoid of power to tax the national
government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as stated in the
saving clause of Section 133. The saving clause refers to Section 234(a) on
the exception to the exemption from real estate tax of real property owned
by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself,
all juridical persons are subject to tax by local governments. The minority
insists that the juridical persons exempt from local taxation are limited to
the three classes of entities specifically enumerated as exempt in Section
193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water

districts; (b) cooperatives duly registered under Republic Act No.
157
6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does
not fall within any of the exempt entities under Section 193.
(Emphasis supplied)
The minority's theory directly contradicts and completely negates Section

133(o) of the Local Government Code. This theory will result in gross
absurdities. It will make the national government, which itself is a juridical
person, subject to tax by local governments since the national government
is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not
only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities

with juridical personalities will also be subject to any kind of local tax, and
not only real estate tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases

Conversion Development Authority,34Philippine Ports Authority,35 Cagayan
de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government

Code which expressly prohibits local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without
juridical personalities. Where the law does not distinguish, courts should
not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government instrumentality
under Section 133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from imposing any
kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause
"[u]nless otherwise provided in this Code." This means that unless the
Local Government Code grants an express authorization, local governments
have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to
tax the national government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the national government,
its agencies and instrumentalities only if the Local Government Code
expressly so provides.
158
The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject
to real estate tax when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of

its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from
real estate tax. The exception to this exemption is when the government
gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when
the national government, its agencies and instrumentalities are subject to
any kind of tax by local governments. The exception to the exemption
applies only to real estate tax and not to any other tax. The justification for
the exception to the exemption is that the real property, although owned by
the Republic, is not devoted to public use or public service but devoted to
the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and
234 of the Local Government Code, the later provisions prevail over
Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and

234. Following an accepted rule of construction, in case of conflict
the subsequent provisions should prevail. Therefore, MIAA, as a
juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193 and 234 of
the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between

Section 133 on one hand, and Sections 193 and 234 on the other. No one
has urged that there is such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The minority's assumption
of an irreconcilable conflict in the statutory provisions is an egregious error
for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because
Section 193 expressly admits its subordination to other provisions of the
Code when Section 193 states "[u]nless otherwise provided in this Code."
159
By its own words, Section 193 admits the superiority of other provisions of
the Local Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power
and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing

Powers of Local Government Units." Section 133 limits the grant to local
governments of the power to tax, and not merely the exercise of a delegated
power to tax. Section 133 states that the taxing powers of local governments
"shall not extend to the levy" of any kind of tax on the national government,
its agencies and instrumentalities. There is no clearer limitation on the
taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing

powers of local governments, Section 133 logically prevails over Section
193 which grants local governments such taxing powers. By their very
meaning and purpose, the "common limitations" on the taxing power
prevail over the grant or exercise of the taxing power. If the taxing power of
local governments in Section 193 prevails over the limitations on such
taxing power in Section 133, then local governments can impose any kind
of tax on the national government, its agencies and instrumentalities — a
gross absurdity.
Local governments have no power to tax the national government, its

agencies and instrumentalities, except as otherwise provided in the Local
Government Code pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception — which is an
exception to the exemption of the Republic from real estate tax imposed by
local governments — refers to Section 234(a) of the Code. The exception to
the exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use of such
property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of
the phrase "government-owned or controlled corporation" is not controlling.
The minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it
provides:
SEC. 2. General Terms Defined. — Unless the specific words of the

text, or the context as a whole, or a particular statute, shall require a
different meaning:
xxxx
160
The minority then concludes that reliance on the Administrative Code
definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the

Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this does
not automatically mean that the definition in the Administrative Code does
not apply to the Local Government Code. Section 2 of the Administrative
Code clearly states that "unless the specific words x x x of a particular
statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative
Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government
Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code. Indeed, there is
none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code,
however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation"
applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and
procedural principles and rules of governance." Thus, the Administrative
Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for
a specific government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase "government-owned or

controlled corporation" should apply only to corporations organized under
the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why
government corporations with special charters should have a capital stock.
Thus, the minority declares:
I submit that the definition of "government-owned or controlled

corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which
are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs without
original charters.
161
xxxx
It might as well be worth pointing out that there is no point in

requiring a capital structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not
empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with

the Constitution and existing legislations. It will also result in gross
absurdities.
First, the Administrative Code definition of the phrase "government-owned

or controlled corporation" does not distinguish between one incorporated
under the Corporation Code or under a special charter. Where the law does
not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-

owned corporations organized as stock corporations. Prime examples are
the Land Bank of the Philippines and the Development Bank of the
Philippines. The special charter40 of the Land Bank of the Philippines
provides:
SECTION 81. Capital. — The authorized capital stock of the Bank

shall be nine billion pesos, divided into seven hundred and eighty
million common shares with a par value of ten pesos each, which
shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines

provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital

stock of the Bank shall be Five Billion Pesos to be divided into Fifty
Million common shares with par value of P100 per share. These
shares are available for subscription by the National Government.
Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth
Two Billion Five Hundred Million which shall be deemed paid for by
the Government with the net asset values of the Bank remaining after
the transfer of assets and liabilities as provided in Section 30 hereof.
(Emphasis supplied)
Other government-owned corporations organized as stock corporations

under their special charters are the Philippine Crop Insurance
Corporation,42 Philippine International Trading Corporation,43 and the
Philippine National Bank44 before it was reorganized as a stock corporation
162
under the Corporation Code. All these government-owned corporations
organized under special charters as stock corporations are subject to real
estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove
them from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations created through

special charters are those that meet the two conditions prescribed in Section
16, Article XII of the Constitution. The first condition is that the
government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good
and subject to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-

owned or controlled corporations" through special charters only if these
entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and
economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common good — meaning
for economic development purposes — these government-owned or
controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and

performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public
services for the common good, services that every modern State must
provide its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates

government instrumentalities vested with corporate powers but performing
163
essential governmental or public functions. Congress has plenary authority
to create government instrumentalities vested with corporate powers
provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such
entities — known as "government-owned or controlled corporations" —
must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,

explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is really
that when the government creates a corporation, there is a sense in
which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is
always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about
P28 billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers' money
which could have been relocated to agrarian reform, to social services
like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"

together with the "common good," this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the
common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional

Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
164
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in the
interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show
capacity to function efficiently in business and that they should not
go into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in
financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities
vested with corporate powers and performing essential public services. The
State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability
of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special

charters, organized essentially for economic or commercial objectives, must
meet the test of economic viability. These are the government-owned or
controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or
controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section
2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market place. MIAA
does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and international airport of
the Philippines. The operation of an international airport requires the
presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the

arrival and departure of passengers, screening out those without visas
or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban

on prohibited importations;
3. The quarantine office of the Department of Health, to enforce

health measures against the spread of infectious diseases into the
country;
165
4. The Department of Agriculture, to enforce measures against the
spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police,

to prevent the entry of terrorists and the escape of criminals, as well
as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and

Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and

buildings — for the government personnel, passengers, and airlines,
and to manage the airport operations.
All these agencies of government perform government functions essential

to the operation of an international airport.
MIAA performs an essential public service that every modern State must
provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under

Section 2(10) of the Introductory Provisions of the Administrative Code,
which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National

Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if
operational autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate powers does not make
MIAA a government-owned or controlled corporation. Without a change in
its capital structure, MIAA remains a government instrumentality under
Section 2(10) of the Introductory Provisions of the Administrative Code.
More importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is outside
the scope of the phrase "government-owned or controlled corporations"
under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or
166
illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled
corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation

under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not
subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial use
of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and

seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands
and Buildings are owned by the Republic and thus exempt from real estate
tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the

Administrative Code, which governs the legal relation and status of
167
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-
owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are properties of public dominion and
thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned by
the Republic. As properties of public dominion owned by the Republic,
there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed

Resolutions of the Court of Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the
real estate tax imposed by the City of Parañaque. We declare VOID all the
real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to
private parties. We also declare VOID the assailed auction sale, and all its
effects, of the Airport Lands and Buildings of the Manila International
Airport Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-

Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr., Azcuna,
Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.
168
x-------------------------------------------------------------------------------x
DISSENTING OPINION
TINGA, J. :
The legally correct resolution of this petition would have had the added
benefit of an utterly fair and equitable result – a recognition of the
constitutional and statutory power of the City of Parañaque to impose real
property taxes on the Manila International Airport Authority (MIAA), but at
the same time, upholding a statutory limitation that prevents the City of
Parañaque from seizing and conducting an execution sale over the real
properties of MIAA. In the end, all that the City of Parañaque would hold
over the MIAA is a limited lien, unenforceable as it is through the sale or
disposition of MIAA properties. Not only is this the legal effect of all the
relevant constitutional and statutory provisions applied to this case, it also
leaves the room for negotiation for a mutually acceptable resolution
between the City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today veers wildly off-
course, shattering statutes and judicial precedents left and right in order to
protect the precious Ming vase that is the Manila International Airport
Authority (MIAA). While the MIAA is left unscathed, it is surrounded by
the wreckage that once was the constitutional policy, duly enacted into law,
that was local autonomy. Make no mistake, the majority has virtually
declared war on the seventy nine (79) provinces, one hundred seventeen
(117) cities, and one thousand five hundred (1,500) municipalities of the
Philippines.1
The icing on this inedible cake is the strained and purposely vague rationale
used to justify the majority opinion. Decisions of the Supreme Court are
expected to provide clarity to the parties and to students of jurisprudence, as
to what the law of the case is, especially when the doctrines of long
standing are modified or clarified. With all due respect, the decision in this
case is plainly so, so wrong on many levels. More egregious, in the
majority's resolve to spare the Manila International Airport Authority
(MIAA) from liability for real estate taxes, no clear-cut rule emerges on the
important question of the power of local government units (LGUs) to tax
government corporations, instrumentalities or agencies.
The majority would overturn sub silencio, among others, at least one dozen
precedents enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the

leading case penned in 1997 by recently retired Chief Justice Davide, which
held that the express withdrawal by the Local Government Code of
previously granted exemptions from realty taxes applied to instrumentalities
and government-owned or controlled corporations (GOCCs) such as the
169
Mactan-Cebu International Airport Authority (MCIAA). The majority
invokes the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan,
and a vanguard of a doctrine so noxious to the concept of local government
rule that the Local Government Code was drafted precisely to counter such
philosophy. The efficacy of several rulings that expressly rely on Mactan,
such as PHILRECA v. DILG Secretary,4City Government of San Pablo v.
Hon. Reyes5 is now put in question.
2) The rulings in National Power Corporation v. City of

Cabanatuan,6 wherein the Court, through Justice Puno, declared that the
National Power Corporation, a GOCC, is liable for franchise taxes under
the Local Government Code, and succeeding cases that have relied on it
such as Batangas Power Corp. v. Batangas City7 The majority now states
that deems instrumentalities as defined under the Administrative Code of
1987 as purportedly beyond the reach of any form of taxation by LGUs,
stating "[l]ocal governments are devoid of power to tax the national
government, its agencies and instrumentalities."8 Unfortunately, using the
definition employed by the majority, as provided by Section 2(d) of the
Administrative Code, GOCCs are also considered as instrumentalities, thus
leading to the astounding conclusion that GOCCs may not be taxed by
LGUs under the Local Government Code.
3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en

banc Court held that the Lung Center of the Philippines may be liable for
real property taxes. Using the majority's reasoning, the Lung Center would
be properly classified as an instrumentality which the majority now holds as
exempt from all forms of local taxation.10
4) City of Davao v. RTC,11 where the Court held that the Government
Service Insurance System (GSIS) was liable for real property taxes for the
years 1992 to 1994, its previous exemption having been withdrawn by the
enactment of the Local Government Code.12 This decision, which expressly
relied on Mactan, would be directly though silently overruled by the
majority.
5) The common essence of the Court's rulings in the two Philippine Ports
Authority v. City of Iloilo,13 cases penned by Justices Callejo and Azcuna
respectively, which relied in part on Mactan in holding the Philippine Ports
Authority (PPA) liable for realty taxes, notwithstanding the fact that it is a
GOCC. Based on the reasoning of the majority, the PPA cannot be
considered a GOCC. The reliance of these cases on Mactan, and its
rationale for holding governmental entities like the PPA liable for local
government taxation is mooted by the majority.
6) The 1963 precedent of Social Security System Employees Association v.

Soriano,14 which declared the Social Security Commission (SSC) as a
GOCC performing proprietary functions. Based on the rationale employed
170
by the majority, the Social Security System is not a GOCC. Or perhaps
more accurately, "no longer" a GOCC.
7) The decision penned by Justice (now Chief Justice) Panganiban, Light

Rail Transit Authority v. Central Board of Assessment. 15 The
characterization therein of the Light Rail Transit Authority (LRTA) as a
"service-oriented commercial endeavor" whose patrimonial property is
subject to local taxation is now rendered inconsequential, owing to the
majority's thinking that an entity such as the LRTA is itself exempt from
local government taxation16, irrespective of the functions it performs.
Moreover, based on the majority's criteria, LRTA is not a GOCC.
8) The cases of Teodoro v. National Airports Corporation17 and Civil

Aeronautics Administration v. Court of Appeals.18 wherein the Court held
that the predecessor agency of the MIAA, which was similarly engaged in
the operation, administration and management of the Manila International
Agency, was engaged in the exercise of proprietary, as opposed to
sovereign functions. The majority would hold otherwise that the property
maintained by MIAA is actually patrimonial, thus implying that MIAA is
actually engaged in sovereign functions.
9) My own majority in Phividec Industrial Authority v. Capitol

Steel,19 wherein the Court held that the Phividec Industrial Authority, a
GOCC, was required to secure the services of the Office of the Government
Corporate Counsel for legal representation.20 Based on the reasoning of the
majority, Phividec would not be a GOCC, and the mandate of the Office of
the Government Corporate Counsel extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June 2006),
National Power Corporation v. Province of Isabela21 and GSIS v. City
Assessor of Iloilo City.22 In the former, the Court pronounced that
"[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges of
any kind on the National Government, its agencies and instrumentalities,
this rule admits of an exception, i.e., when specific provisions of the LGC
authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities." Yet the majority now rules that the exceptions in the LGC no
longer hold, since "local governments are devoid of power to tax the
national government, its agencies and instrumentalities."23 The ruling in the
latter case, which held the GSIS as liable for real property taxes, is now put
in jeopardy by the majority's ruling.
There are certainly many other precedents affected, perhaps all previous
jurisprudence regarding local government taxation vis-a-vis government
entities, as well as any previous definitions of GOCCs, and previous
distinctions between the exercise of governmental and proprietary functions
(a distinction laid down by this Court as far back as 191624). What is the
reason offered by the majority for overturning or modifying all these
precedents and doctrines? None is given, for the majority takes comfort
171
instead in the pretense that these precedents never existed. Only children
should be permitted to subscribe to the theory that something bad will go
away if you pretend hard enough that it does not exist.
I.
Case Should Have Been Decided
Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to the City of
Parañaque for real property taxes under the Local Government Code, has
already been decided by this Court in the Mactan case, and should have
been resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-Cebu International

Airport Authority (MCIAA) claimed that it was exempt from payment of
real property taxes to the City of Cebu, invoking the specific exemption
granted in Section 14 of its charter, Republic Act No. 6958, and its status as
an instrumentality of the government performing governmental
functions.25 Particularly, MCIAA invoked Section 133 of the Local
Government Code, precisely the same provision utilized by the majority as
the basis for MIAA's exemption. Section 133 reads:
Sec. 133. Common Limitations on the Taxing Powers of Local Government

Units.— Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:
xxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. (emphasis and
underscoring supplied).
However, the Court in Mactan noted that Section 133 qualified the
exemption of the National Government, its agencies and instrumentalities
from local taxation with the phrase "unless otherwise provided herein." It
then considered the other relevant provisions of the Local Government
Code, particularly the following:
SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise

provided in this Code, tax exemption or incentives granted to, or enjoyed by
all persons, whether natural or juridical, including government-owned and
controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and
172
educational institutions, are hereby withdrawn upon the effectivity of this
Code.26
SECTION 232. Power to Levy Real Property Tax. – A province or city or a

municipality within the Metropolitan Manila area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted.27
SECTION 234. Exemptions from Real Property Tax. -- The following are
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person:
(b) Charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned and
controlled corporations engaged in the distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property

tax previously granted to, or presently enjoyed by, all persons, whether
natural or juridical, including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.28
Clearly, Section 133 was not intended to be so absolute a prohibition on the

power of LGUs to tax the National Government, its agencies and
instrumentalities, as evidenced by these cited provisions which "otherwise
provided." But what was the extent of the limitation under Section 133?
This is how the Court, correctly to my mind, defined the parameters in
Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions or provisos in these sections, as shown by the
following clauses:
173
(1) "unless otherwise provided herein" in the opening paragraph of Section
133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded.
Instead of the clause "unless otherwise provided herein," with the "herein"
to mean, of course, the section, it should have used the clause "unless
otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which excepts
income taxes "when levied on banks and other financial institutions"; item
(d) which excepts "wharfage on wharves constructed and maintained by the
local government unit concerned"; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses or permits for the
driving of "tricycles." It may also be observed that within the body itself of
the section, there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the clause, "except as
otherwise provided herein" as in items (c) and (i), or the clause "except as
provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplusages if the opening clause of the section were
"Unless otherwise provided in this Code" instead of "Unless otherwise
provided herein." In any event, even if the latter is used, since under Section
232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133, the taxing powers of
local government units cannot extend to the levy of, inter alia, "taxes, fees
and charges of any kind on the National Government, its agencies and
instrumentalities, and local government units"; however, pursuant to
Section 232, provinces, cities, and municipalities in the Metropolitan
Manila Area may impose the real property tax except on, inter alia, "real
property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person," as provided in item (a) of
the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by

natural or judicial persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
174
are withdrawn upon the effectivity of the LGC, except those granted to
local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to Section
234 which enumerates the properties exempt from real property tax. But the
last paragraph of Section 234 further qualifies the retention of the
exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover,
even as to real property owned by the Republic of the Philippines or any of
its political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes
granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it in Section 14 of its
Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now
asserts, since, as shown above, the said section is qualified by Sections 232
and 234.29
The Court in Mactan acknowledged that under Section 133,

instrumentalities were generally exempt from all forms of local government
taxation, unless otherwise provided in the Code. On the other hand, Section
232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem
real property tax, irrespective of who owned the property. At the same time,
the imposition of real property taxes under Section 232 is in turn qualified
by the phrase "not hereinafter specifically exempted." The exemptions from
real property taxes are enumerated in Section 234, which specifically states
that only real properties owned "by the Republic of the Philippines or any
of its political subdivisions" are exempted from the payment of the tax.
Clearly, instrumentalities or GOCCs do not fall within the exceptions under
Section 234.30
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the petitioners in Mactan also raised the Court's ruling in Basco v.
PAGCOR,31 decided before the enactment of the Local Government Code.
175
The Court in Basco declared the PAGCOR as exempt from local taxes,
justifying the exemption in this wise:
Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by
the National Government. In addition to its corporate powers (Sec. 3, Title
II, PD 1869) it also exercises regulatory powers xxx
PAGCOR has a dual role, to operate and to regulate gambling casinos. The
latter role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control
by a mere Local government.
"The states have no power by taxation or otherwise, to retard impede,

burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the federal
government." (McCulloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government

over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activates or enterprise using the power to tax as "a tool for regulation" (U.S.
v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it.32
Basco is as strident a reiteration of the old guard view that frowned on the
principle of local autonomy, especially as it interfered with the prerogatives
and privileges of the national government. Also consider the following
citation from Maceda v. Macaraig,33 decided the same year as Basco.
176
Discussing the rule of construction of tax exemptions on government
instrumentalities, the sentiments are of a similar vein.
Moreover, it is a recognized principle that the rule on strict interpretation

does not apply in the case of exemptions in favor of a government political
subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory provisions
granting tax exemptions or deductions, even more obvious than with
reference to the affirmative or levying provisions of tax statutes, is to
minimize differential treatment and foster impartiality, fairness, and
equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax-liability of such agencies.
In the case of property owned by the state or a city or other public

corporations, the express exemption should not be construed with the same
degree of strictness that applies to exemptions contrary to the policy of the
state, since as to such property "exemption is the rule and taxation the
exception."34
Strikingly, the majority cites these two very cases and the stodgy rationale
provided therein. This evinces the perspective from which the majority is
coming from. It is admittedly a viewpoint once shared by this Court, and en
vogue prior to the enactment of the Local Government Code of 1991.
However, the Local Government Code of 1991 ushered in a new ethos on

how the art of governance should be practiced in the Philippines, conceding
greater powers once held in the private reserve of the national government
to LGUs. The majority might have private qualms about the wisdom of the
policy of local autonomy, but the members of the Court are not expected to
substitute their personal biases for the legislative will, especially when the
1987 Constitution itself promotes the principle of local autonomy.
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
177
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide
for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters
relating to the organization and operation of the local units.
xxx
Section 5. Each local government unit shall have the power to create its
own sources of revenues and to levy taxes, fees, and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
xxx
The Court in Mactan recognized that a new day had dawned with the
enactment of the 1987 Constitution and the Local Government Code of
1991. Thus, it expressly rejected the contention of the MCIAA that Basco
was applicable to them. In doing so, the language of the Court was
dramatic, if only to emphasize how monumental the shift in philosophy was
with the enactment of the Local Government Code:
Accordingly, the position taken by the [MCIAA] is untenable. Reliance on

Basco v. Philippine Amusement and Gaming Corporation is unavailing
since it was decided before the effectivity of the [Local Government Code].
Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its
wisdom.35 (emphasis supplied)
The Court Has Repeatedly
Reaffirmed Mactan Over the
Precedents Now Relied Upon
By the Majority
Since then and until today, the Court has been emphatic in declaring the
Basco doctrine as dead. The notion that instrumentalities may be subjected
to local taxation by LGUs was again affirmed in National Power
178
Corporation v. City of Cabanatuan,36 which was penned by Justice Puno.
NPC or Napocor, invoking its continued exemption from payment of
franchise taxes to the City of Cabanatuan, alleged that it was an
instrumentality of the National Government which could not be taxed by a
city government. To that end, Basco was cited by NPC. The Court had this
to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming

Corporation relied upon by the petitioner to support its claim no longer
applies. To emphasize, the Basco case was decided prior to the effectivity
of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as
this Court ruled in the case of Mactan Cebu International Airport Authority
(MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental
functions may be subject to tax. In enacting the LGC, Congress exercised
its prerogative to tax instrumentalities and agencies of government as it sees
fit. Thus, after reviewing the specific provisions of the LGC, this Court held
that MCIAA, although an instrumentality of the national government, was
subject to real property tax.37
In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court,
in the able ponencia of Justice Azcuna, affirmed the levy of realty taxes on
the PPA. Although the taxes were assessed under the old Real Property Tax
Code and not the Local Government Code, the Court again cited Mactan to
refute PPA's invocation of Basco as the basis of its exemption.
[Basco] did not absolutely prohibit local governments from taxing

government instrumentalities. In fact we stated therein:
The power of local government to "impose taxes and fees" is always subject
to "limitations" which Congress may provide by law. Since P.D. 1869
remains an "operative" law until "amended, repealed or revoked". . . its
"exemption clause" remains an exemption to the exercise of the power of
local governments to impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International Airport

Authority v. Marcos, where the Basco case was similarly invoked for tax
exemption, we stated: "[N]othing can prevent Congress from decreeing that
even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its
wisdom." The fact that tax exemptions of government-owned or controlled
corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioner's claim of absolute
exemption of government instrumentalities from local taxation.39
179
Just last month, the Court in National Power Corporation v. Province of
Isabela40 again rejected Basco in emphatic terms. Held the Court, through
Justice Callejo, Sr.:
Thus, the doctrine laid down in the Basco case is no longer true. In the
Cabanatuan case, the Court noted primarily that the Basco case was decided
prior to the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities of the National Government was
in effect. It further explained that in enacting the LGC, Congress
empowered the LGUs to impose certain taxes even on instrumentalities of
the National Government.41
The taxability of the PPA recently came to fore in Philippine Ports

Authority v. City of Iloilo42 case, a decision also penned by Justice Callejo,
Sr., wherein the Court affirmed the sale of PPA's properties at public
auction for failure to pay realty taxes. The Court again reiterated that "it
was the intention of Congress to withdraw the tax exemptions granted to or
presently enjoyed by all persons, including government-owned or
controlled corporations, upon the effectivity" of the Code.43 The Court in
the second Public Ports Authority case likewise cited Mactan as providing
the "raison d'etre for the withdrawal of the exemption," namely, "the State
policy to ensure autonomy to local governments and the objective of the
[Local Government Code] that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant
communities. . . . "44
Last year, the Court, in City of Davao v. RTC, 45 affirmed that the legislated
exemption from real property taxes of the Government Service Insurance
System (GSIS) was removed under the Local Government Code. Again,
Mactan was relied upon as the governing precedent. The removal of the tax
exemption stood even though the then GSIS law46 prohibited the removal of
GSIS' tax exemptions unless the exemption was specifically repealed, "and
a provision is enacted to substitute the declared policy of exemption from
any and all taxes as an essential factor for the solvency of the fund."47 The
Court, citing established doctrines in statutory construction and Duarte v.
Dade48 ruled that such proscription on future legislation was itself
prohibited, as "the legislature cannot bind a future legislature to a particular
mode of repeal."49
And most recently, just less than one month ago, the Court, through Justice
Corona in Government Service Insurance System v. City Assessor of
Iloilo50 again affirmed that the Local Government Code removed the
previous exemption from real property taxes of the GSIS. Again Mactan
was cited as having "expressly withdrawn the [tax] exemption of the
[GOCC].51
Clearly then, Mactan is not a stray or unique precedent, but the basis of a
jurisprudential rule employed by the Court since its adoption, the doctrine
180
therein consistent with the Local Government Code. Corollarily, Basco, the
polar opposite of Mactan has been emphatically rejected and declared
inconsistent with the Local Government Code.
II.
Majority, in Effectively Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite Mactan, other than an
incidental reference that it is relied upon by the respondents.52 However, the
ineluctable conclusion is that the majority rejects the rationale and ruling in
Mactan. The majority provides for a wildly different interpretation of
Section 133, 193 and 234 of the Local Government Code than that
employed by the Court in Mactan. Moreover, the parties in Mactan and in
this case are similarly situated, as can be obviously deducted from the fact
that both petitioners are airport authorities operating under similarly worded
charters. And the fact that the majority cites doctrines contrapuntal to the
Local Government Code as in Basco and Maceda evinces an intent to go
against the Court's jurisprudential trend adopting the philosophy of
expanded local government rule under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief comment is
necessitated on the majority's studied murkiness vis-à-vis the Mactan
precedent. The majority is obviously inconsistent with Mactan and there is
no way these two rulings can stand together. Following basic principles in
statutory construction, Mactan will be deemed as giving way to this new
ruling.
However, the majority does not bother to explain why Mactan is wrong.
The interpretation in Mactan of the relevant provisions of the Local
Government Code is elegant and rational, yet the majority refuses to
explain why this reasoning of the Court in Mactan is erroneous. In fact, the
majority does not even engage Mactan in any meaningful way. If the
majority believes that Mactan may still stand despite this ruling, it remains
silent as to the viable distinctions between these two cases.
The majority's silence on Mactan is baffling, considering how different this

new ruling is with the ostensible precedent. Perhaps the majority does not
simply know how to dispense with the ruling in Mactan. If Mactan truly
deserves to be discarded as precedent, it deserves a more honorable end
than death by amnesia or ignonominous disregard. The majority could have
devoted its discussion in explaining why it thinks Mactan is wrong, instead
of pretending that Mactan never existed at all. Such an approach might not
have won the votes of the minority, but at least it would provide some
degree of intellectual clarity for the parties, LGUs and the national
government, students of jurisprudence and practitioners. A more
181
meaningful debate on the matter would have been possible, enriching the
study of law and the intellectual dynamic of this Court.
There is no way the majority can be justified unless Mactan is overturned.

The MCIAA and the MIAA are similarly situated. They are both, as will be
demonstrated, GOCCs, commonly engaged in the business of operating an
airport. They are the owners of airport properties they respectively maintain
and hold title over these properties in their name. 53 These entities are both
owned by the State, and denied by their respective charters the absolute
right to dispose of their properties without prior approval elsewhere.54 Both
of them are
not empowered to obtain loans or encumber their properties without prior

approval the prior approval of the President.55
III.
Instrumentalities, Agencies
And GOCCs Generally
Liable for Real Property Tax
I shall now proceed to demonstrate the errors in reasoning of the majority.

A bulwark of my position lies with Mactan, which will further demonstrate
why the majority has found it inconvenient to even grapple with the
precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national government, its
agencies and instrumentalities under Section 133 is qualified by Section
232 and Section 234, and accordingly, the only relevant exemption now
applicable to these bodies is as provided under Section 234(o), or on "real
consideration or otherwise, to a taxable person."
It should be noted that the express withdrawal of previously granted

exemptions by the Local Government Code do not even make any
distinction as to whether the exempt person is a governmental entity or not.
As Sections 193 and 234 both state, the withdrawal applies to "all persons,
including [GOCCs]", thus encompassing the two classes of persons
recognized under our laws, natural persons56 and juridical persons.57
The fact that the Local Government Code mandates the withdrawal of
previously granted exemptions evinces certain key points. If an entity was
previously granted an express exemption from real property taxes in the
first place, the obvious conclusion would be that such entity would
ordinarily be liable for such taxes without the exemption. If such entities
182
were already deemed exempt due to some overarching principle of law,
then it would be a redundancy or surplusage to grant an exemption to an
already exempt entity. This fact militates against the claim that MIAA is
preternaturally exempt from realty taxes, since it required the enactment of
an express exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan and
asserts that government instrumentalities are not taxable persons unless they
lease their properties to a taxable person. The general rule laid down in
Section 232 is given short shrift. In arriving at this conclusion, several leaps
in reasoning are committed.
Majority's Flawed Definition
of GOCCs.
The majority takes pains to assert that the MIAA is not a GOCC, but rather
an instrumentality. However, and quite grievously, the supposed foundation
of this assertion is an adulteration.
The majority gives the impression that a government instrumentality is a

distinct concept from a government corporation.58 Most tellingly, the
majority selectively cites a portion of Section 2(10) of the Administrative
Code of 1987, as follows:
Instrumentality refers to any agency of the National Government not

integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. xxx59 (emphasis omitted)
However, Section 2(10) of the Administrative Code, when read in full,

makes an important clarification which the majority does not show. The
portions omitted by the majority are highlighted below:
(10)Instrumentality refers to any agency of the National Government not

through a charter. This term includes regulatory agencies, chartered
institutions and government—owned or controlled corporations.60
Since Section 2(10) makes reference to "agency of the National

Government," Section 2(4) is also worth citing in full:
(4) Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
183
government-owned or controlled corporation, or a local government or a
distinct unit therein. (emphasis supplied)61
Clearly then, based on the Administrative Code, a GOCC may be an

instrumentality or an agency of the National Government. Thus, there
actually is no point in the majority's assertion that MIAA is not a GOCC,
since based on the majority's premise of Section 133 as the key provision,
the material question is whether MIAA is either an instrumentality, an
agency, or the National Government itself. The very provisions of the
Administrative Code provide that a GOCC can be either an instrumentality
or an agency, so why even bother to extensively discuss whether or not
MIAA is a GOCC?
Indeed as far back as the 1927 case of Government of the Philippine Islands
v. Springer,62 the Supreme Court already noted that a corporation of which
the government is the majority stockholder "remains an agency or
instrumentality of government."63
Ordinarily, the inconsequential verbiage stewing in judicial opinions

deserve little rebuttal. However, the entire discussion of the majority on the
definition of a GOCC, obiter as it may ultimately be, deserves emphatic
refutation. The views of the majority on this matter are very dangerous, and
would lead to absurdities, perhaps unforeseen by the majority. For in fact,
the majority effectively declassifies many entities created and recognized as
GOCCs and would give primacy to the Administrative Code of 1987 rather
than their respective charters as to the definition of these entities.
Majority Ignores the Power
Of Congress to Legislate and
Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the Administrative
Code, a GOCC must be "organized as a stock or non-stock corporation," as
defined under the Corporation Code. To insist on this as an absolute rule
fails on bare theory. Congress has the undeniable power to create a
corporation by legislative charter, and has been doing so throughout
legislative history. There is no constitutional prohibition on Congress as to
what structure these chartered corporations should take on. Clearly,
Congress has the prerogative to create a corporation in whatever form it
chooses, and it is not bound by any traditional format. Even if there is a
definition of what a corporation is under the Corporation Code or the
Administrative Code, these laws are by no means sacrosanct. It should be
remembered that these two statutes fall within the same level of hierarchy
as a congressional charter, since they all are legislative enactments.
Certainly, Congress can choose to disregard either the Corporation Code or
the Administrative Code in defining the corporate structure of a GOCC,
184
utilizing the same extent of legislative powers similarly vesting it the
putative ability to amend or abolish the Corporation Code or the
Administrative Code.
These principles are actually recognized by both the Administrative Code

and the Corporation Code. The definition of GOCCs, agencies and
instrumentalities under the Administrative Code are laid down in the
section entitled "General Terms Defined," which qualifies:
Sec. 2. General Terms Defined. – Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different
meaning: (emphasis supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which provides:
SEC. 4. Corporations created by special laws or charters.— Corporations

created by special laws or charters shall be governed primarily by the
provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.
(emphasis supplied)
Thus, the clear doctrine emerges – the law that governs the definition of a
corporation or entity created by Congress is its legislative charter. If the
legislative enactment defines an entity as a corporation, then it is a
corporation, no matter if the Corporation Code or the Administrative Code
seemingly provides otherwise. In case of conflict between the legislative
charter of a government corporation, on one hand, and the Corporate Code
and the Administrative Code, on the other, the former always prevails.
Majority, in Ignoring the
Legislative Charters, Effectively
Classifies Duly Established GOCCs,
With Disastrous and Far Reaching
Legal Consequences
Second, the majority claims that MIAA does not qualify either as a stock or
non-stock corporation, as defined under the Corporation Code. It explains
that the MIAA is not a stock corporation because it does not have any
capital stock divided into shares. Neither can it be considered as a non-stock
corporation because it has no members, and under Section 87, a non-stock
corporation is one where no part of its income is distributable as dividends
to its members, trustees or officers.
185
This formulation of course ignores Section 4 of the Corporation Code,
which again provides that corporations created by special laws or charters
shall be governed primarily by the provisions of the special law or charter,
and not the Corporation Code.
That the MIAA cannot be considered a stock corporation if only because it

does not have a stock structure is hardly a plausible proposition. Indeed,
there is no point in requiring a capital stock structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs
are not empowered to declare dividends or alienate their capital shares.
Admittedly, there are GOCCs established in such a manner, such as the

National Power Corporation (NPC), which is provided with authorized
capital stock wholly subscribed and paid for by the Government of the
Philippines, divided into shares but at the same time, is prohibited from
transferring, negotiating, pledging, mortgaging or otherwise giving these
shares as security for payment of any obligation.64 However, based on the
Corporation Code definition relied upon by the majority, even the NPC
cannot be considered as a stock corporation. Under Section 3 of the
Corporation Code, stock corporations are defined as being "authorized to
distribute to the holders of its shares dividends or allotments of the surplus
profits on the basis of the shares held."65 On the other hand, Section 13 of
the NPC's charter states that "the Corporation shall be non-profit and shall
devote all its returns from its capital investment, as well as excess revenues
from its operation, for expansion."66 Can the holder of the shares of NPC,
the National Government, receive its surplus profits on the basis of its
shares held? It cannot, according to the NPC charter, and hence, following
Section 3 of the Corporation Code, the NPC is not a stock corporation, if
the majority is to be believed.
The majority likewise claims that corporations without members cannot be

deemed non-stock corporations. This would seemingly exclude entities such
as the NPC, which like MIAA, has no ostensible members. Moreover, non-
stock corporations cannot distribute any part of its income as dividends to
its members, trustees or officers. The majority faults MIAA for remitting
20% of its gross operating income to the national government. How about
the Philippine Health Insurance Corporation, created with the "status of a
tax-exempt government corporation attached to the Department of Health"
under Rep. Act No. 7875.67 It too cannot be considered as a stock
corporation because it has no capital stock structure. But using the criteria
of the majority, it is doubtful if it would pass muster as a non-stock
corporation, since the PHIC or Philhealth, as it is commonly known, is
expressly empowered "to collect, deposit, invest, administer and disburse"
the National Health Insurance Fund.68 Or how about the Social Security
System, which under its revised charter, Republic Act No. 8282, is
denominated as a "corporate body."69 The SSS has no capital stock
structure, but has capital comprised of contributions by its members, which
186
are eventually remitted back to its members. Does this disqualify the SSS
from classification as a GOCC, notwithstanding this Court's previous
pronouncement in Social Security System Employees Association v.
Soriano?70
In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs,
whether stock or non-stock,71 declare and remit at least fifty percent (50%)
of their annual net earnings as cash, stock or property dividends to the
National Government.72 But according to the majority, non-stock
corporations are prohibited from declaring any part of its income as
dividends. But if Republic Act No. 7656 requires even non-stock
corporations to declare dividends from income, should it not follow that the
prohibition against declaration of dividends by non-stock corporations
under the Corporation Code does not apply to government-owned or
controlled corporations? For if not, and the majority's illogic is pursued,
Republic Act No. 7656, passed in 1993, would be fatally flawed, as it
would contravene the Administrative Code of 1987 and the Corporation
Code.
In fact, the ruinous effects of the majority's hypothesis on the nature of

GOCCs can be illustrated by Republic Act No. 7656. Following the
majority's definition of a GOCC and in accordance with Republic Act No.
7656, here are but a few entities which are not obliged to remit fifty (50%)
of its annual net earnings to the National Government as they are excluded
from the scope of Republic Act No. 7656:
1) Philippine Ports Authority73 – has no capital stock74, no members, and

obliged to apply the balance of its income or revenue at the end of each year
in a general reserve.75
2) Bases Conversion Development Authority76 - has no capital stock,77 no

members.
3) Philippine Economic Zone Authority78 - no capital stock,79 no members.
4) Light Rail Transit Authority80 - no capital stock,81 no members.
5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required

to remit fifty percent (50%) of its net profits to the National Treasury. 84
6) National Power Corporation85 - has capital stock but is prohibited from

"distributing to the holders of its shares dividends or allotments of the
surplus profits on the basis of the shares held;"86 no members.
7) Manila International Airport Authority – no capital stock87, no

members88, mandated to remit twenty percent (20%) of its annual gross
operating income to the National Treasury.89
187
Thus, for the majority, the MIAA, among many others, cannot be
considered as within the coverage of Republic Act No. 7656. Apparently,
President Fidel V. Ramos disagreed. How else then could Executive Order
No. 483, signed in 1998 by President Ramos, be explained? The issuance
provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides that:
"Section 1. Declaration of Policy. - It is hereby declared the policy of the

State that in order for the National Government to realize additional
revenues, government-owned and/or controlled corporations, without
impairing their viability and the purposes for which they have been
established, shall share a substantial amount of their net earnings to the
National Government."
WHEREAS, to support the viability and mandate of government-owned

and/or controlled corporations [GOCCs], the liquidity, retained earnings
position and medium-term plans and programs of these GOCCs were
considered in the determination of the reasonable dividend rates of such
corporations on their 1997 net earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance

recommended the adjustment on the percentage of annual net earnings that
shall be declared by the Manila International Airport Authority [MIAA] and
Phividec Industrial Authority [PIA] in the interest of national economy and
general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines,

by virtue of the powers vested in me by law, do hereby order:
SECTION 1. The percentage of net earnings to be declared and remitted by

the MIAA and PIA as dividends to the National Government as provided
for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty
percent [50%] to the rates specified hereunder:
1. Manila International Airport Authority - 35% [cash]
2. Phividec Industrial Authority - 25% [cash]
SECTION 2. The adjusted dividend rates provided for under Section 1 are
only applicable on 1997 net earnings of the concerned government-owned
and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary of

Finance that MIAA is a GOCC, for how else could it have come under the
coverage of Republic Act No. 7656, a law applicable only to GOCCs? But,
the majority apparently disagrees, and resultantly holds that MIAA is not
obliged to remit even the reduced rate of thirty five percent (35%) of its net
188
earnings to the national government, since it cannot be covered by Republic
Act No. 7656.
All this mischief because the majority would declare the Administrative
Code of 1987 and the Corporation Code as the sole sources of law defining
what a government corporation is. As I stated earlier, I find it illogical that
chartered corporations are compelled to comply with the templates of the
Corporation Code, especially when the Corporation Code itself states that
these corporations are to be governed by their own charters. This is
especially true considering that the very provision cited by the majority,
Section 87 of the Corporation Code, expressly says that the definition
provided therein is laid down "for the purposes of this [Corporation] Code."
Read in conjunction with Section 4 of the Corporation Code which
mandates that corporations created by charter be governed by the law
creating them, it is clear that contrary to the majority, MIAA is not
disqualified from classification as a non-stock corporation by reason of
Section 87, the provision not being applicable to corporations created by
special laws or charters. In fact, I see no real impediment why the MIAA
and similarly situated corporations such as the PHIC, the SSS, the
Philippine Deposit Insurance Commission, or maybe even the NPC could at
the very least, be deemed as no stock corporations (as differentiated from
non-stock corporations).
The point, stripped to bare simplicity, is that entity created by legislative

enactment is a corporation if the legislature says so. After all, it is the
legislature that dictates what a corporation is in the first place. This is better
illustrated by another set of entities created before martial law. These
include the Mindanao Development Authority,90 the Northern Samar
Development Authority,91 the Ilocos Sur Development Authority,92 the
Southeastern Samar Development Authority93 and the Mountain Province
Development Authority.94 An examination of the first section of the statutes
creating these entities reveal that they were established "to foster
accelerated and balanced growth" of their respective regions, and towards
such end, the charters commonly provide that "it is recognized that a
government corporation should be created for the purpose," and
accordingly, these charters "hereby created a body corporate."95 However,
these corporations do not have capital stock nor members, and are obliged
to return the unexpended balances of their appropriations and earnings to a
revolving fund in the National Treasury. The majority effectively
declassifies these entities as GOCCs, never mind the fact that their very
charters declare them to be GOCCs.
I mention these entities not to bring an element of obscurantism into the

fray. I cite them as examples to emphasize my fundamental point—that it is
the legislative charters of these entities, and not the Administrative Code,
which define the class of personality of these entities created by Congress.
To adopt the view of the majority would be, in effect, to sanction an
189
implied repeal of numerous congressional charters for the purpose of
declassifying GOCCs. Certainly, this could not have been the intent of the
crafters of the Administrative Code when they drafted the "Definition of
Terms" incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters of government corporations, there are two kinds of

GOCCs, namely: GOCCs which are stock corporations and GOCCs which
are no stock corporations (as distinguished from non-stock corporation).
Stock GOCCs are simply those which have capital stock while no stock
GOCCs are those which have no capital stock. Obviously these definitions
are different from the definitions of the terms in the Corporation Code.
Verily, GOCCs which are not incorporated with the Securities and
Exchange Commission are not governed by the Corporation Code but by
their respective charters.
For the MIAA's part, its charter is replete with provisions that indubitably
classify it as a GOCC. Observe the following provisions from MIAA's
charter:
SECTION 3. Creation of the Manila International Airport Authority.—

There is hereby established a body corporate to be known as the Manila
International Airport Authority which shall be attached to the Ministry of
Transportation and Communications. The principal office of the Authority
shall be located at the New Manila International Airport. The Authority
may establish such offices, branches, agencies or subsidiaries as it may
deem proper and necessary; Provided, That any subsidiary that may be
organized shall have the prior approval of the President.
The land where the Airport is presently located as well as the surrounding
land area of approximately six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the
area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority.
Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.
xxx
SECTION 5. Functions, Powers, and Duties. — The Authority shall have

the following functions, powers and duties:
xxx
190
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to
time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise

dispose of any land, building, airport facility, or property of whatever kind
and nature, whether movable or immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes
and objectives;
xxx
(o) To exercise all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order.
xxx
SECTION 16. Borrowing Power. — The Authority may, after consultation

with the Minister of Finance and with the approval of the President of the
Philippines, as recommended by the Minister of Transportation and
Communications, raise funds, either from local or international sources, by
way of loans, credits or securities, and other borrowing instruments, with
the power to create pledges, mortgages and other voluntary liens or
encumbrances on any of its assets or properties.
All loans contracted by the Authority under this Section, together with all
interests and other sums payable in respect thereof, shall constitute a charge
upon all the revenues and assets of the Authority and shall rank equally
with one another, but shall have priority over any other claim or charge on
the revenue and assets of the Authority: Provided, That this provision shall
not be construed as a prohibition or restriction on the power of the
Authority to create pledges, mortgages, and other voluntary liens or
encumbrances on any assets or property of the Authority.
Except as expressly authorized by the President of the Philippines the total

outstanding indebtedness of the Authority in the principal amount, in local
and foreign currency, shall not at any time exceed the net worth of the
Authority at any given time.
xxx
191
The President or his duly authorized representative after consultation with
the Minister of Finance may guarantee, in the name and on behalf of the
Republic of the Philippines, the payment of the loans or other indebtedness
of the Authority up to the amount herein authorized.
These cited provisions establish the fitness of MIAA to be the subject of

legal relations.96 MIAA under its charter may acquire and possess property,
incur obligations, and bring civil or criminal actions. It has the power to
contract in its own name, and to acquire title to real or personal property. It
likewise may exercise a panoply of corporate powers and possesses all the
trappings of corporate personality, such as a corporate name, a corporate
seal and by-laws. All these are contained in MIAA's charter which, as
conceded by the Corporation Code and even the Administrative Code, is the
primary law that governs the definition and organization of the MIAA.
In fact, MIAA itself believes that it is a GOCC represents itself as such. It

said so itself in the very first paragraph of the present petition before this
Court.97 So does, apparently, the Department of Budget and Management,
which classifies MIAA as a "government owned & controlled corporation"
on its internet website.98 There is also the matter of Executive Order No.
483, which evinces the belief of the then-president of the Philippines that
MIAA is a GOCC. And the Court before had similarly characterized MIAA
as a government-owned and controlled corporation in the earlier MIAA
case, Manila International Airport Authority v. Commission on Audit.99
Why then the hesitance to declare MIAA a GOCC? As the majority

repeatedly asserts, it is because MIAA is actually an instrumentality. But
the very definition relied upon by the majority of an instrumentality under
the Administrative Code clearly states that a GOCC is likewise an
instrumentality or an agency. The question of whether MIAA is a GOCC
might not even be determinative of this Petition, but the effect of the
majority's disquisition on that matter may even be more destructive than the
ruling that MIAA is exempt from realty taxes. Is the majority ready to live
up to the momentous consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
One last point on this matter on whether MIAA is a GOCC. The majority
triumphantly points to Section 16, Article XII of the 1987 Constitution,
which mandates that the creation of GOCCs through special charters be "in
192
the interest of the common good and subject to the test of economic
viability." For the majority, the test of economic viability does not apply to
government entities vested with corporate powers and performing essential
public services. But this test of "economic viability" is new to the
constitutional framework. No such test was imposed in previous
Constitutions, including the 1973 Constitution which was the fundamental
law in force when the MIAA was created. How then could the MIAA, or
any GOCC created before 1987 be expected to meet this new precondition
to the creation of a GOCC? Does the dissent seriously suggest that GOCCs
created before 1987 may be declassified on account of their failure to meet
this "economic viability test"?
Instrumentalities and Agencies
Also Generally Liable For
Real Property Taxes
Next, the majority, having bludgeoned its way into asserting that MIAA is
not a GOCC, then argues that MIAA is an instrumentality. It cites
incompletely, as earlier stated, the provision of Section 2(10) of the
Administrative Code. A more convincing view offered during deliberations,
but which was not adopted by the ponencia, argued that MIAA is not an
instrumentality but an agency, considering the fact that under the
Administrative Code, the MIAA is attached within the department
framework of the Department of Transportation and
100
Communications. Interestingly, Executive Order No. 341, enacted by
President Arroyo in 2004, similarly calls MIAA an agency. Since
instrumentalities are expressly defined as "an agency not integrated within
the department framework," that view concluded that MIAA cannot be
deemed an instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the

Administrative Code considers GOCCs as agencies,101 so the fact that
MIAA is an agency does not exclude it from classification as a GOCC. On
the other hand, the majority justifies MIAA's purported exemption on
Section 133 of the Local Government Code, which similarly situates
"agencies and instrumentalities" as generally exempt from the taxation
powers of LGUs. And on this point, the majority again evades Mactan and
somehow concludes that Section 133 is the general rule, notwithstanding
Sections 232 and 234(a) of the Local Government Code. And the majority's
ultimate conclusion? "By express mandate of the Local Government Code,
local governments cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of power to
tax the national government, its agencies and instrumentalities."102
The Court's interpretation of the Local Government Code in Mactan renders

the law integrally harmonious and gives due accord to the respective
193
prerogatives of the national government and LGUs. Sections 133 and
234(a) ensure that the Republic of the Philippines or its political
subdivisions shall not be subjected to any form of local government
taxation, except realty taxes if the beneficial use of the property owned has
been granted for consideration to a taxable entity or person. On the other
hand, Section 133 likewise assures that government instrumentalities such
as GOCCs may not be arbitrarily taxed by LGUs, since they could be
subjected to local taxation if there is a specific proviso thereon in the Code.
One such proviso is Section 137, which as the Court found in National
Power Corporation,103 permits the imposition of a franchise tax on
businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as
the Court acknowledged in Mactan, Section 232 provides another exception
on the taxability of instrumentalities.
The majority abjectly refuses to engage Section 232 of the Local

Government Code although it provides the indubitable general rule that
LGUs "may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvements not hereafter specifically
exempted." The specific exemptions are provided by Section 234. Section
232 comes sequentially after Section 133(o),104 and even if the sequencing
is irrelevant, Section 232 would fall under the qualifying phrase of Section
133, "Unless otherwise provided herein." It is sad, but not surprising that
the majority is not willing to consider or even discuss the general rule, but
only the exemptions under Section 133 and Section 234. After all, if the
majority is dead set in ruling for MIAA no matter what the law says, why
bother citing what the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This blithe disregard of precedents, almost all of them unanimously

decided, is nowhere more evident than in the succeeding discussion of the
majority, which asserts that the power of local governments to tax national
government instrumentalities be construed strictly against local
governments. The Maceda case, decided before the Local Government
Code, is cited, as is Basco. This section of the majority employs deliberate
pretense that the Code never existed, or that the fundamentals of local
autonomy are of limited effect in our country. Why is it that the Local
Government Code is barely mentioned in this section of the majority?
Because Section 5 of the Code, purposely omitted by the majority provides
for a different rule of interpretation than that asserted:
194
Section 5. Rules of Interpretation. – In the interpretation of the provisions
of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be liberally

interpreted in its favor, and in case of doubt, any question thereon shall be
resolved in favor of devolution of powers and of the lower local
government unit. Any fair and reasonable doubt as to the existence of the
power shall be interpreted in favor of the local government unit concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be

construed strictly against the local government unit enacting it, and liberally
in favor of the taxpayer. Any tax exemption, incentive or relief granted by
any local government unit pursuant to the provisions of this Code shall be
construed strictly against the person claiming it; xxx
Yet the majority insists that "there is no point in national and local
governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to
another."105 I wonder whether the Constitution satisfies the majority's desire
for "a sound and compelling policy." To repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
xxx
Section 5. Each local government unit shall have the power to create its
own sources of revenues and to levy taxes, fees, and charges subject to such
exclusively to the local governments.
Or how about the Local Government Code, presumably an expression of

sound and compelling policy considering that it was enacted by the
legislature, that veritable source of all statutes:
SEC. 129. Power to Create Sources of Revenue. - Each local government

unit shall exercise its power to create its own sources of revenue and to levy
taxes, fees, and charges subject to the provisions herein, consistent with the
195
exclusively to the local government units.
Justice Puno, in National Power Corporation v. City of

Cabanatuan,106 provides a more "sound and compelling policy
considerations" that would warrant sustaining the taxability of government-
owned entities by local government units under the Local Government
Code.
Doubtless, the power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of the local government
units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of
the people. As this Court observed in the Mactan case, "the original reasons
for the withdrawal of tax exemption privileges granted to government-
owned or controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarly situated enterprises." With the added burden of
devolution, it is even more imperative for government entities to share in
the requirements of development, fiscal or otherwise, by paying taxes or
other charges due from them.107
I dare not improve on Justice Puno's exhaustive disquisition on the statutory

and jurisprudential shift brought about the acceptance of the principles of
local autonomy:
In recent years, the increasing social challenges of the times expanded the
scope of state activity, and taxation has become a tool to realize social
justice and the equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the ratification
of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges pursuant to Article X, section
5 of the 1987 Constitution, viz:
"Section 5. Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development
can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the country's highly
centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in
196
matters of local development on the part of local government leaders." 35
The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose. To achieve this goal,
section 3 of Article X of the 1987 Constitution mandates Congress to enact
a local government code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing powers,
viz:
"Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide
for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters
relating to the organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, also known as
the Local Government Code of 1991 (LGC), various measures have been
enacted to promote local autonomy. These include the Barrio Charter of
1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967
and the Local Government Code of 1983. Despite these initiatives,
however, the shackles of dependence on the national government remained.
Local government units were faced with the same problems that hamper
their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control
over external sources of income, (c) limited authority to prioritize and
approve development projects, (d) heavy dependence on external sources of
income, and (e) limited supervisory control over personnel of national line
agencies.
Considered as the most revolutionary piece of legislation on local

autonomy, the LGC effectively deals with the fiscal constraints faced by
LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations, and
the like. The LGC likewise provides enough flexibility to impose tax rates
in accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax
rates and leaves the determination of the actual rates to the respective
sanggunian.108
And the Court's ruling through Justice Azcuna in Philippine Ports Authority
v. City of Iloilo109, provides especially clear and emphatic rationale:
197
In closing, we reiterate that in taxing government-owned or controlled
corporations, the State ultimately suffers no loss. In National Power Corp.
v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:
Actually, the State has no reason to decry the taxation of NPC's properties,
as and by way of real property taxes. Real property taxes, after all, form
part and parcel of the financing apparatus of the Government in
development and nation-building, particularly in the local government
level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds taken by the State
with one hand and given to the other. In no measure can the government be
said to have lost anything.
Finally, we find it appropriate to restate that the primary reason for the
withdrawal of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government was that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.110
How does the majority counter these seemingly valid rationales which
establish the soundness of a policy consideration subjecting national
instrumentalities to local taxation? Again, by simply ignoring that these
doctrines exist. It is unfortunate if the majority deems these cases or the
principles of devolution and local autonomy as simply too inconvenient,
and relies instead on discredited precedents. Of course, if the majority faces
the issues squarely, and expressly discusses why Basco was right and
Mactan was wrong, then this entire endeavor of the Court would be more
intellectually satisfying. But, this is not a game the majority wants to play.
Mischaracterization of My
Views on the Tax Exemption
Enjoyed by the National Government
Instead, the majority engages in an extended attack pertaining to Section

193, mischaracterizing my views on that provision as if I had been
interpreting the provision as making "the national government, which itself
is a juridical person, subject to tax by local governments since the national
government is not included in the enumeration of exempt entities in Section
193."111
198
Nothing is farther from the truth. I have never advanced any theory of the
sort imputed in the majority. My main thesis on the matter merely echoes
the explicit provision of Section 193 that unless otherwise provided in the
Local Government Code (LGC) all tax exemptions enjoyed by all persons,
whether natural or juridical, including GOCCs, were withdrawn upon the
effectivity of the Code. Since the provision speaks of withdrawal of tax
exemptions of persons, it follows that the exemptions theretofore enjoyed
by MIAA which is definitely a person are deemed withdrawn upon the
advent of the Code.
On the other hand, the provision does not address the question of who are
beyond the reach of the taxing power of LGUs. In fine, the grant of tax
exemption or the withdrawal thereof assumes that the person or entity
involved is subject to tax. Thus, Section 193 does not apply to entities
which were never given any tax exemption. This would include the national
government and its political subdivisions which, as a general rule, are not
subjected to tax in the first place.112 Corollarily, the national government
and its political subdivisions do not need tax exemptions. And Section 193
which ordains the withdrawal of tax exemptions is obviously irrelevant to
them.
Section 193 is in point for the disposition of this case as it forecloses

dependence for the grant of tax exemption to MIAA on Section 21 of its
charter. Even the majority should concede that the charter section is now
ineffectual, as Section 193 withdraws the tax exemptions previously
enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax exemptions granted to

all persons upon the effectivity of the LGC, for MIAA to continue enjoying
exemption from realty tax, it will have to rely on a basis other than Section
21 of its charter.
Lung Center of the Philippines v. Quezon City113 provides another

illustrative example of the jurisprudential havoc wrought about by the
majority. Pursuant to its charter, the Lung Center was organized as a trust
administered by an eponymous GOCC organized with the SEC.114 There is
no doubt it is a GOCC, even by the majority's reckoning. Applying the
Administrative Code, it is also considered as an agency, the term
encompassing even GOCCs. Yet since the Administrative Code definition
of "instrumentalities" encompasses agencies, especially those not attached
to a line department such as the Lung Center, it also follows that the Lung
Center is an instrumentality, which for the majority is exempt from all local
government taxes, especially real estate taxes. Yet just in 2004, the Court
unanimously held that the Lung Center was not exempt from real property
taxes. Can the majority and Lung Center be reconciled? I do not see how,
and no attempt is made to demonstrate otherwise.
199
Another key point. The last paragraph of Section 234 specifically asserts
that any previous exemptions from realty taxes granted to or enjoyed by all
persons, including all GOCCs, are thereby withdrawn. The majority's
interpretation of Sections 133 and 234(a) however necessarily implies that
all instrumentalities, including GOCCs, can never be subjected to real
property taxation under the Code. If that is so, what then is the sense of the
last paragraph specifically withdrawing previous tax exemptions to all
persons, including GOCCs when juridical persons such as MIAA are
anyway, to his view, already exempt from such taxes under Section 133?
The majority's interpretation would effectively render the express and
emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis
valeat quam pereat. Hence, where a statute is susceptible of more than one
interpretation, the court should adopt such reasonable and beneficial
construction which will render the provision thereof operative and effective,
as well as harmonious with each other.115
But, the majority seems content rendering as absurd the Local Government
Code, since it does not have much use anyway for the Code's general
philosophy of fiscal autonomy, as evidently seen by the continued reliance
on Basco or Maceda. Local government rule has never been a grant of
emancipation from the national government. This is the favorite bugaboo of
the opponents of local autonomy—the fallacy that autonomy equates to
independence.
Thus, the conclusion of the majority is that under Section 133(o), MIAA as
a government instrumentality is beyond the reach of local taxation because
it is not subject to taxes, fees or charges of any kind. Moreover, the taxation
of national instrumentalities and agencies by LGUs should be strictly
construed against the LGUs, citing Maceda and Basco. No mention is made
of the subsequent rejection of these cases in jurisprudence following the
Local Government Code, including Mactan. The majority is similarly silent
on the general rule under Section 232 on real property taxation or Section 5
on the rules of construction of the Local Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly provides that there
are exceptions to the general rule on rule property taxation, as "hereafter
specifically exempted." Section 234, certainly "hereafter," provides
indubitable basis for exempting entities from real property taxation. It
provides the most viable legal support for any claim that an governmental
entity such as the MIAA is exempt from real property taxes. To repeat:
200
SECTION 234. Exemptions from Real Property Tax. -- The following are
xxx
(f) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by the
Republic of the Philippines, thus placing them under the exemption under
Section 234. To arrive at this conclusion, the majority employs four main
arguments.
MIAA Property Is Patrimonial
And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings are property of
public dominion as defined by the Civil Code, and therefore owned by the
State or the Republic of the Philippines. But as pointed out by Justice
Azcuna in the first PPA case, if indeed a property is considered part of the
public dominion, such property is "owned by the general public and cannot
be declared to be owned by a public corporation, such as [the PPA]."
Relevant on this point are the following provisions of the MIAA charter:
Section 3. Creation of the Manila International Airport Authority. – xxx
Authority, subject to existing rights, if any. xxx Any portion thereof shall
not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets. – All

existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets,
powers rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority.
Clearly, it is the MIAA, and not either the State, the Republic of the
Philippines or the national government that asserts legal title over the
Airport Lands and Buildings. There was an express transfer of ownership
between the MIAA and the national government. If the distinction is to be
201
blurred, as the majority does, between the State/Republic/Government and a
body corporate such as the MIAA, then the MIAA charter showcases the
remarkable absurdity of an entity transferring property to itself.
Nothing in the Civil Code or the Constitution prohibits the State from
transferring ownership over property of public dominion to an entity that it
similarly owns. It is just like a family transferring ownership over the
properties its members own into a family corporation. The family exercises
effective control over the administration and disposition of these properties.
Yet for several purposes under the law, such as taxation, it is the
corporation that is deemed to own those properties. A similar situation
obtains with MIAA, the State, and the Airport Lands and Buildings.
The second Public Ports Authority case, penned by Justice Callejo, likewise
lays down useful doctrines in this regard. The Court refuted the claim that
the properties of the PPA were owned by the Republic of the Philippines,
noting that PPA's charter expressly transferred ownership over these
properties to the PPA, a situation which similarly obtains with MIAA. The
Court even went as far as saying that the fact that the PPA "had not been
issued any torrens title over the port and port facilities and appurtenances is
of no legal consequence. A torrens title does not, by itself, vest ownership;
it is merely an evidence of title over properties. xxx It has never been
recognized as a mode of acquiring ownership over real properties."116
The Court further added:
xxx The bare fact that the port and its facilities and appurtenances are
accessible to the general public does not exempt it from the payment of real
property taxes. It must be stressed that the said port facilities and
appurtenances are the petitioner's corporate patrimonial properties, not for
public use, and that the operation of the port and its facilities and the
administration of its buildings are in the nature of ordinary business. The
petitioner is clothed, under P.D. No. 857, with corporate status and
corporate powers in the furtherance of its proprietary interests xxx The
petitioner is even empowered to invest its funds in such government
securities approved by the Board of Directors, and derives its income from
rates, charges or fees for the use by vessels of the port premises, appliances
or equipment. xxx Clearly then, the petitioner is a profit-earning
corporation; hence, its patrimonial properties are subject to tax. 117
There is no doubt that the properties of the MIAA, as with the PPA, are in a
sense, for public use. A similar argument was propounded by the Light Rail
Transit Authority in Light Rail Transit Authority v. Central Board of
Assessment,118 which was cited in Philippine Ports Authority and deserves
renewed emphasis. The Light Rail Transit Authority (LRTA), a body
corporate, "provides valuable transportation facilities to the paying
public."119 It claimed that its carriage-ways and terminal stations are
immovably attached to government-owned national roads, and to impose
202
real property taxes thereupon would be to impose taxes on public roads.
This view did not persuade the Court, whose decision was penned by
Justice (now Chief Justice) Panganiban. It was noted:
Though the creation of the LRTA was impelled by public service — to

provide mass transportation to alleviate the traffic and transportation
situation in Metro Manila — its operation undeniably partakes of ordinary
business. Petitioner is clothed with corporate status and corporate powers in
the furtherance of its proprietary objectives. Indeed, it operates much like
any private corporation engaged in the mass transport industry. Given that it
is engaged in a service-oriented commercial endeavor, its carriageways and
terminal stations are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.
xxx
Petitioner argues that it merely operates and maintains the LRT system, and
that the actual users of the carriageways and terminal stations are the
commuting public. It adds that the public use character of the LRT is not
negated by the fact that revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone,
the LRT is accessible only to those who pay the required fare. It is thus
apparent that petitioner does not exist solely for public service, and that the
LRT carriageways and terminal stations are not exclusively for public use.
Although petitioner is a public utility, it is nonetheless profit-earning. It
actually uses those carriageways and terminal stations in its public utility
business and earns money therefrom.120
xxx
Even granting that the national government indeed owns the carriageways
and terminal stations, the exemption would not apply because their
beneficial use has been granted to petitioner, a taxable entity. 121
There is no substantial distinction between the properties held by the PPA,

the LRTA, and the MIAA. These three entities are in the business of
operating facilities that promote public transportation.
The majority further asserts that MIAA's properties, being part of the public
dominion, are outside the commerce of man. But if this is so, then why does
Section 3 of MIAA's charter authorize the President of the Philippines to
approve the sale of any of these properties? In fact, why does MIAA's
charter in the first place authorize the transfer of these airport properties,
assuming that indeed these are beyond the commerce of man?
No Trust Has Been Created
203
Over MIAA Properties For
The Benefit of the Republic
The majority posits that while MIAA might be holding title over the Airport
Lands and Buildings, it is holding it in trust for the Republic. A provision of
the Administrative Code is cited, but said provision does not expressly
provide that the property is held in trust. Trusts are either express or
implied, and only those situations enumerated under the Civil Code would
constitute an implied trust. MIAA does not fall within this enumeration, and
neither is there a provision in MIAA's charter expressly stating that these
properties are being held in trust. In fact, under its charter, MIAA is
obligated to retain up to eighty percent (80%) of its gross operating income,
not an inconsequential sum assuming that the beneficial owner of MIAA's
properties is actually the Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA remains with the
government and not MIAA is ultimately irrelevant. Section 234(a) of the
Local Government Code provides among those exempted from paying real
property taxes are "[r]eal property owned by the [Republic]… except when
the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person." In the context of Section 234(a), the identity of the
beneficial owner over the properties is not determinative as to whether the
exemption avails. It is the identity of the beneficial user of the property
owned by the Republic or its political subdivisions that is crucial, for if said
beneficial user is a taxable person, then the exemption does not lie.
I fear the majority confuses the notion of what might be construed as

"beneficial ownership" of the Republic over the properties of MIAA as
nothing more than what arises as a consequence of the fact that the capital
of MIAA is contributed by the National Government.122 If so, then there is
no difference between the State's ownership rights over MIAA properties
than those of a majority stockholder over the properties of a corporation.
Even if such shareholder effectively owns the corporation and controls the
disposition of its assets, the personality of the stockholder remains
separately distinct from that of the corporation. A brief recall of the
entrenched rule in corporate law is in order:
The first consequence of the doctrine of legal entity regarding the separate
identity of the corporation and its stockholders insofar as their obligations
and liabilities are concerned, is spelled out in this general rule deeply
entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or statutory

provisions, or by the charter, or by special agreement of the stockholders,
stockholders are not personally liable for debts of the corporation either at
law or equity. The reason is that the corporation is a legal entity or artificial
person, distinct from the members who compose it, in their individual
204
capacity; and when it contracts a debt, it is the debt of the legal entity or
artificial person – the corporation – and not the debt of the individual
members. (13A Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights and remedies of a corporation

itself and its individual stockholders have been given definite recognition
for a long time. Applying said principle, the Supreme Court declared that a
corporation may not be made to answer for acts or liabilities of its
stockholders or those of legal entities to which it may be connected, or vice
versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared
in a similar case that a bonafide corporation should alone be liable for
corporate acts duly authorized by its officers and directors. (Caram Jr. v.
Court of Appeals et.al. 151 SCRA, p. 372)123
It bears repeating that MIAA under its charter, is expressly conferred the
right to exercise all the powers of a corporation under the Corporation Law,
including the right to corporate succession, and the right to sue and be sued
in its corporate name.124 The national government made a particular choice
to divest ownership and operation of the Manila International Airport and
transfer the same to such an empowered entity due to perceived advantages.
Yet such transfer cannot be deemed consequence free merely because it was
the State which contributed the operating capital of this body corporate.
The majority claims that the transfer the assets of MIAA was meant merely
to effect a reorganization. The imputed rationale for such transfer does not
serve to militate against the legal consequences of such assignment.
Certainly, if it was intended that the transfer should be free of consequence,
then why was it effected to a body corporate, with a distinct legal
personality from that of the State or Republic? The stated aims of the
MIAA could have very well been accomplished by creating an agency
without independent juridical personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by the Republic of

the Philippines or its political subdivisions from realty taxation. The
obvious question is what comprises "the Republic of the Philippines." I
think the key to understanding the scope of "the Republic" is the phrase
"political subdivisions." Under the Constitution, political subdivisions are
defined as "the provinces, cities, municipalities and barangays."125 In
correlation, the Administrative Code of 1987 defines "local government" as
referring to "the political subdivisions established by or in accordance with
the Constitution."
Clearly then, these political subdivisions are engaged in the exercise of

sovereign functions and are accordingly exempt. The same could be said
205
generally of the national government, which would be similarly exempt.
After all, even with the principle of local autonomy, it is inherently noxious
and self-defeatist for local taxation to interfere with the sovereign exercise
of functions. However, the exercise of proprietary functions is a different
matter altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign or constituent functions are those which constitute the very

bonds of society and are compulsory in nature, while ministrant or
proprietary functions are those undertaken by way of advancing the general
interests of society and are merely optional.126 An exhaustive discussion on
the matter was provided by the Court in Bacani v. NACOCO:127
xxx This institution, when referring to the national government, has

reference to what our Constitution has established composed of three great
departments, the legislative, executive, and the judicial, through which the
powers and functions of government are exercised. These functions are
twofold: constituent and ministrant. The former are those which constitute
the very bonds of society and are compulsory in nature; the latter are those
that are undertaken only by way of advancing the general interests of
society, and are merely optional. President Wilson enumerates the
constituent functions as follows:
"'(1) The keeping of order and providing for the protection of persons and
property from violence and robbery.
'(2) The fixing of the legal relations between man and wife and between
parents and children.
'(3) The regulation of the holding, transmission, and interchange of

property, and the determination of its liabilities for debt or for crime.
'(4) The determination of contract rights between individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination of the political duties, privileges, and relations of

citizens.
'(8) Dealings of the state with foreign powers: the preservation of the state
from external danger or encroachment and the advancement of its
international interests.'" (Malcolm, The Government of the Philippine
Islands, p. 19.)
206
The most important of the ministrant functions are: public works, public
education, public charity, health and safety regulations, and regulations of
trade and industry. The principles determining whether or not a government
shall exercise certain of these optional functions are: (1) that a government
should do for the public welfare those things which private capital would
not naturally undertake and (2) that a government should do these things
which by its very nature it is better equipped to administer for the public
welfare than is any private individual or group of individuals. (Malcolm,
The Government of the Philippine Islands, pp. 19-20.)
From the above we may infer that, strictly speaking, there are functions
which our government is required to exercise to promote its objectives as
expressed in our Constitution and which are exercised by it as an attribute
of sovereignty, and those which it may exercise to promote merely the
welfare, progress and prosperity of the people. To this latter class belongs
the organization of those corporations owned or controlled by the
government to promote certain aspects of the economic life of our people
such as the National Coconut Corporation. These are what we call
government-owned or controlled corporations which may take on the form
of a private enterprise or one organized with powers and formal
characteristics of a private corporations under the Corporation Law.128
The Court in Bacani rejected the proposition that the National Coconut
Corporation exercised sovereign functions:
Does the fact that these corporations perform certain functions of

government make them a part of the Government of the Philippines?
The answer is simple: they do not acquire that status for the simple reason
that they do not come under the classification of municipal or public
corporation. Take for instance the National Coconut Corporation. While it
was organized with the purpose of "adjusting the coconut industry to a
position independent of trade preferences in the United States" and of
providing "Facilities for the better curing of copra products and the proper
utilization of coconut by-products," a function which our government has
chosen to exercise to promote the coconut industry, however, it was given a
corporate power separate and distinct from our government, for it was made
subject to the provisions of our Corporation Law in so far as its corporate
existence and the powers that it may exercise are concerned (sections 2 and
4, Commonwealth Act No. 518). It may sue and be sued in the same
manner as any other private corporations, and in this sense it is an entity
different from our government. As this Court has aptly said, "The mere fact
that the Government happens to be a majority stockholder does not make it
a public corporation" (National Coal Co. vs. Collector of Internal Revenue,
46 Phil., 586-587). "By becoming a stockholder in the National Coal
Company, the Government divested itself of its sovereign character so far
as respects the transactions of the corporation. . . . Unlike the Government,
the corporation may be sued without its consent, and is subject to taxation.
207
Yet the National Coal Company remains an agency or instrumentality of
government." (Government of the Philippine Islands vs. Springer, 50 Phil.,
288.)
The following restatement of the entrenched rule by former SEC

Chairperson Rosario Lopez bears noting:
The fact that government corporations are instrumentalities of the State

does not divest them with immunity from suit. (Malong v. PNR, 138 SCRA
p. 63) It is settled that when the government engages in a particular
business through the instrumentality of a corporation, it divests itself pro
hoc vice of its sovereign character so as to subject itself to the rules
governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to
be treated like any other corporation. (PNR v. Union de Maquinistas
Fogonero y Motormen, 84 SCRA 223)
In the same vein, when the government becomes a stockholder in a

corporation, it does not exercise sovereignty as such. It acts merely as a
corporator and exercises no other power in the management of the affairs of
the corporation than are expressly given by the incorporating act. Nor does
the fact that the government may own all or a majority of the capital stock
take from the corporation its character as such, or make the government the
real party in interest. (Amtorg Trading Corp. v. US 71 F2d 524, 528)129
MIAA Performs Proprietary
Functions No Matter How
Vital to the Public Interest
The simple truth is that, based on these accepted doctrinal tests, MIAA
performs proprietary functions. The operation of an airport facility by the
State may be imbued with public interest, but it is by no means
indispensable or obligatory on the national government. In fact, as
demonstrated in other countries, it makes a lot of economic sense to leave
the operation of airports to the private sector.
The majority tries to becloud this issue by pointing out that the MIAA does
not compete in the marketplace as there is no competing international
airport operated by the private sector; and that MIAA performs an essential
public service as the primary domestic and international airport of the
Philippines. This premise is false, for one. On a local scale, MIAA
competes with other international airports situated in the Philippines, such
as Davao International Airport and MCIAA. More pertinently, MIAA also
competes with other international airports in Asia, at least. International
airlines take into account the quality and conditions of various international
airports in determining the number of flights it would assign to a particular
208
airport, or even in choosing a hub through which destinations necessitating
connecting flights would pass through.
Even if it could be conceded that MIAA does not compete in the market
place, the example of the Philippine National Railways should be taken into
account. The PNR does not compete in the marketplace, and performs an
essential public service as the operator of the railway system in the
Philippines. Is the PNR engaged in sovereign functions? The Court, in
Malong v. Philippine National Railways,130 held that it was not.131
Even more relevant to this particular case is Teodoro v. National Airports

Corporation,132 concerning the proper appreciation of the functions
performed by the Civil Aeronautics Administration (CAA), which had
succeeded the defunction National Airports Corporation. The CAA claimed
that as an unincorporated agency of the Republic of the Philippines, it was
incapable of suing and being sued. The Court noted:
Among the general powers of the Civil Aeronautics Administration are,

under Section 3, to execute contracts of any kind, to purchase property, and
to grant concession rights, and under Section 4, to charge landing fees,
royalties on sales to aircraft of aviation gasoline, accessories and supplies,
and rentals for the use of any property under its management.
These provisions confer upon the Civil Aeronautics Administration, in our

opinion, the power to sue and be sued. The power to sue and be sued is
implied from the power to transact private business. And if it has the power
to sue and be sued on its behalf, the Civil Aeronautics Administration with
greater reason should have the power to prosecute and defend suits for and
against the National Airports Corporation, having acquired all the
properties, funds and choses in action and assumed all the liabilities of the
latter. To deny the National Airports Corporation's creditors access to the
courts of justice against the Civil Aeronautics Administration is to say that
the government could impair the obligation of its corporations by the simple
expedient of converting them into unincorporated agencies. 133
xxx
Eventually, the charter of the CAA was revised, and it among its expanded
functions was "[t]o administer, operate, manage, control, maintain and
develop the Manila International Airport."134 Notwithstanding this
expansion, in the 1988 case of CAA v. Court of Appeals135 the Court
reaffirmed the ruling that the CAA was engaged in "private or non-
governmental functions."136 Thus, the Court had already ruled that the
predecessor agency of MIAA, the CAA was engaged in private or non-
governmental functions. These are more precedents ignored by the
majority. The following observation from the Teodoro case very well
applies to MIAA.
209
The Civil Aeronautics Administration comes under the category of a private
entity. Although not a body corporate it was created, like the National
Airports Corporation, not to maintain a necessary function of government,
but to run what is essentially a business, even if revenues be not its prime
objective but rather the promotion of travel and the convenience of the
traveling public. It is engaged in an enterprise which, far from being the
exclusive prerogative of state, may, more than the construction of public
roads, be undertaken by private concerns.137
If the determinative point in distinguishing between sovereign functions and

proprietary functions is the vitality of the public service being performed,
then it should be noted that there is no more important public service
performed than that engaged in by public utilities. But notably, the
Constitution itself authorizes private persons to exercise these functions as
it allows them to operate public utilities in this country138 If indeed such
functions are actually sovereign and belonging properly to the government,
shouldn't it follow that the exercise of these tasks remain within the
exclusive preserve of the State?
There really is no prohibition against the government taxing itself,139 and

nothing obscene with allowing government entities exercising proprietary
functions to be taxed for the purpose of raising the coffers of LGUs. On the
other hand, it would be an even more noxious proposition that the
government or the instrumentalities that it owns are above the law and may
refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in
the exercise of proprietary, and not sovereign functions, cannot avoid the
adverse-effects of tax evasion simply on the claim that it is imbued with
some of the attributes of government.
VII.
MIAA Property Not Subject to
Execution Sale Without Consent
Of the President.
Despite the fact that the City of Parañaque ineluctably has the power to
impose real property taxes over the MIAA, there is an equally relevant
statutory limitation on this power that must be fully upheld. Section 3 of the
MIAA charter states that "[a]ny portion [of the [lands transferred, conveyed
and assigned to the ownership and administration of the MIAA] shall not be
disposed through sale or through any other mode unless specifically
approved by the President of the Philippines."140
Nothing in the Local Government Code, even with its wide grant of powers
to LGUs, can be deemed as repealing this prohibition under Section 3, even
if it effectively forecloses one possible remedy of the LGU in the collection
210
of delinquent real property taxes. While the Local Government Code
withdrew all previous local tax exemptions of the MIAA and other natural
and juridical persons, it did not similarly withdraw any previously enacted
prohibitions on properties owned by GOCCs, agencies or instrumentalities.
Moreover, the resulting legal effect, subjecting on one hand the MIAA to
local taxes but on the other hand shielding its properties from any form of
sale or disposition, is not contradictory or paradoxical, onerous as its effect
may be on the LGU. It simply means that the LGU has to find another way
to collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.141
There are several other reasons this statutory limitation should be upheld
and applied to this case. It is at this juncture that the importance of the
Manila Airport to our national life and commerce may be accorded proper
consideration. The closure of the airport, even by reason of MIAA's legal
omission to pay its taxes, will have an injurious effect to our national
economy, which is ever reliant on air travel and traffic. The same effect
would obtain if ownership and administration of the airport were to be
transferred to an LGU or some other entity which were not specifically
chartered or tasked to perform such vital function. It is for this reason that
the MIAA charter specifically forbids the sale or disposition of MIAA
properties without the consent of the President. The prohibition prevents the
peremptory closure of the MIAA or the hampering of its operations on
account of the demands of its creditors. The airport is important enough to
be sheltered by legislation from ordinary legal processes.
Section 3 of the MIAA charter may also be appreciated as within the proper
exercise of executive control by the President over the MIAA, a GOCC
which despite its separate legal personality, is still subsumed within the
executive branch of government. The power of executive control by the
President should be upheld so long as such exercise does not contravene the
Constitution or the law, the President having the corollary duty to faithfully
execute the Constitution and the laws of the land.142 In this case, the
exercise of executive control is precisely recognized and authorized by the
legislature, and it should be upheld even if it comes at the expense of
limiting the power of local government units to collect real property taxes.
Had this petition been denied instead with Mactan as basis, but with the
caveat that the MIAA properties could not be subject of execution sale
without the consent of the President, I suspect that the parties would feel
little distress. Through such action, both the Local Government Code and
the MIAA charter would have been upheld. The prerogatives of LGUs in
real property taxation, as guaranteed by the Local Government Code, would
have been preserved, yet the concerns about the ruinous effects of having to
close the Manila International Airport would have been averted. The parties
would then be compelled to try harder at working out a compromise, a task,
if I might add, they are all too willing to engage in. 143 Unfortunately, the
211
majority will cause precisely the opposite result of unremitting hostility, not
only to the City of Parañaque, but to the thousands of LGUs in the country.
VIII.
Summary of Points
My points may be summarized as follows:
1) Mactan and a long line of succeeding cases have already settled the rule
that under the Local Government Code, enacted pursuant to the
constitutional mandate of local autonomy, all natural and juridical persons,
even those GOCCs, instrumentalities and agencies, are no longer exempt
from local taxes even if previously granted an exemption. The only
exemptions from local taxes are those specifically provided under the Local
Government Code itself, or those enacted through subsequent legislation.
2) Under the Local Government Code, particularly Section 232,

instrumentalities, agencies and GOCCs are generally liable for real property
taxes. The only exemptions therefrom under the same Code are provided in
Section 234, which include real property owned by the Republic of the
Philippines or any of its political subdivisions.
3) The subject properties are owned by MIAA, a GOCC, holding title in its
own name. MIAA, a separate legal entity from the Republic of the
Philippines, is the legal owner of the properties, and is thus liable for real
property taxes, as it does not fall within the exemptions under Section 234
of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition of MIAA

properties. As a result, the City of Parañaque is prohibited from seizing or
selling these properties by public auction in order to satisfy MIAA's tax
liability. In the end, MIAA is encumbered only by a limited lien possessed
by the City of Parañaque.
On the other hand, the majority's flaws are summarized as follows:
1) The majority deliberately ignores all precedents which run counter to its
hypothesis, including Mactan. Instead, it relies and directly cites those
doctrines and precedents which were overturned by Mactan. By imposing a
different result than that warranted by the precedents without explaining
why Mactan or the other precedents are wrong, the majority attempts to
overturn all these ruling sub silencio and without legal justification, in a
manner that is not sanctioned by the practices and traditions of this Court.
2) The majority deliberately ignores the policy and philosophy of local

fiscal autonomy, as mandated by the Constitution, enacted under the Local
Government Code, and affirmed by precedents. Instead, the majority asserts
212
that there is no sound rationale for local governments to tax national
government instrumentalities, despite the blunt existence of such rationales
in the Constitution, the Local Government Code, and precedents.
3) The majority, in a needless effort to justify itself, adopts an extremely

strained exaltation of the Administrative Code above and beyond the
Corporation Code and the various legislative charters, in order to impose a
wholly absurd definition of GOCCs that effectively declassifies
innumerable existing GOCCs, to catastrophic legal consequences.
4) The majority asserts that by virtue of Section 133(o) of the Local

Government Code, all national government agencies and instrumentalities
are exempt from any form of local taxation, in contravention of several
precedents to the contrary and the proviso under Section 133, "unless
otherwise provided herein [the Local Government Code]."
5) The majority erroneously argues that MIAA holds its properties in trust
for the Republic of the Philippines, and that such properties are patrimonial
in character. No express or implied trust has been created to benefit the
national government. The legal distinction between sovereign and
proprietary functions, as affirmed by jurisprudence, likewise preclude the
classification of MIAA properties as patrimonial.
IX.
Epilogue
If my previous discussion still fails to convince on how wrong the majority

is, then the following points are well-worth considering. The majority cites
the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government
instrumentality that exercises corporate powers but not organized as a stock
or non-stock corporation. Correspondingly for the majority, the Bangko ng
Sentral is exempt from all forms of local taxation by LGUs by virtue of the
Local Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt

for a period of five (5) years from the approval of this Act from all national,
provincial, municipal and city taxes, fees, charges and assessments.
The New Central Bank Act was promulgated after the Local Government
Code if the BSP is already preternaturally exempt from local taxation owing
to its personality as an "government instrumentality," why then the need to
make a new grant of exemption, which if the majority is to be believed, is
actually a redundancy. But even more tellingly, does not this provision
evince a clear intent that after the lapse of five (5) years, that the Bangko
Sentral will be liable for provincial, municipal and city taxes? This is the
213
clear congressional intent, and it is Congress, not this Court which dictates
which entities are subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the Bangko Sentral is
not even a government owned corporation, but a government
instrumentality, or perhaps "loosely", a "government corporate entity." How
could such an entity like the Bangko Sentral , which is not even a
government owned corporation, be subjected to local taxation like any mere
mortal? But then, see Section 1 of the New Central Bank Act:
SECTION 1. Declaration of Policy. — The State shall maintain a central

monetary authority that shall function and operate as an independent and
accountable body corporate in the discharge of its mandated responsibilities
concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government-owned
corporation, shall enjoy fiscal and administrative autonomy.
Apparently, the clear legislative intent was to create a government

corporation known as the Bangko Sentral ng Pilipinas. But this legislative
intent, the sort that is evident from the text of the provision and not the one
that needs to be unearthed from the bowels of the archival offices of the
House and the Senate, is for naught to the majority, as it contravenes the
Administrative Code of 1987, which after all, is "the governing law
defining the status and relationship of government agencies and
instrumentalities" and thus superior to the legislative charter in determining
the personality of a chartered entity. Its like saying that the architect who
designed a school building is better equipped to teach than the professor
because at least the architect is familiar with the geometry of the classroom.
Consider further the example of the Philippine Institute of Traditional and

Alternative Health Care (PITAHC), created by Republic Act No. 8243 in
1997. It has similar characteristics as MIAA in that it is established as a
body corporate,144 and empowered with the attributes of a
corporation,145 including the power to purchase or acquire real
properties.146 However the PITAHC has no capital stock and no members,
thus following the majority, it is not a GOCC.
The state policy that guides PITAHC is the development of traditional and
alternative health care,147 and its objectives include the promotion and
advocacy of alternative, preventive and curative health care modalities that
have been proven safe, effective and cost effective.148 "Alternative health
care modalities" include "other forms of non-allophatic, occasionally non-
indigenous or imported healing methods" which include, among others
"reflexology, acupuncture, massage, acupressure" and chiropractics.149
Given these premises, there is no impediment for the PITAHC to purchase

land and construct thereupon a massage parlor that would provide a cheaper
214
alternative to the opulent spas that have proliferated around the metropolis.
Such activity is in line with the purpose of the PITAHC and with state
policy. Is such massage parlor exempt from realty taxes? For the majority,
it is, for PITAHC is an instrumentality or agency exempt from local
government taxation, which does not fall under the exceptions under
Section 234 of the Local Government Code. Hence, this massage parlor
would not just be a shelter for frazzled nerves, but for taxes as well.
Ridiculous? One might say, certainly a decision of the Supreme Court

cannot be construed to promote an absurdity. But precisely the majority,
and the faulty reasoning it utilizes, opens itself up to all sorts of mischief,
and certainly, a tax-exempt massage parlor is one of the lesser evils that
could arise from the majority ruling. This is indeed a very strange and very
wrong decision.
I dissent.
DANTE O. TINGA
Associate Justice

SUPREME COURT
Manila
EN BANC
G.R. No. 163072 April 2, 2009
MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY,
CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and
CITY ASSESSOR OF PASAY, Respondents.
DECISION
CARPIO, J.:
This is a petition for review on certiorari 1 of the Decision2 dated 30 October

2002 and the Resolution dated 19 March 2004 of the Court of Appeals in
CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and

administers the Ninoy Aquino International Airport (NAIA) Complex under
215
Executive Order No. 903 (EO 903),3 otherwise known as the Revised
Charter of the Manila International Airport Authority. EO 903 was issued
on 21 July 1983 by then President Ferdinand E. Marcos. Under Sections
34 and 225 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to
MIAA. The NAIA Complex is located along the border between Pasay City
and Parañaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax

Delinquency from the City of Pasay for the taxable years 1992 to 2001.
MIAA’s real property tax delinquency for its real properties located in
NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay
properties) is tabulated as follows:
TAX
DECL
TAXABL
A- TAX DUE PENALTY TOTAL
E YEAR
RATIO
N
A7-
1997- 243,522,855.0 123,351,728.1
183- 366,874,583.18
2001 0 8
08346
A7-
1992- 113,582,466.0
183- 71,159,414.98 184,741,880.98
2001 0
05224
A7-
1992-
191- 54,454,800.00 34,115,932.20 88,570,732.20
2001
00843
A7-
1992-
191- 1,632,960.00 1,023,049.44 2,656,009.44
2001
00140
A7-
1992-
191- 6,068,448.00 3,801,882.85 9,870,330.85
2001
00139
A7-
1992-
183- 59,129,520.00 37,044,644.28 96,174,164.28
2001
05409
A7-
1992-
183- 20,619,720.00 12,918,254.58 33,537,974.58
2001
05410
A7-
1992-
183- 7,908,240.00 4,954,512.36 12,862,752.36
2001
05413
216
A7-
1992-
183- 18,441,981.20 11,553,901.13 29,995,882.33
2001
05412
A7-
1992- 109,946,736.0
183- 68,881,630.13 178,828,366.13
2001 0
05411
A7-
1992-
183- 7,440,000.00 4,661,160.00 12,101,160.00
2001
05245
P642,747,726. P373,466,110. P1,016,213,836.
GRAND TOTAL
20 13 33
On 24 August 2001, the City of Pasay, through its City Treasurer, issued
notices of levy and warrants of levy for the NAIA Pasay properties. MIAA
received the notices and warrants of levy on 28 August 2001. Thereafter,
the City Mayor of Pasay threatened to sell at public auction the NAIA
Pasay properties if the delinquent real property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for
prohibition and injunction with prayer for preliminary injunction or
temporary restraining order. The petition sought to enjoin the City of Pasay
from imposing real property taxes on, levying against, and auctioning for
public sale the NAIA Pasay properties.
On 30 October 2002, the Court of Appeals dismissed the petition and

upheld the power of the City of Pasay to impose and collect realty taxes on
the NAIA Pasay properties. MIAA filed a motion for reconsideration,
which the Court of Appeals denied. Hence, this petition.
The Court of Appeals’ Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No.
7160 or the Local Government Code, which took effect on 1 January 1992,
withdrew the exemption from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under
Republic Act No. 6938, non-stock and non-profit hospitals and educational
institutions. Since MIAA is a government-owned corporation, it follows
that its tax exemption under Section 21 of EO 903 has been withdrawn
upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
217
The Court’s Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court
of Appeals cited Sections 193 and 234 of the Local Government Code
which read:
SECTION 193. Withdrawal of Tax Exemption Privileges. – Unless

otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. – The following are

been granted, for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents

appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as

provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and

environment protection.

corporations are hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation,

MIAA’s tax exemption under Section 21 of EO 903 has already been
withdrawn upon the effectivity of the Local Government Code in 1992.
218
In Manila International Airport Authority v. Court of Appeals6 (2006
MIAA case), this Court already resolved the issue of whether the airport
lands and buildings of MIAA are exempt from tax under existing laws. The
2006 MIAA case originated from a petition for prohibition and injunction
which MIAA filed with the Court of Appeals, seeking to restrain the City of
Parañaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in
Parañaque City. The only difference between the 2006 MIAA case and this
case is that the 2006 MIAA case involved airport lands and buildings
located in Parañaque City while this case involved airport lands and
buildings located in Pasay City. The 2006 MIAA case and this case raised
the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well
as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation

under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not
subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial use
of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
torrents, ports and bridgesconstructed by the State, banks, shores,
the national wealth.
The term "ports x x x constructed by the State" includes airports and

seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
219
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands
and Buildings are owned by the Republic and thus exempt from real estate
tax under Section 234(a) of the Local Government Code.7 (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the Introductory

Provisions of the Administrative Code of 1987 uses the phrase "includes x x
x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or
controlled corporation." Obviously, the term government "instrumentality"
is broader than the term "government-owned or controlled corporation."
Section 2(10) provides:
SEC. 2. General Terms Defined.– x x x
(10) Instrumentality refers to any agency of the national Government, not

institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate

definition under Section 2(13)8 of the Introductory Provisions of the
Administrative Code of 1987:
SEC. 2. General Terms Defined.– x x x
(13) Government-owned or controlled corporation refers to any agency

organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: Provided, That
government-owned or controlled corporations may further be categorized
by the department of Budget, the Civil Service Commission, and the
Commission on Audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations.
The fact that two terms have separate definitions means that while a
government "instrumentality" may include a "government-owned or
controlled corporation," there may be a government "instrumentality" that
will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled

corporation" in Section 2(13) will show that MIAA would not fall under
220
such definition. MIAA is a government "instrumentality" that does not
qualify as a "government-owned or controlled corporation." As
explained in the 2006 MIAA case:

stock or non-stock corporation." MIAA is not organized as a stock or non-
stock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose

"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
xxx

operating income to the National Treasury. This prevents MIAA from

operate an international and domestic airport for public use.

corporate powers. x x x

221
eminent domain, police authority and the levying of fees and charges. At
the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."9
Thus, MIAA is not a government-owned or controlled corporation but a

government instrumentality which is exempt from any kind of tax from the
local governments. Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated in Section 133 of
the Local Government Code.10 Under Section 133(o)11 of the Local
Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA
is not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of

public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property
tax.12 In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to real property
tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision

dated 30 October 2002 and the Resolution dated 19 March 2004 of the
Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay.
We declare VOID all the real property tax assessments, including the final
notices of real property tax delinquencies, issued by the City of Pasay on
the NAIA Pasay properties of the Manila International Airport Authority,
except for the portions that the Manila International Airport Authority has
leased to private parties.
No costs.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.
222
REYNATO S. PUNO
Chief Justic
DISSENTING OPINION
YNARES-SANTIAGO, J.:
Indeed, as pointed out by Justice Antonio T. Carpio, the Court has twice
reaffirmed the ruling in Manila International Airport Authority v. Court of
Appeals1 in the subsequent cases of Philippine Fisheries Development
Authority v. Court of Appeals2 and Philippine Fisheries Development
Authority v. Court of Appeals.3 However, upon further study of the issues
presented in said cases, I agree with Justice Dante O. Tinga that the Manila
International Airport Authority (MIAA) ruling was incorrectly rationalized,
particularly on the unwieldy characterization of MIAA as a species of a
government instrumentality. I submit that the present ponencia of Justice
Carpio perpetuates the error which I find imperative for the Court to
correct.
Nevertheless, unlike Justice Tinga’s rationalization, I find that there is no

more need to belabor the issue of whether the MIAA is a government-
owned or controlled corporation (GOCC) or a government instrumentality
in order to resolve the issue of whether the airport properties are subject to
real property tax.
Instead, I subscribe to the "simple, direct and painless approach" proposed

by Justice Antonio Eduardo B. Nachura that it is imperative to "fine
tune" the Court’s ruling in Mactan Cebu International Airport Authority v.
Marcos4 vis-à-vis that in Manila International Airport Authority v. Court of
Appeals;5 and that what needs only to be ascertained is whether the airport
properties are owned by the Republic; and if such, then said properties are
exempt from real property tax, by applying Section 234 of Republic Act
No. 7160 (R.A. No. 7160) or the Local Government Code (LGC).
Pursuant to Section 232 of the LGC, a province or city or municipality

within the Metropolitan Manila Area is vested with the power to levy an
annual ad valorem tax on real property such as land, building, machinery,
and other improvement not hereafter specifically exempted. Corollarily,
Section 234 thereof provides an enumeration of certain properties which are
exempt from payment of the real property tax, among which is "real
consideration or otherwise, to a taxable person."
Article 420 of the Civil Code enumerates the properties of public dominion,
to wit:
Art. 420: The following things are property of public dominion:

223
There is no question that the airport and all its installations, facilities and
equipment, are intended for public use and are, thus, properties of public
dominion.
Concededly, the Court ruled in Mactan Cebu International Airport

Authority v. Marcos6 that:
The crucial issues then to be addressed are: (a) whether the parcels of land
in question belong to the Republic of the Philippines whose beneficial use
has been granted to the petitioner, and (b) whether the petitioner is a
"taxable persons."
Section 15 of [MCIAA’s] Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. – Al existing

public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and privileges relating on
airport works or air operations, including all equipment which are necessary
for the operations of air navigation, aerodome control towers, crash, fire,
and rescue facilities are hereby transferred to the Authority: Provided,
however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the
approach control office, and the area control center shall be retained by the
Air Transportation Office. No equipment, however, shall be removed by the
Air Transportation Office from Mactan without the concurrence of the
Authority. The Authority may assist in the maintenance of the Air
Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the
"Mactan International Airport in the Province of Cebu," which belonged to
the Republic of the Philippines, then under the Air Transportation Office
(ATO).
It may be reasonable to assume that the term "lands" refer to "lands" in

Cebu City then administered by the Lahug Air Port and includes the parcels
of land the respondent City of Cebu seeks to levy on for real property taxes.
This section involves a "transfer" of the "lands" among other thins, to the
petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
224
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner’s authorized capital stock consists of, inter alia, "the
value of such real estate owned and/or administered by the airports." Hence,
the petitioner is now the owner of the land in question and the exception in
Section 234© of the LGC is inapplicable.
Meanwhile, Executive Order No. 9037 or the Revised Charter of the Manila
International Airport Authority, provides in Section 3 thereof that –
xxxx
Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the
area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority.
Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.
Regardless of the apparent transfer of title of the said properties to MIAA, I

submit that the latter is only holding the properties for the benefit of the
Republic in its capacity as agent thereof. It is to be noted that despite the
conveyance of the title to the said properties to the MIAA, however, the
latter could not in any way dispose of the same through sale or through any
other mode unless specifically approved by the President of the
Republic.8Even MIAA’s borrowing power is dictated upon by the
President. Thus, MIAA could raise funds, either from local or international
sources, by way of loans, credits or securities, and other borrowing
instruments, create pledges, mortgages and other voluntary lines or
encumbrances on any of its assets or properties, only after consultation with
the Secretary of Finance and with the approval of the President. In addition,
MIAA’s total outstanding indebtedness could exceed its net worth only
upon express authorization by the President. 9
I fully agree with Justice Nachura that "even if MIAA holds the record title
over the airport properties, such holding can only be for the benefit of the
Republic, that MIAA exercises an essentially public function."
In sum, the airport and all its installations, facilities and equipment of the
MIAA, are properties of public dominion and should thus be exempted
from payment of real property tax, except those properties where the
beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
ACCORDINGLY, I vote to grant the petition.
225
CONSUELO YNARES-SANTIAGO
Associate Justice
DISSENTING OPINION
TINGA, J.:
I maintain my dissent expressed in the 2006 ruling in MIAA v. City of

Parañaque1 (the "Parañaque case.")
The majority relies on two main points drawn from the 2006 Parañaque
case in this instance as it rules once again that the MIAA is exempt from
realty taxes assessed by the City of Pasay. First, because MIAA is a
government instrumentality, it somehow finds itself exempt from the said
taxes, supposedly by operation of the Local Government Code. Second, the
subject properties are allegedly owned by the Republic of the Philippines,
notwithstanding that legal title thereto is in the name of the MIAA, which is
a distinct and independent juridical personality from the Republic.
I.
Once again, attempts are drawn to classify MIAA as a government

instrumentality, and not as a government owned or controlled corporation.
Such characterization was apparently insisted upon in order to tailor-fit the
MIAA to Section 133 of the Local Government Code, which reads:
Sec. 133. Common Limitations on the Taxing Powers of Local Government

Units.— Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:
xxx
15. Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. (emphasis and
underscoring supplied).
How was the Parañaque case able to define the MIAA as a instrumentality
of the National Government? The case propounded that MIAA was not a
GOCC:
There is no dispute that a government-owned or controlled corporation is

not exempt from real estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined. — . . .
226
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: . . . . (Emphasis
supplied)

stock or non-stock corporation." MIAA is not organized as a stock or non-
stock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares.
xxx
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code 10 defines a stock corporation as one

whose "capital stock is divided into shares and . . . authorized to distribute
to the holders of such shares dividends . . . ." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.

operating income to the National Treasury. 11 This prevents MIAA from

operate an international and domestic airport for public use.2
This "black or white" categorization of "stock" and "non-stock"

corporations utterly disregards the fact that nothing in the Constitution
prevents Congress from creating government owned or controlled
corporations in whatever structure it deems necessary. Note that this
definitions of "stock" and "non-stock" corporations are taken from the
Administrative Code, and not the Constitution. The Administrative Code is
227
a statute, and is thus not superior in hierarchy to any other subsequent
statute created by Congress, including the charters for GOCCs.
Since MIAA was presumed not to be a stock or non-stock corporation, the

majority in the Parañaque case then strived to fit it into a category.

corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– . . .
(10) Instrumentality refers to any agency of the National Government, not

through a charter. . . . (Emphasis supplied)

eminent domain, police authority and the levying of fees and charges. At
the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."3
Unfortunately, this cited statutory definition of an "instrumentality" is

incomplete. Worse, the omitted portion from Section 2(10) completely
contradicts the premise of the ponente that an instrumentality is mutually
exclusive from a GOCC. For the provision reads in full, with the omitted
portion highlighted, thus:
(10)Instrumentality refers to any agency of the National Government not

institutions and government—owned or controlled corporations.
228
This previous omission had not escaped the attention of the outside world.
For example, lawyer Gregorio Batiller, Jr., has written a paper on the
Parañaque case entitled "A Tale of Two Airports," which is published on
the Internet.4 He notes therein:
Also of interest was the dissenting opinion of Justice Dante Tinga to the
effect that the majority opinion failed to quote in full the definition of
"government instrumentality:"
The Majority gives the impression that a government instrumentality is a

distinct concept from a government corporation. Most tellingly, the
majority selectively cites a portion of Section 2(10) of the Administrative
Code of 1987, as follows:
Instrumentality refers to any agency of the National Government not

through a charter. xxx (emphasis omitted)"
However, Section 2(10) of the Administrative Code, when read in full,

makes an important clarification which the majority does not show. The
portions omitted by the majority are highlighted below: xxx
"(10)Instrumentality refers to any agency of the National Government not

or jurisdiction by, law endowed with some if not all corporate powers,
institutions and government – owned or controlled corporations.
So the majority opinion effectively begged the question in finding that the
MIAA was not a GOCC but a mere government instrumentality, which is
other than a GOCC.5
The Office of the President itself was alarmed by the redefinition made by
the MIAA case of instrumentalities, causing it on 29 December 2006 to
issue Executive Order No. 596 creating the unwieldy category of
"Government Instrumentality Vested with Corporate Powers or
Government Corporate Entities" just so that it was clear that these newly
defined "instrumentalities" or "government corporate entities" still fell
within the jurisdiction of the Office of the Government Corporate Counsel.
The E.O. reads in part:
EXECUTIVE ORDER NO. 596
DEFINING AND INCLUDING "GOVERNMENT

INSTRUMENTRALITY VESTED WITH CORPORATE POWERS" OR
229
"GOVERNMENT CORPORATE ENTITIES" UNDER THE
JURISDICTION OF THE OFFICE OF THE GOVERNMENT
CORPORATE COUNSEL (OGCC) AS PRINCIPAL LAW OFFICE OF
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS
(GOCCs) AND FOR OTHER PURPOSES.
WHEREAS, the Office of the Government Corporate Counsel (OGCC), as

the principal law office of all Government-Owned or Controlled
Corporations (GOCCs), including their subsidiaries, other corporate
offsprings and government acquired assets corporations, plays a very
significant role in safeguarding the legal interests and providing the legal
requirements of all GOCCs;
WHEREAS, there is an imperative need to integrate, strengthen and

rationalize the powers and jurisdiction of the OGCC in the light of the
Decision of the Supreme Court dated July 20, 2006, in the case of "Manila
International Airport Authority vs. Court of Appeals, City of Parañaque, et
al" (G.R. No. 155650), where the High Court differentiated "government
corporate entities" and government instrumentalities with corporate
powers" from GOCCs for purposes of the provisions of the Local
Government Code on real estate taxes, and other fees and charges imposed
by local government units;
WHEREAS, in the interest of an effective administration of justice, the

application and definition of the term "GOCCs" need to be further clarified
and rationalized to have consistency in referring to the term and to avoid
unintended conflicts and/or confusion’
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of

the Republic of the Philippines, by virtue of the powers vested in my by
law, do hereby order:
SECTION 1. The Office of the Government Corporate Counsel (OGCC)

shall be the principal law office of all GOCCs, except as may otherwise be
provided by their respective charter or authorized by the President, their
subsidiaries, corporate offsprings, and government acquired asset
corporations. The OGCC shall likewise be the principal law of the
"government instrumentality vested with corporate powers" or "government
corporate entity," as defined by the Supreme Court in the case of "MIAA v.
Court of Appeals, City of Parañaque, et al.," supra, notable examples of
which are: Manila International Airport Authority (MIAA), Mactan
International Airport Authority, the Philippine Ports Authority (PPA),
Philippine Deposit Insurance Corporation (PDIC), Metropolitan Water and
Sewerage Services (MWSS), Philippine Rice Research Institute (PRRI),
Laguna Lake Development Authority (LLDA), Fisheries Development
Authority (FDA), Bases Conversion Development Authority (BCDA),
Cebu Port Authority (CPA), Cagayan de Oro Port Authority, and San
Fernando Port Authority.
230
SECTION 2. As provided under PD 2029, series of 1986, the term GOCCs
is defined as a stock or non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by a
special law or if organized under the general corporation law, is owned or
controlled by the government directly, or indirectly, through a parent
corporation or subsidiary corporation, to the extent of at least majority of its
outstanding capital stock or of its outstanding voting capital stock.
Under Section 2(10) of the Introductory Provisions of the Administrative

Code of 1987, a government "instrumentality" refers to any agency of the
National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some, if
operational autonomy, usually through a charter.
SECTION 3. The following corporations are considered GOCCs under the

conditions and/or circumstances indicated:
a) A corporation organized under the general corporation law

under private ownership at least a majority of the shares of
stock of which were conveyed to a government financial
institution, whether by foreclosure or otherwise, or a subsidiary
corporation of a government corporation organized exclusively
to own and manage, or lease, or operate specific assets
acquired by a government financial institution in satisfaction of
debts incurred therewith and which in any case by enunciated
policy of the government is required to be disposed of to
private ownership within a specified period of time, shall not
be considered a GOCC before such disposition and even if the
ownership or control thereof is subsequently transferred to
another GOCC;
b) A corporation created by special law which is explicitly

intended under that law for ultimate transfer to private
ownership under certain specified conditions shall be
considered a GOCC, until it is transferred to private
ownership;
c) A corporation that is authorized to be established by special

law, but which is still required under that law to register with
the Securities and Exchange Commission in order to acquire a
juridical personality, shall not, on the basis of the special law
alone, be considered a GOCC.
xxx
Reading this Executive Order, one cannot help but get the impression that
the Republic of the Philippines, ostensibly the victorious party in the
231
Parañaque case, felt that the 2006 ponencia redefining "instrumentalities"
was wrong. Ostensibly, the Office of the Government Corporate Counsel,
the winning counsel in the MIAA case, cooperated in the drafting of this
E.O. and probably also felt that the redefinition of "instrumentalities" was
wrong. I had pointed out in my Dissent to the MIAA case that under the
framework propounded in that case, GOCCs such as the Philippine Ports
Authority, the Bases Conversion Development Authority, the Philippine
Economic Zone Authority, the Light Rail Transit Authority, the Bangko
Sentral ng Pilipinas, the National Power Corporation, the Lung Center of
the Philippines, and even the Philippine Institute of Traditional and
Alternative Health Care have been reclassified as instrumentalities instead
of GOCCs.
Notably, GOCCs are mandated by Republic Act No. 7656 to remit 50% of
their annual net earnings as cash, stock or property dividends to the
National Government. By denying categorization of those above-mentioned
corporations as GOCCs, the Court in MIAA effectively gave its imprimatur
to those entities to withhold remitting
50% of their annual net earnings to the National Government. Hence, the
necessity of E.O. No. 596 to undo the destructive effects of the Parañaque
case on the national coffers.
In a welcome development, the majority now acknowledges the existence

of that second clause in Section 2(10) of the Introductory Provisions of the
Administrative Code, the clause which made explicit that government
instrumentalities include GOCCs. In truth, I had never quite understood this
hesitation in plainly saying that GOCCs are instrumentalities. That fact is
really of little consequence in determining whether or not the MIAA or
other government instrumentalities or GOCCs are exempt from real
property taxes.
As I had consistently explained, the liability of such entities is mandated by

Section 232, in relation with Section 234 of the Local Government Code.
Section 232 lays down the general rule that provinces, cities or
municipalities within Metro Manila may levy an ad valorem tax on real
property "not hereinafter specifically exempted." Such specific exemptions
are enumerated in Section 234, and the only exemption tied to government
properties extends to "real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted…to a taxable person."6
Moreover, the final paragraph of Section 234 explains that "[e]xcept as

provided herein [in Section 234], any exemption from payment of real
property tax previously granted to, or presently enjoyed by all persons,
whether natural or juridical, including all government-owned or –controlled
corporations are hereby withdrawn upon the effectivity of this Code."
232
What are the implications of Section 232 in relation to Section 234 as to the
liability for real property taxes of government instrumentalities such as
MIAA?
1) All persons, whether natural or juridical, including GOCCs are

liable for real property taxes.
2) The only exempt properties are those owned by the Republic or

any of its political subdivisions.
3) So-called "government corporate entities," so long as they have

juridical personality distinct from the Republic of the Philippines or
any of its political subdivisions, are liable for real property taxes.
4) After the enactment of the Local Government Code in 1991,

Congress remained free to reenact tax exemptions from real property
taxes to government instrumentalities, as it did with the Government
Service Insurance System in 1997.
It is that simple. The most honest intellectual argument favoring the

exemption of the MIAA from real property taxes corresponds with the issue
of whether its properties may be deemed as "owned by the Republic or any
of its political subdivisions". The matter of whether MIAA is a GOCC or an
instrumentality or a "government corporate entity" should in fact be
irrelevant. However, the framework established by the ponente beginning
with the Parañaque case has inexplicably and unnecessarily included the
question of what is a GOCC? That issue, utterly irrelevant to settling the
question of MIAA’s tax liability, has caused nothing but distraction and
confusion.
It should be remembered that prior to the Parañaque case, the prevailing

rule on taxation of GOCCs was as enunciated in Mactan Cebu International
Airport v. Hon. Marcos.7 That rule was a highly sensible rule that gave due
respect to national government prerogatives and the devolution of taxing
powers to local governments. Neither did Mactan Cebu prevent Congress
from enacting legislation exempting selected GOCCs to be exempt from
real property taxes.
A significant portion of my Dissenting Opinion in the Parañaque case was

devoted to explaining Mactan Cebu, and criticizing the ponencia for
implicitly rejecting that doctrine without categorically saying so. In the
years since, significant confusion has arisen on whether Mactan Cebu and
the framework it established in real property taxation of GOCCs and
instrumentalities, remains extant. Batiller makes the same point in his
paper, expressly asking why "the Supreme Court did not explicitly declare
that the Mactan Cebu International Airport case was deemed repealed." He
added:
233
Inevitably, the refusal of the Supreme Court to clarify whether its Decision
in the Mactan Cebu International Airport case is deemed repealed would
leave us with an ambiguous situation where two (2) of our major
international airports are treated differently tax wise: one in Cebu which is
deemed to be a GOCC subject to real estate taxes and the other in Manila
which is not a GOCC and exempt from real estate taxes.
Where lies the substantial difference between the two (2) airports? Your
guess is as good as mine.8
There are no good reasons why the Court should not reassert the Mactan
Cebu doctrine. Under that ruling, real properties owned by the Republic of
the Philippines or any of its political subdivisions are exempted from the
payment of real property taxes, while instrumentalities or GOCCs are
generally exempted from local government taxes, save for real property
taxes. At the same time, Congress is free should it so desire to exempt
particular GOCCs or instrumentalities from real property taxes by enacting
legislation for that purpose. This paradigm is eminently more sober than
that created by the Parañaque case, which attempted to amend the
Constitution by elevating as a constitutional principle, the real property tax
exemption of all government instrumentalities, most of which also happen
to be GOCCs. Considering that the Constitution itself is supremely
deferential to the notion of local government rule and the power of local
governments to generate revenue through local taxes, the idea that not even
the local government code could subject such "instrumentalities" to local
taxes is plainly absurd.
II.
I do recognize that the present majority opinion has chosen to lay equal, if
not greater emphasis on the premise that the MIAA properties are
supposedly of public dominion, and as such are exempt from realty taxes
under Section 234(a) of the Local Government Code. Again, I respectfully
disagree.
It is Article 420 of the Civil Code which defines what are properties of
public dominion. I do not doubt that Article 420 can be interpreted in such a
way that airport properties, such as its runways, hangars and the like, can be
considered akin to ports or roads, both of
which are among those properties considered as part of the public dominion
under Article 420(1). It may likewise be possible that those properties
considered as "property of public dominion" under Article 420 of the Civil
Code are also "property owned by the Republic," which under Section 234
of the Local Government Code, are exempt from real property taxes.
The necessary question to ask is whether properties which are similar in

character to those enumerated under Article 420(1) may be considered still
234
part of the public dominion if, by virtue of statute, ownership thereof is
vested in a GOCC which has independent juridical personality from the
Republic of the Philippines. The question becomes even more complex if,
as in the case of MIAA, the law itself authorizes such GOCC to sell the
properties in question.
One of the most recognizable characteristics of public dominion properties

is that they are placed outside the commerce of man and cannot be alienated
or leased or otherwise be the subject matter of contracts.9 The fact is that
the MIAA may, by law, alienate, lease or place the airport properties as the
subject matter of contracts. The following provisions of the MIAA charter
make that clear:
SECTION 5. Functions, Powers, and Duties. — The Authority shall have

the following functions, powers and duties:
xxx xxx xxx
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise

dispose of any land, building, airport facility, or property of whatever kind
and nature, whether movable or immovable, or any interest therein;
xxx
SECTION 16. Borrowing Power. — The Authority may, after consultation

with the Minister of Finance and with the approval of the President of the
Philippines, as recommended by the Minister of Transportation and
Communications, raise funds, either from local or international sources, by
way of loans, credits or securities, and other borrowing instruments, with
the power to create pledges, mortgages and other voluntary liens or
encumbrances on any of its assets or properties.
There is thus that contradiction where property which ostensibly is

classified as part of the public dominion under Article 420 of the Civil Code
is nonetheless classified to lie within the commerce of man by virtue of a
subsequent law such as the MIAA charter. In order for the Court to classify
the MIAA properties as part of public dominion, it will be necessary to
invalidate the provisions of the MIAA charter allowing the Authority to
lease, sell, create pledges, mortgages and other voluntary liens or
encumbrances on any of the airport properties. The provisions of the MIAA
charter could not very well be invalidated with the Civil Code as basis,
since the MIAA charter and the Civil Code are both statutes, and thus of
equal rank in the hierarchy of laws, and more significantly the Civil Code
was enacted earlier and therefore could not be the repealing law.
If there is a provision in the Constitution that adopted the definition of and

limitations on public dominion properties as found in the Civil Code, then
the aforequoted provisions from the MIAA charter allowing the Authority
235
to place its properties within the commerce of man may be invalidated. The
Constitution however does not do so, confining itself instead to a general
statement that "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." Note though that under Article 420, public dominion
properties are not necessarily owned by the State, the two subsections
thereto referring to (a) properties intended for public use; and (b) those
which belong to the State and are intended for some public service or for
the development of the national wealth.10 In Laurel v.
Garcia,11 the Court notably acknowledged that "property of public

dominion is not owned by the State but pertains to the State." Thus, there is
no equivalence between the concept of public dominion under the Civil
Code, and of public domain under the Constitution.
Accordingly, the framework of public dominion properties is one that is

statutory, rather than constitutional in design. That being the case, Congress
is able by law to segregate properties which ostensibly are, by their nature,
part of the public dominion under Article 420(1) of the Civil Code, and
place them within the commerce of man by vesting title thereto in an
independent juridical personality such as the MIAA, and authorizing their
sale, lease, mortgage and other similar encumbrances. When Congress
accomplishes that by law, the properties could no longer be considered as
part of the public dominion.
This point has been recognized by previous jurisprudence which I had cited
in my dissent in the Parañaque case. For example, in Philippine Ports
Authority v. City of Iloilo, the Court stated that "properties of public
dominion are owned by the general public and cannot be declared to be
owned by a public corporation, such as [the Philippine Ports Authority]."12 I
had likewise previously explained:
The second Public Ports Authority case, penned by Justice Callejo, likewise
lays down useful doctrines in this regard. The Court refuted the claim that
the properties of the PPA were owned by the Republic of the Philippines,
noting that PPA's charter expressly transferred ownership over these
properties to the PPA, a situation which similarly obtains with MIAA. The
Court even went as far as saying that the fact that the PPA "had not been
issued any torrens title over the port and port facilities and appurtenances is
of no legal consequence. A torrens title does not, by itself, vest ownership;
it is merely an evidence of title over properties. . . . It has never been
recognized as a mode of acquiring ownership over real properties."
The Court further added:
. . . The bare fact that the port and its facilities and appurtenances are
accessible to the general public does not exempt it from the payment of real
236
property taxes. It must be stressed that the said port facilities and
appurtenances are the petitioner's corporate patrimonial properties, not for
public use, and that the operation of the port and its facilities and the
administration of its buildings are in the nature of ordinary business. The
petitioner is clothed, under P.D. No. 857, with corporate status and
corporate powers in the furtherance of its proprietary interests . . . The
petitioner is even empowered to invest its funds in such government
securities approved by the Board of Directors, and derives its income from
rates, charges or fees for the use by vessels of the port premises, appliances
or equipment. . . . Clearly then, the petitioner is a profit-earning
corporation; hence, its patrimonial properties are subject to tax.
There is no doubt that the properties of the MIAA, as with the PPA, are in a
sense, for public use. A similar argument was propounded by the Light Rail
Transit Authority in Light Rail Transit Authority v. Central Board of
Assessment, 118 which was cited in Philippine Ports Authority and
deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a
body corporate, "provides valuable transportation facilities to the paying
public." 119 It claimed that its carriage-ways and terminal stations are
immovably attached to government-owned
national roads, and to impose real property taxes thereupon would be to

impose taxes on public roads. This view did not persuade the Court, whose
decision was penned by Justice (now Chief Justice) Panganiban. It was
noted:
Though the creation of the LRTA was impelled by public service — to

provide mass transportation to alleviate the traffic and transportation
situation in Metro Manila — its operation undeniably partakes of ordinary
business. Petitioner is clothed with corporate status and corporate powers in
the furtherance of its proprietary objectives. Indeed, it operates much like
any private corporation engaged in the mass transport industry. Given that it
is engaged in a service-oriented commercial endeavor, its carriageways and
terminal stations are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.
xxx xxx xxx
Petitioner argues that it merely operates and maintains the LRT system, and
that the actual users of the carriageways and terminal stations are the
commuting public. It adds that the public use character of the LRT is not
negated by the fact that revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone,
the LRT is accessible only to those who pay the required fare. It is thus
apparent that petitioner does not exist solely for public service, and that the
LRT carriageways and terminal stations are not exclusively for public use.
Although petitioner is a public utility, it is nonetheless profit-earning. It
237
actually uses those carriageways and terminal stations in its public utility
business and earns money therefrom.
xxx xxx xxx
Even granting that the national government indeed owns the carriageways
and terminal stations, the exemption would not apply because their
beneficial use has been granted to petitioner, a taxable entity.
There is no substantial distinction between the properties held by the PPA,

the LRTA, and the MIAA. These three entities are in the business of
operating facilities that promote public transportation.
The majority further asserts that MIAA's properties, being part of the public
dominion, are outside the commerce of man. But if this is so, then why does
Section 3 of MIAA's charter authorize the President of the Philippines to
approve the sale of any of these properties? In fact, why does MIAA's
charter in the first place authorize the transfer of these airport properties,
assuming that indeed these are beyond the commerce of man?13
III.
In the present case, the City of Pasay had issued notices of levy and
warrants of levy for the NAIA Pasay properties, leading MIAA to file with
the Court of Appeals a petition for prohibition and injunction, seeking to
enjoin the City of Pasay from imposing real property taxes, levying against
and auctioning for public sale the NAIA Pasay properties.
In the Parañaque case, I had expressed that while MIAA was liable for the
realty taxes, its properties could not be foreclosed upon by the local
government unit seeking the taxes. I explained then:
Despite the fact that the City of Parañaque ineluctably has the power to
impose real property taxes over the MIAA, there is an equally relevant
statutory limitation on this power that must be fully upheld. Section 3 of the
MIAA charter states that "[a]ny portion [of the [lands transferred, conveyed
and assigned to the ownership and administration of the MIAA] shall not be
disposed through sale or through any other mode unless specifically
approved by the President of the Philippines."
Nothing in the Local Government Code, even with its wide grant of powers
to LGUs, can be deemed as repealing this prohibition under Section 3, even
if it effectively forecloses one possible remedy of the LGU in the collection
of delinquent real property taxes. While the Local Government Code
withdrew all previous local tax exemptions of the MIAA and other natural
and juridical persons, it did not similarly withdraw any previously enacted
prohibitions on properties owned by GOCCs, agencies or instrumentalities.
Moreover, the resulting legal effect, subjecting on one hand the MIAA to
238
local taxes but on the other hand shielding its properties from any form of
sale or disposition, is not contradictory or paradoxical, onerous as its effect
may be on the LGU. It simply means that the LGU has to find another way
to collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.
Accordingly, I believe that MIAA is entitled to a writ of prohibition and

injunctive relief enjoining the City of Pasay from auctioning for public sale
the NAIA Pasay properties. Thus, the Court of Appeals erred when it
denied those reliefs to the MIAA.
I VOTE to PARTIALLY GRANT the petition and to issue the Writ of

Prohibition insofar as it would enjoin the City of Pasay from auctioning for
public sale the NAIA Pasay properties. In all other respects, I respectfully
dissent.
DANTE O. TINGA
Associate Justice
SEPARATE OPINION
NACHURA, J.:
Are airport properties subject to real property tax? The question seriously
begs for a definitive resolution, in light of our ostensibly contradictory
decisions1 that may have generated no small measure of confusion even
among lawyers and magistrates.
Hereunder, I propose a simple, direct and painless approach to arrive at an

acceptable answer to the question.
I.
Real property tax is a direct tax on the ownership of lands and buildings or
other improvements thereon, not specially exempted, and is payable
regardless of whether the property is used or not, although the value may
vary in accordance with such factor. The tax is usually single or indivisible,
although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements
belong to separate owners.2
The power to levy this tax is vested in local government units (LGUs).
Thus, Republic Act (R.A.) No. 7160, or the Local Government Code (LGC)
of 1991,3 provides:
Under Book II, Title II, Chapter IV-Imposition of Real Property Tax
239
Section 232. Power to Levy Real Property Tax.—A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.4
A significant innovation in the LGC is the withdrawal, subject to some

exceptions, of all tax exemption privileges of all natural or juridical
persons, including government-owned and controlled corporations
(GOCCs), thus:
Under Book II, Title I, Chapter V-Miscellaneous Provisions
Section 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of
this Code.5
This is where the controversy started. The airport authorities, formerly

exempt from paying taxes, are now being obliged to pay real property tax
on airport properties.
To challenge the real property tax assessments, the airport authorities

invoke two provisions of the LGC—one is stated in Book II, Title I,
Chapter I on General Provisions, which reads:
Section 133. Common Limitations on the Taxing Powers of Local

Government Units.—Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions

mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on

wharves, tonnage dues, and all other kinds of customs fees, charges
and dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried
into or out of, or passing through, the territorial jurisdictions of local
240
government units in the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when

sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of

Investments as pioneer or non-pioneer for a period of six (6) and four
(4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal

Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
(i) Percentage or value-added tax (VAT) on sales, barters or

exchanges or similar transactions on goods or services except as
otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and

persons engaged in the transportation of passengers or freight by hire
and common carriers by air, land or water, except as provided in this
Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and
for the issuance of all kinds of licenses or permits for the driving
thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually

exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business

Enterprises and cooperatives duly registered under R.A. No. 6810
and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A.
No. 6938) otherwise known as the "Cooperative Code of the
Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government,

its agencies and instrumentalities, and local government units.6
and the other in Book II, Title I, Chapter IV on Imposition of Real Property
Tax:
Section 234. Exemptions from Real Property Tax.—The following are

241
been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents

appurtenant thereto, mosques, nonprofit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
exclusively used by local water districts and government-owned or
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as

provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and

environmental protection.

corporations are hereby withdrawn upon the effectivity of this Code.7
In Mactan Cebu International Airport Authority (MCIAA) v. Marcos,8 the

Court ruled that Section 133(o) is qualified by Sections 232 and 234. Thus,
MCIAA could not seek refuge in Section 133(o), but only in Section 234(a)
provided it could establish that the properties were owned by the Republic
of the Philippines. The Court ratiocinated, thus:
[R]eading together Sections 133, 232, and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133, the taxing powers of
local government units cannot extend to the levy of, inter alia, "taxes, fees
and charges of any kind on the National Government, its agencies and
instrumentalities, and local government units"; however, pursuant to
Section 232, provinces, cities, and municipalities in the Metropolitan
Manila Area may impose the real property tax except on, inter alia, "real
consideration or otherwise, to a taxable person," as provided in item (a) of
the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by

natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
arewithdrawn upon the effectivity of the LGC, except those granted to local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock
242
and non-profit hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption
insofar as real property taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in the enumeration lost the
privilege upon the effectivity of the LGC. Moreover, even as to real
subdivisions covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property has been
granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes
granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it in Section 14 of its
Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now
asserts, since, as shown above, the said section is qualified by Sections 232
and 234.
In short, the petitioner can no longer invoke the general rule in Section 133
that the taxing powers of the local government units cannot extend to the
levy of:
(o) taxes, fees or charges of any kind on the National Government, its
agencies or instrumentalities, and local government units.9
In addition, the Court went on to hold that the properties comprising the
Lahug International Airport and the Mactan International Airport are no
longer owned by the Republic, the latter having conveyed the same
absolutely to MCIAA.
About a decade later, however, the Court ruled in Manila International

Airport Authority (MIAA) v. Court of Appeals,10 that the airport properties,
this time comprising the Ninoy Aquino International Airport (NAIA), are
exempt from real property tax. It justified its ruling by categorizing MIAA
as a government instrumentality specifically exempted from paying tax by
Section 133(o) of R.A. No. 7160. It further reasoned that the subject
properties are properties of public dominion, owned by the Republic, and
are only held in trust by MIAA, thus:
Under Section 2(10) and (13) of the Introductory Provisions of the

Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
243
machinery, MIAA is a government instrumentality and not a government-
owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are properties of public dominion and
thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes
public airports and seaports, as properties of public dominion and owned by
the Republic. As properties of public dominion owned by the Republic,
there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.11
II.
In this case, we are confronted by the very same issue.
A basic principle in statutory construction decrees that, to discover the

general legislative intent, the whole statute, and not only a particular
provision thereof, should be considered. Every section, provision or clause
in the law must be read and construed in reference to each other in order to
arrive at the true intention of the legislature.12
Notably, Section 133 of the LGC speaks of the general limitations on the
taxing power of LGUs. This is reinforced by its inclusion in Title I, Chapter
I entitled "General Provisions" on "Local Government Taxation." On the
other hand, Section 234, containing the enumeration of the specific
exemptions from real property tax, is in Chapter IV entitled "Imposition of
Real Property Tax" under Title II on "Real Property Taxation." When read
together, Section 234, a specific provision, qualifies Section 133, a general
provision.
Indeed, whenever there is a particular enactment and a general enactment in

the same statute, and the latter, taken in its most comprehensive sense, will
overrule the former, the particular enactment must be operative, and the
general enactment must be taken to affect only the other parts of the statute
to which it may properly apply.13Otherwise stated, where there are two acts
or provisions, one of which is special and particular, and certainly includes
the matter in question, and the other general, which, if standing alone, will
244
include the same matter and thus conflict with the special act or provision,
the special must be taken as intended to constitute an exception to the
general act or provision, especially when such general and special acts or
provisions are contemporaneous, as the legislature is not to be presumed to
have intended a conflict.14
Mactan Cebu therefore adheres to the intendment of the law insofar as it

holds that MCIAA cannot seek refuge in Section 133(o); that it can only
invoke Section 234(a) so long as it can establish that the properties were
owned by the Republic of the Philippines. To repeat, Section 234, which
specifies the properties exempted from real property tax, prevails over the
general limitations on the taxing power of LGUs stated in Section 133.
Thus, if Section 133(o) is not to be a haven, then, I respectfully submit that

it is no longer necessary to dichotomize between a government
instrumentality and a GOCC. As stressed by the Court in Mactan Cebu,
what need only be ascertained is whether the airport properties are owned
by the Republic if the airport Authority is to be freed from the burden of
paying the real property tax. Similarly, in MIAA, with the Court’s finding
that the NAIA lands and buildings are owned by the Republic, the airport
Authority does not have to pay real property tax to the City of Parañaque.
III.
As pointed out earlier, Mactan Cebu and MIAA ostensibly contradict each
other. While the first considers airport properties as subject to real property
tax, the second exempts the same from this imposition. The conflict,
however, is more apparent than real. The divergent conclusions in the two
cases proceed from different premises; hence, the resulting contradiction.
To elucidate, in Mactan Cebu, the Court focused on the proper

interpretation of Sections 133, 232 and 234 of the LGC, and emphasized the
nature of the tax exemptions granted by law. Mactan Cebu categorized the
exemptions as based on the ownership, character and use of the property,
thus:
(a) Ownership Exemptions. Exemptions from real property taxes on

the basis of ownership are real properties owned by: (i) the Republic,
(ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi)
registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the

basis of their character are: (i) charitable institutions, (ii) houses and
temples of prayer like churches, parsonages or convents appurtenant
thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the

basis of the actual, direct and exclusiveuse to which they are devoted
245
are: (i) all lands, buildings and improvements which are actually
directly and exclusively used for religious, charitable or educational
purposes; (ii) all machineries and equipment actually, directly and
exclusively used by local water districts or by government-owned or
water and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the modernization of

the country, all machinery and equipment for pollution control and
environmental protection may not be taxed by local governments.15
For the airport properties to be exempt from real property tax, they must fall
within the mentioned categories. Logically, the airport properties can only
qualify under the first exemption–by virtue of ownership. But, as already
mentioned, the Court, nevertheless, ruled in Mactan Cebu that the said
properties are no longer owned by the Republic having been conveyed
absolutely to the airport Authority, thus:
Section 15 of the petitioner’s Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All

existing public airport facilities, runways, lands, buildings and other
properties, movable or immovable, belonging to or presently administered
by the airports, and all assets, powers, rights, interests and privileges
relating on airport works or air operations, including all equipment which
are necessary for the operations of air navigation, aerodrome control
towers, crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control center
shall be retained by the Air Transportation Office. No equipment, however,
shall be removed by the Air Transportation Office from Mactan without the
concurrence of the Authority. The Authority may assist in the maintenance
of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the
"Mactan International Airport in the Province of Cebu," which belonged to
the Republic of the Philippines, then under the Air Transportation Office
(ATO).
It may be reasonable to assume that the term "lands" refer to "lands" in

Cebu City then administered by the Lahug Air Port and includes the parcels
of land the respondent City of Cebu seeks to levy on for real property taxes.
This section involves a "transfer" of the "lands," among other things, to the
petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
246
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner’s authorized capital stock consists of, inter alia, "the
value of such real estate owned and/or administered by the airports."Hence,
the petitioner is now the owner of the land in question and the exception in
Section 234(c) of the LGC is inapplicable.16
In MIAA, a different conclusion was reached by the Court on two grounds.

It first banked on the general provision limiting the taxing power of LGUs
as stated in Section 133(o) of the LGC that, unless otherwise provided in
the Code, the exercise of the taxing powers of LGUs shall not extend to the
levy of taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and LGUs. The Court took pains in
characterizing airport authorities as government instrumentalities, quite
obviously, in order to apply the said provision.
After doing so, the Court then shifted its attention and proceeded to focus
on the issue of who owns the property to determine whether the case falls
within the purview of Section 234(a). Ratiocinating that airport properties
are of public dominion which pertain to the state and that the airport
Authority is a mere trustee of the Republic, the Court ruled that the said
properties are exempt from real property tax, thus:
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. The
Civil Code provides:
xxxx
No one can dispute that properties of public dominion mentioned in Article

420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a
"port" constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other charges from the
public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway
does not change the character of the road as one for public use. Someone
must pay for the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those among the public
247
who actually use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and equitable manner of
taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the
property whether it is of public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one "intended for public use."
Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions
as the rest of the public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and other conditions for
the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed
user’s tax. This means taxing those among the public who actually use a
public facility instead of taxing all the public including those who never use
the particular public facility. A user’s tax is more equitable — a principle of
taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and domestic air
traffic," are properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and
thus are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are outside the commerce of man. The
Court has ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled in
Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:
xxxx
Again in Espiritu v. Municipal Council, the Court declared that properties

of public dominion are outside the commerce of man:
xxxx
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
248
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the 600-hectare
runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President
must first withdraw from public use the Airport Lands and Buildings.
Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "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," provide:
xxxx
Thus, unless the President issues a proclamation withdrawing the Airport

Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they
are not subject to levy on execution or foreclosure sale. As long as the
Airport Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14,
Chapter 4, Title I, Book III of the Administrative Code of 1987, which
states:
xxxx
There is no question, therefore, that unless the Airport Lands and Buildings
are withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for
the Republic. Section 48, Chapter 12, Book I of the Administrative Code
allows instrumentalities like MIAA to hold title to real properties owned by
the Republic, thus:
xxxx
249
In MIAA’s case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the President of the Republic
can sign such deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the
Airport Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA Charter
provides:
xxxx
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock since
MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
xxxx
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of
these assets from the Republic to MIAA. The purpose was merely to
reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely by the Republic.
No party claims any ownership rights over MIAA’s assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings
"shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and
Buildings because under Article 428 of the Civil Code, only the "owner has
the right to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport Lands and
Buildings.
At any time, the President can transfer back to the Republic title to the
Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is the
only one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong
to the Republic.
250
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax
any "[r]eal property owned by the Republic of the Philippines." Section
234(a) provides:
xxxx
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x." The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from
real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its
tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted
to MIAA the beneficial use of the Airport Lands and Buildings, such fact
does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to a taxable person and therefore
such land area is subject to real estate tax. In Lung Center of the Philippines
v. Quezon City, the Court ruled:
x x x x17
In the ultimate, I submit that the two rulings do not really contradict, but,
instead, complement each one. Mactan Cebu provides the proper rule that,
in order to determine whether airport properties are exempt from real
property tax, it is Section 234, not Section 133, of the LGC that should be
determinative of the properties exempt from the said tax. MIAA then lays
down the correct doctrine that airport properties are of public dominion
251
pertaining to the state, hence, falling within the ambit of Section 234(a) of
the LGC.
However, because of the confusion generated by the apparently conflicting

decisions, a fine tuning of Mactan Cebu and MIAA is imperative.
IV.
Parenthetically, while the basis of a real property tax assessment is actual

use,18 the tax itself is directed to theownership of the lands and buildings or
other improvements thereon.19 Public policy considerations dictate that
property of the State and of its municipal subdivisions devoted to
governmental uses and purposes is generally exempt from taxation although
no express provision in the law is made therefor.20 In the instant case, the
legislature specifically provided that real property owned by the Republic
of the Philippines or any of its political subdivisions is exempt from real
property tax, except, of course, when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person. The principal
basis of the exemption is likewiseownership.21
Indeed, emphasis should be made on the ownership of the property, rather

than on the airport Authority being a taxable entity. This strategy makes it
unnecessary to determine whether MIAA is an instrumentality or a GOCC,
as painstakingly expounded by the ponente.
Likewise, this approach provides a convenient escape from Justice Tinga’s

proposition that the MIAA is a taxable entity liable to pay real property
taxes, but the airport properties are exempt from levy on execution to
satisfy the tax liability. I fear that this hypothesis may trench on the
Constitutional principle of uniformity of taxation, 22because a tax lawfully
levied and assessed against a taxable governmental entity will not be
lienable while like assessments against all other taxable entities of the same
tax district will be lienable.23
The better option, then, is for the Court to concentrate on the nature of the
tax as a tax on ownership and to directly apply the pertinent real property
tax provisions of the LGC, specifically those dealing with the exemption
based on ownership, to the case at bar.
The phrase, "property owned by the Republic" in Section 234, actually

refers to those identified as public property in our laws. Following MIAA,
we go to Articles 420 and 421 of the Civil Code which provide:
252
Art. 421. All other property of the State, which is not of the character stated
in the preceding article, is patrimonial property.
From the afore-quoted, we readily deduce that airport properties are of

public dominion. The "port" in the enumeration certainly includes an
airport. With its beacons, landing fields, runways, and hangars, an airport is
analogous to a harbor with its lights, wharves and docks; the one is the
landing place and haven of ships that navigate the water, the other of those
that navigate the air.24 Ample authority further supports the proposition that
the term "roads" include runways and landing strips.25 Airports, therefore,
being properties of public dominion, are of the Republic.
At this point, I cannot help but air the observation that the legislature may
have really intended the phrase "owned by the Republic" in Section 234 to
refer to, among others, properties of public dominion. This is because
"public dominion" does not carry the idea of ownership. Tolentino, an
authority in civil law, explains:
This article shows that there is a distinction between dominion and

ownership. Private ownership is defined elsewhere in the Code; but the
meaning of public dominion is nowhere defined. From the context of
various provisions, it is clear that public dominion does not carry the idea of
ownership; property of public dominion is not owned by the State, but
pertains to the State, which as territorial sovereign exercises certain
juridical prerogatives over such property. The ownership of such property,
which has the special characteristics of a collective ownership for the
general use and enjoyment, by virtue of their application to the satisfaction
of the collective needs, is in the social group, whether national, provincial,
or municipal. Their purpose is not to serve the State as a juridical person,
but the citizens; they are intended for the common and public welfare, and
so they cannot be the object of appropriation, either by the State or by
private persons. The relation of the State to this property arises from the
fact that the State is the juridical representative of the social group, and as
such it takes care of them, preserves them and regulates their use for the
general welfare.26
Be that as it may, the legislative intent to exempt from real property tax the
properties of the Republic remains clear. The soil constituting the NAIA
airport and the runways cannot be taxed, being properties of public
dominion and pertaining to the Republic. This is true even if the title to the
said property is in the name of MIAA. Practical ownership, rather than the
naked legal title, must control, particularly because, as a matter of practice,
the record title may be in the name of a government agency or department
rather than in the name of the Republic.
253
In this case, even if MIAA holds the record title over the airport properties,
such holding can only be for the benefit of the Republic,27 especially when
we consider that MIAA exercises an essentially public function.28 Further,
where property, the title to which is in the name of the principal, is immune
from taxes, it remains immune even if the title is standing in the name of an
agent or trustee for such principal.29
Properties of public dominion are held in trust by the state or the Republic
for the people.30 The national government and the bodies it has created that
exercise delegated authority are, pursuant to the general principles of public
law, mere agents of the Republic. Here, insofar as it deals with the subject
properties, MIAA, a governmental creation exercising delegated powers, is
a mere agent of the Republic, and the latter, to repeat, is the trustee of the
properties for the benefit of all the people.31
Our ruling in MIAA, therefore, insofar as it holds that the airport Authority
is a "trustee of the Republic," may not have been precise. It would have
been more sound, legally that is, to consider the relationship between the
Republic and the airport Authority as principal and agent, rather than as
trustor and trustee.
The history of the subject airport attests to this proposition, thus:
The country's premier airport was originally a US Air Force Base, which
was turned over to the Philippine government in 1948. It started operations
as a civil aviation airport with meager facilities, then consisting of the
present domestic runway as its sole landing strip, and a small building
northwest of this runway as its sole passenger terminal.
The airport's international runway and associated taxiway were built in

1953; followed in 1961 by the construction of a control tower and a
terminal building for the exclusive use of international passengers at the
southwest intersection of the two runways. These structures formed the key
components of an airport system that came to be known as the Manila
International Airport (MIA).
Like other national airports, the MIA was first managed and operated by the
National Airports Corporation, an agency created on June 5, 1948 by virtue
of Republic Act No. 224. This was abolished in 1951 and [in] its stead, the
MIA Division was created under the Civil Aeronautics Administration
(CAA) of the Department of Commerce and Industry.
On October 19, 1956, the entire CAA, including the MIA Division, was
transferred to the Department of Public Works, Transportation and
Communications.
254
In 1979, the CAA was renamed Bureau of Air Transportation following the
creation of an exclusive Executive Department for Transportation and
Communications.
It is worthwhile to note at this point that while the MIA General Manager
then carried the rank of a Division Chief only, it became a matter of policy
and practice that he be appointed by no less than the President of the
Philippines since the magnitude of its impact on the country's economy has
acquired such national importance and recognition.
During the seventies, the Philippine tourism and industry experienced a

phenomenal upsurge in the country's manpower exports, resulting in more
international flight frequencies to Manila which grew by more than four
times.
Executive Order No. 381 promulgated by then President Marcos authorized

the development of Manila International Airport to meet the needs of the
coming decades.
A feasibility study/airport master plan was drawn up in 1973 by Airways

Engineering Corporation, the financing of which was source[d] from a
US$29.6 Million loan arranged with the Asian Development Bank (ADB).
The detailed Engineering Design of the new MIA Development Project
(MIADP) was undertaken by Renardet-Sauti/Transplan/F.F. Cruz
Consultants while the design of the IPT building was prepared by Architect
L.V. Locsin and Associates.
In 1974, the final engineering design was adopted by the Philippine

Government. This was concurred by the ADB on September 18, 1975 and
became known as the "Scheme E-5 Modified Plan." Actual work on the
project started in the second quarter of 1978.
On March 4, 1982, EXECUTIVE ORDER NO. 778 was signed into law,
abolishing the MIA Division under the BAT and creating in its stead the
MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA), vested
with the power to administer and operate the Manila International Airport
(MIA).
Though MIAA was envisioned to be autonomous, Letter of Instructions

(LOI) No. 1245, signed 31 May 1982, clarified that for purpose of policy
integration and program coordination, the MIAA Management shall be
under the general supervision but not control of the then Ministry of
Transportation and Communications.
On July 21, 1983, Executive Order No. 903 was promulgated, providing
that 65% of MIAA's annual gross operating income be reverted to the
general fund for the maintenance and operation of other international and
domestic airports in the country. It also scaled down the equity contribution
255
of the National Government to MIAA: from PhP 10 billion to PhP 2.5
billion and removed the provision exempting MIAA from the payment of
corporate tax.
Another revision in the MIAA Charter followed with the promulgation of

Executive Order No. 909, signed September 16, 1983, increasing the
membership of the MIAA Board to nine (9) Directors with the inclusion of
two other members to be appointed by the Philippine President.
The last amendment to the MIAA Charter was made on July 26, 1987
through Executive Order No. 298 which provided for a more realistic
income sharing arrangement between MIAA and the National Government.
It provided that instead of the 65% of gross operating income, only 20% of
MIAA's gross income, exclusive of income generated from the passenger
terminal fees and utility charges, shall revert to the general fund of the
National Treasury. EO 298 also reorganized the MIAA Board and raised
the capitalization to its original magnitude of PhP 10 billion.
The post 1986 Revolution period will not be complete without mention of
the renaming of MIA to Ninoy Aquino International Airport with the
enactment of Republic Act No. 6639 on August 17, 1987. While this
legislation renamed the airport complex, the MIA Authority would still
retain its corporate name since it did not amend the original or revised
charters of MIAA.32
The MIAA Charter further provides that any portion of the airport cannot
be disposed of by the Authority through sale or through any other mode
unless specifically approved by the President of the Philippines. 33 It is also
noted that MIAA’s board of directors is practically controlled by the
national government, the members thereof being officials of the executive
branch.34 Likewise, the Authority cannot levy and collect dues, charges,
fees or assessments for the use of the airport premises, works, appliances,
facilities or concessions, or for any service provided by it, without the
approval of several executive departments.35 These provisions are
consistent with an agency relationship. Let it be remembered that one of the
principal elements of an agency relationship is the existence of some degree
of control by the principal over the conduct and activities of the agent. In
this regard, while an agent undertakes to act on behalf of his principal and
subject to his control, a trustee as such is not subject to the control of the
beneficiary, except that he is under a duty to deal with the trust property for
the latter’s benefit in accordance with the terms of the trust and can be
compelled by the beneficiary to perform his duty.36
Finally, to consider MIAA as a "trustee of the Republic" will sanction the

technical creation of a second trust in which the Republic, which is already
a trustee, becomes the second trustor and the airport Authority a second
trustee. Although I do not wish to belabor the point, I submit that the
validity of such a scenario appears doubtful. Sufficient authority, however,
256
supports the proposition that a trustee can delegate his duties to an agent
provided he properly supervises and controls the agent’s conduct.37 In this
case, we can rightly say that the Republic, as the trustee of the public
dominion airport properties for the benefit of the people, has delegated to
MIAA the administration of the said properties subject, as shown above, to
the executive department’s supervision and control.
In fine, the properties comprising the NAIA being of public dominion

which pertain to the State, the same should be exempt from real property
tax following Section 234(a) of the LGC.
One last word. Given the foregoing disquisition, I find no necessity for this
Court to abandon its ruling in Mactan. On the premise that the rationale for
exempting airport properties from payment of real estate taxes is ownership
thereof by the Republic, the Mactan ruling is impeccable in its logic and its
conclusion should remain undisturbed. Having harmonized the apparently
divergent views, we need no longer fear any fierce disagreements in the
future.
I therefore vote to grant the petition.
ANTONIO EDUARDO B. NACHURA

Associate Justice

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 109791 July 14, 2003
PHILIPPINE PORTS AUTHORITY, petitioner,

vs.
CITY OF ILOILO, respondent.
AZCUNA, J.:
Before us is a petition for review on certiorari assailing the Decision of the

Regional Trial Court of Iloilo City, Branch 39, dated February 26, 1993 in
Civil Case No. 18477, a case for collection of a sum of money. Seeking to
raise questions purely of law, petitioner Philippine Ports Authority (PPA)
would want us to set aside the ruling ordering it to pay real property and
business taxes to respondent City of Iloilo.
The factual antecedents are summarized by the trial court:
257
This is an action for the "recovery of sum of money" filed by
[respondent] City of Iloilo, a public corporation organized under the
laws of the Republic of the Philippines, represented by the Hon.
Rodolfo T. Ganzon as City Mayor, against petitioner, Philippine
Ports Authority (PPA), a government corporation created by P.D.
857.
[Respondent] seeks to collect from [petitioner] real property taxes as

well as business taxes, computed from the last quarter of 1984 up to
fourth quarter of 1988.
[Respondent] alleges that [petitioner] is engaged in the business of

arrastre and stevedoring services and the leasing of real estate for
which it should be obligated to pay business taxes. It further alleges
that [petitioner] is the declared and registered owner of a warehouse
which is used in the operation of its business and is also thereby
subject to real property taxes.
It demands the aggregate amount of P510,888.86 in realty and

business taxes as of December 1988 (real property tax – last quarter
of 1984 to 1988; business tax- 1984 to 1988) including its
corresponding interests and penalty charges.
On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was
denied by this court. A motion for reconsideration was filed, but the
same was still denied, after which [petitioner] filed its answer.
During the pre-trial conference, the following factual and legal issues
were defined and clarified.
Factual Issues:
1. Whether or not [petitioner] is engaged in business;
2. Whether or not the assessment of tax by [respondent] is accurate as

of 4th quarter of 1988 from the year 1984; real property tax in the
amount of P180,953.93 and business tax in the amount of
P329,934.93 as of December 31, 1988.
Legal Issues:
1. Whether or not Philippine Ports Authority is exempt from the

payment of real property tax and business tax;
2. Whether by filing a motion to dismiss, [petitioner] impliedly

admitted the allegations in the complaint;
258
3. Whether Philippine Ports Authority is engaged in business. If in
the negative, whether or not it is exempt from payment of business
taxes.
During trial, [respondent] presented two witnesses, namely: Mrs.

Rizalina F. Tulio and Mr. Leoncio Macrangala.
xxx xxx xxx
After [respondent] had rested its case, [petitioner] did not present any
evidence. Instead, its counsel asked the court to give him time to file
a memorandum, as said counsel is convinced that the issues involved
in this case are purely legal issues.
He has no quarrel as regards the computation of the real property and

business taxes made by [respondent]. He is convinced, however, that
the issue in this case involves a question of law and that [petitioner]
is not liable to pay any kind of taxes to the City of Iloilo. 1
The court a quo rendered its decision holding petitioner liable for real
property taxes from the last quarter of 1984 to December 1986, and for
business taxes with respect to petitioner’s lease of real property from the
last quarter of 1984 up to 1988. It, however, held that respondent may not
collect business taxes on petitioner’s arrastre and stevedoring services, as
these form part of petitioner’s governmental functions. The dispositive
portion of said decision states:
WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiff and against the defendant, ordering the latter to
pay the plaintiff, as follows:
1. the amount of P98,519.16 as real property tax, from [the] last

quarter of 1984 up to December 1986;
2. the amount of P3,828.07, as business tax, for leasing of real estate

from [the] last quarter of 1984 up to 1988.2
Petitioner now seeks a review of the case, contending that the court a
quo decided a question of substance which has not been decided by us in
that:
(i) It decreed a property of public dominion (port facility) as subject

to realty taxes just because the mentioned property is being
administered by what it perceived to be a taxable government
corporation. And,
259
(ii) It declared that petitioner PPA is subject to "business taxes" for
leasing to private persons or entities real estate without considering
that petitioner PPA is not engaged in "business."3
In its Comment, respondent in addition raises the issue of whether or not

petitioner may change its theory on appeal. It points out that petitioner
never raised the issue that the subject property is of public dominion during
the trial nor did it mention it in the memorandum it filed with the lower
court. It further contends that such change of theory patently contradicts
petitioner’s admission in its pleadings and is disallowed under applicable
jurisprudence.4
The records show that the theory of petitioner before the trial court was
different from that of the present petition. In fact, even while at the trial
court stage, petitioner was not consistent in its theory.5 Initially in its
pleadings therein, it argued that as a government-owned corporation, it is
exempt from paying real property taxes by virtue of its specific exemption
in its charter,6 Section 40 of the Real Property Tax Code and Executive
Order No. 93. Subsequently, in the memorandum it filed with the trial
court, it omitted its earlier argument and changed its theory by alleging that
it is a government instrumentality, which, according to applicable
jurisprudence, may not be taxed by the local government. After obtaining
an adverse decision from the trial court, it adopts yet another stance on
appeal before us, contesting the taxability of its warehouse. It argued for the
first time that since "ports constructed by the State" are considered under
the Civil Code as properties of public dominion, its warehouse, which it
insists to be part of its port, should be treated likewise. To support this, it
invokes Article 420 of the Civil Code, which provides:
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
xxx xxx xxx
[Emphasis supplied]
Insisting that the subject warehouse is considered as part of its port, it

points to Section 3 (e) of its charter quoted hereunder:
e) "port" means a place where ships may anchor or tie up for the
purpose of shelter, repair, loading or discharge of cargo, or for other
such activities connected with water-borne commerce, and including
all the land and water areas and the structures, equipment and
facilities related to these functions. [Emphasis supplied]
260
A perusal of the records shows that this thesis was never presented nor
discussed at the trial stage.
As a rule, a party who deliberately adopts a certain theory upon which the
case is tried and decided by the lower court will not be permitted to change
theory on appeal.7 Points of law, theories, issues and arguments not brought
to the attention of the lower court need not be, and ordinarily will not be,
considered by a reviewing court, as these cannot be raised for the first time
at such late stage. Basic considerations of due process underlie this rule. 8It
would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory, which it could have
done had it been aware of it at the time of the hearing before the trial
court.9 To permit petitioner in this case to change its theory on appeal
would thus be unfair to respondent, and offend the basic rules of fair play,
justice and due process.10
Petitioner however cites an exception to the rule, as enunciated in Lianga

Lumber Co. v. Lianga Timber Co., Inc.,11 wherein we said:
[I]n the interest of justice and within the sound discretion of the
appellate court, a party may change his theory on appeal only when
the factual bases thereof would not require presentation of any further
evidence by the adverse party in order to enable it to properly meet
the issue raised in the new theory.
Petitioner contends that its new theory falls under the aforecited exception,
as the issue does not involve any disputed evidentiary matter.
Contrary to petitioner’s claim, we find that the new issue raised is not a
purely legal question. It must be emphasized that the enumeration of
properties of public dominion under Article 420 of the Civil Code
specifically states "ports constructed by the State." Thus, in order to
consider the port in the case at bar as falling under the said classification,
the fact that the port was constructed by the State must first be established
by sufficient evidence. This fact proved crucial in Santos v.
Moreno,12 where the issue raised was whether the canals constructed by
private persons were of public or private ownership. We ruled that the
canals were privately owned, thus:
Under Art. 420, canals constructed by the State and devoted and
devoted to public use are of public ownership. Conversely, canals
constructed by private persons within private lands and devoted
exclusively for private use must be of private ownership.
In the case at bar, no proof was adduced to establish that the port was
constructed by the State. Petitioner cannot have us automatically conclude
that its port qualified as "property of public dominion." It would be unfair to
respondent, which would be deprived of its opportunity to present evidence
261
to disprove the factual basis of the new theory. It is thus clear that
the Lianga exception cannot apply in the case at bar.
Moreover, as correctly pointed out by respondent, we cannot ignore the fact

that petitioner’s new position runs contrary to its own admission in the
pleadings filed in the trial court. Under paragraph 3 of respondent’s
complaint quoted hereunder, the fact of petitioner’s ownership of the
property was specifically alleged as follows:
III
Defendant is likewise the declared and registered owner of a

warehouse standing on Lot No. 1065 situated at Bgy. Concepcion,
City Proper, declared under Tax Declaration No. 56325. Xerox copy
of the said Tax Declaration is hereto attached as annex "D" and
formns] an integral part of herein complaint;13
In its Answer, referring to the abovecited complaint, petitioner stated,

"Paragraph 3 is admitted."14 Notably, this admission was never questioned
nor put at issue during the trial.
Now before us, petitioner contradicts its earlier admission by claiming that
the subject warehouse is a property of public dominion. This inconsistency
is made more apparent by looking closely at what public dominion means.
Tolentino explains this in this wise:
Private ownership is defined elsewhere in the Code; but the meaning

of public dominion is nowhere defined. From the context of various
provisions, it is clear that public dominion does not carry the idea of
ownership; property of public dominion is not owned by the State,
but pertains to the State, which as territorial sovereign exercises
certain judicial prerogatives over such property. The ownership of
such property, which has the special characteristics of a collective
ownership for the general use and enjoyment, by virtue of their
application to the satisfaction of collective needs, is in the social
group, whether national, provincial, or municipal. Their purpose is
not to serve the State as a juridical person, but the citizens; they are
intended for the common and public welfare, and so they cannot be
the object of appropriation, either by the State or by private
persons.15 [Emphasis supplied]
Following the above, properties of public dominion are owned by the

general public and cannot be declared to be owned by a public corporation,
such as petitioner.
As the object of the pleadings is to draw the lines of battle, so to speak,

between the litigants and to indicate fairly the nature of the claims or
defenses of both parties, a party cannot subsequently take a position
262
contrary to, or inconsistent, with his pleadings.16 Unless a party alleges
palpable mistake or denies such admission, judicial admissions cannot be
controverted.17 Petitioner is thus bound by its admission of ownership of the
subject property and is barred from claiming otherwise.
We also note that petitioner failed to raise the issue of ownership during the
pre-trial. In its petition, it insists that to determine liability for real property
tax, the ownership of the property must first be ascertained.18 In the pre-trial
order, however, to which petitioner did not object, nowhere was the issue of
ownership included in the stipulated factual or legal issues.19
We have ruled that a pre-trial is primarily intended to make certain that all
issues necessary to the disposition of a case are properly raised. Thus to
obviate the element of surprise, parties are expected to disclose at the pre-
trial conference all issues of law and fact which they intend to raise at the
trial. Consequently, the determination of issues at a pre-trial conference
bars the consideration of other questions on appeal.20 Hence, in the case at
bar, the fact that the issue of ownership is outside of what has been
delimited during the pre-trial further justifies the disallowance of
petitioner’s new theory.
Therefore, on the basis of the foregoing considerations and in the absence

of compelling reasons to rule otherwise, we hold that petitioner may not be
permitted to change its theory at this stage. Well-settled is the rule that
questions that were not raised in the lower court cannot be raised for the
first time on appeal.21
In any case, granting that petitioner’s present theory is allowed at this stage,
we nevertheless find it untenable. Concededly, "ports constructed by the
State" are properties of the public dominion, as Article 420 of the Civil
Code enumerates these as properties "intended for public use." It must be
stressed however that what is being taxed in the present case is petitioner’s
warehouse, which, although located within the port, is distinct from the port
itself. In Light Rail Transit Authority v. Central Board of Assessment
Appeals et al.,22 petitioner therein similarly sought an exemption from real
estate taxes on its passenger terminals, arguing that said properties are
considered as part of the "public roads," which are classified as property of
public dominion in the Civil Code.23 We ruled therein that:
…[T]he properties of petitioner are not exclusively considered as

public roads being improvements placed upon the public road, and
this [separable] nature of the structure in itself physically
distinguishes it from a public road. Considering further that
carriageways or passenger terminals are elevated structures which are
not freely accessible to the public, vis-à-vis roads which are public
improvements openly utilized by the public, the former are entirely
different from the latter.
263
Using the same reasoning, the warehouse in the case at bar may not be held
as part of the port, considering its separable nature as an improvement upon
the port, and the fact that it is not open for use by everyone and freely
accessible to the public. In the same way that we ruled in one case that the
exemption of public property from taxation does not extend to
improvements made thereon by homesteaders or occupants at their own
expense,24we likewise uphold the taxability of the warehouse in the instant
case, it being a mere improvement built on an alleged property of public
dominion, assuming petitioner’s port to be so. Moreover, petitioner may not
invoke the definition of "port" in its charter to expand the meaning of "ports
constructed by the State" in the Civil Code to include improvements built
thereon. It must be noted that the charter itself limited the use of said
definition only for the interpretation of Presidential Decree (P.D.) No. 857,
its by-laws, regulations and rules,25 and not of other statutes such as the
Civil Code. Given these parameters, therefore, petitioner’s move to present
its new theory, even if allowed, would nonetheless prove to be futile.
The trial court correctly ruled that for the assessed period of 1984 to 1988,
petitioner’s exemption from real property taxes was withdrawn by P.D. No.
1931, at least for the period of 1984 to 1986.
Originally, petitioner was exempt from real property taxes on the basis of
the Real Property Tax Code26 then governing, which provided:
SECTION 40. Exemptions from Real Property Tax. – The exemption

shall be as follows:

its political subdivisions and any government-owned corporation so
exempt by its charter: Provided; however, That this exemption shall
not apply to real property of the above-named entities the beneficial
use of which has been granted, for consideration or otherwise, to a
taxable person.
Petitioner’s charter, P.D. 857,27 further specifically exempted it from real

property taxes:
SECTION 25. Exemption from Realty Taxes – The Authority shall be

exempt from the payment of real property taxes imposed by the
Republic of the Philippines, its agencies, instrumentalities or political
subdivisions; Provided, That no tax exemptions shall be extended to
any subsidiaries of the Authority that may be organized; Provided,
finally, That investments in fixed assets shall be deductible for
income tax purposes.
It can thus be seen from the foregoing that petitioner, as a government-

owned or controlled corporation, enjoyed an exemption from real property
taxes.
264
On June 11, 1984, however, P.D. 1931 effectively withdrew all tax
exemption privileges granted to government-owned or controlled
corporations as stated in Section 1 thereof, which reads:
Sec. 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries, are hereby withdrawn.
Under the same law, the exemption can be restored in special cases through
an application for restoration with the Secretary of Finance,28 which,
notably, petitioner did not avail.
Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17,

1986 restoring tax exemptions provided under certain laws, one of which is
the Real Property Tax Code. The pertinent portion of said law provides:
SECTION 1. The provisions of any general or special law to the

contrary notwithstanding, all tax and duty incentives granted to
government and private entities are hereby withdrawn, except:
xxx xxx xxx
e) those conferred under four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
[Emphasis supplied]
The abovecited laws, therefore, indicate that petitioner’s tax exemption

from real property taxes was withdrawn by P.D. 1931 effective June 11,
1984, but was subsequently restored by virtue of E.O. 93, starting
December 17, 1986.29 Hence, petitioner is liable for real property taxes on
its warehouse, computed from the last quarter of 1984 up to December
1986.
Petitioner, however, seeks to be excused from liability for taxes by invoking

the pronouncement in Basco v. PAGCOR30 (Basco) quoted hereunder:
PAGCOR has a dual role, to operate and to regulate gambling

casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government. Being
265
an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subject to control by a mere Local government.
[Emphasis supplied]
Petitioner points out that its exercise of regulatory functions as decreed by

its charter31 places it within the category of an "agency or instrumentality of
the government," which, according to Basco, is beyond the reach of local
taxation.
Reliance in the abovecited case is unavailing considering that P.D. 1931

was never raised therein, and given that the issue in said case focused on the
constitutionality of P.D. 1869, the charter of PAGCOR. The said decision
did not absolutely prohibit local governments from taxing government
instrumentalities. In fact we stated therein:
The power of local government to "impose taxes and fees" is always

subject to "limitations" which Congress may provide by law. Since
P.D. 1869 remains an "operative" law until "amended, repealed or
revoked"…its "exemption clause" remains an exemption to the
exercise of the power of local governments to impose taxes and
fees.32
Furthermore, in the more recent case of Mactan Cebu International Airport

Authority v. Marcos,33 where theBasco case was similarly invoked for tax
exemption, we stated: "[N]othing can prevent Congress from decreeing that
even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its
wisdom." The fact that tax exemptions of government-owned or controlled
corporations have been expressly withdrawn by the present Local
Government Code34 clearly attests against petitioner’s claim of absolute
exemption of government instrumentalities from local taxation.
Petitioner also contends that the term "government-owned or controlled

corporations" referred in P.D. 1931 covers only those not performing
governmental functions. This argument is without legal basis for it reads
into the law a distinction that is not there. It runs contrary to the clear intent
of the law to withdraw from all units of the government, including
government-owned or controlled corporations, their exemptions from taxes.
Had it been otherwise, the law would have said so.35
Moreover, the trial court correctly pointed out that if indeed petitioner were
not subject to local taxation, petitioner’s charter would not have specifically
provided for its exemption from the payment of real property tax. Its
exemption therein therefore proves that it was only an exception to the
general rule of taxability of petitioner. Given that said privilege was
266
withdrawn by subsequent law, petitioner’s claim for exemption from real
property taxes for the entire assessed period fails.
We affirm the finding of the lower court on petitioner’s liability for

business taxes for the lease of its building to private corporations. During
the trial, petitioner did not present any evidence to refute respondent’s proof
of petitioner’s income from the lease of its property. Neither did it present
any proof of exemption from business taxes. Instead, it emphasized its
charter provisions defining its functions as governmental in nature. It
averred that it allowed port users to occupy certain premises within the port
area only to ensure order and convenience in discharging its governmental
functions. It hence claimed that it is not engaged in business, as the act of
leasing out its property was not motivated by profit, but by its duty to
manage and control port operations.
The argument is unconvincing. As admitted by petitioner, it leases out its

premises to private persons for "convenience" and not necessarily as part of
its governmental function of administering port operations. In fact, its
charter classifies such act of leasing out port facilities as one of petitioner’s
corporate powers.36 Any income or profit generated by an entity, even of a
corporation organized without any intention of realizing profit in the
conduct of its activities, is subject to tax. 37 What matters is the established
fact that it leased out its building to ten private entities from which it
regularly earned substantial income. Thus, in the absence of any proof of
exemption therefrom, petitioner is liable for the assessed business taxes.
In closing, we reiterate that in taxing government-owned or controlled

corporations, the State ultimately suffers no loss. In National Power Corp.
v. Presiding Judge, RTC, Br. XXV,38 we elucidated:
Actually, the State has no reason to decry the taxation of

NAPOCOR’s properties, as and by way of real property taxes. Real
property taxes, after all, form part and parcel of the financing
apparatus of the Government in development and nation-building,
particularly in the local government level.
xxx xxx xxx
To all intents and purposes, real property taxes are funds taken by the
State with one hand and given to the other. In no measure can the
government be said to have lost anything.
Finally, we find it appropriate to restate that the primary reason for the
withdrawal of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government was that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
267
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.39
WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
268

Cases Property Part 2

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Cases Property Part 2

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Republic of the Philippines

G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner,

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

These consolidated cases assail the decision1 of the Court of Appeals in

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of

(Real and Chattel Mortgage executed by Ever Textile Mills in favor

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins

Serial Numbers Size of Machines

xxx xxx xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

I. TCT # 372097 - RIZAL

xxx xxx xxx

III. MACHINERIES & EQUIPMENT situated, located and/or

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to

On November 19, 1982, due to business reverses, EVERTEX filed

In the meantime, upon EVERTEX's failure to meet its obligation to

On March 16, 1989, EVERTEX filed a complaint for annulment of sale,

The disputed properties, which were valued at P4,000,000.00, are: 14

WHEREFORE, judgment is hereby rendered in favor of plaintiff

1. Ordering the annulment of the sale executed by defendant

2. Ordering the defendants to pay jointly and severally the plaintiff

3. Ordering the defendants to pay jointly and severally the plaintiff

4. Ordering the defendants to pay jointly and severally the plaintiff

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

WHEREFORE, except for the deletion therefrom of the award; for

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

In G.R. No. 120098, PBCom raised the following issues:

DID THE COURT OF APPEALS VALIDLY DECREE THE

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN

Essentially, PBCom contends that respondent court erred in affirming the

In opposition, private respondents argue that the controverted units of

While it is true that the controverted properties appear to be immobile, a

As stressed upon by appellees, appellant bank treated the machineries

In the absence of any showing that this conclusion is baseless, erroneous or

nature, nothing detracts the parties from treating it as chattels to secure an

same description as the units enumerated under the title "LIST OF

Accordingly, we find no reversible error in the respondent appellate court's

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where

Finally, petitioners' defense of prescription and laches is less than

As to the award of damages, the contested damages are the actual

As regards said actual compensation, the RTC awarded P100,000.00

. . . In the award of actual damages under scrutiny, there is nothing on