G.R. No.

L40474 August 29, 1975

CEBU
OXYGEN
&
ACETYLENE
CO.,
INC., petitioner,
vs.
HON. PASCUAL A. BERCILLES Presiding Judge, Branch XV, 14th Judicial District,
and JOSE L. ESPELETA, Assistant Provincial Fiscal, Province of Cebu, representing
the Solicitor General's Office and the Bureau of Lands, respondents.
Jose Antonio R Conde for petitioner.
Office of the Acting Solicitor General Hugo E. Gutierrez, Jr., Assistant Solicitor General
Octavio R. Ramirez and Trial Attorney David R. Hilario for respondents. .
CONCEPCION, Jr., J.:
This is a petition for the review of the order of the Court of First Instance of Cebu
dismissing petitioner's application for registration of title over a parcel of land situated in
the City of Cebu.
The parcel of land sought to be registered was only a portion of M. Borces Street, Mabolo,
Cebu City. On September 23, 1968, the City Council of Cebu, through Resolution No.
2193, approved on October 3, 1968, declared the terminal portion of M. Borces Street,
Mabolo, Cebu City, as an abandoned road, the same not being included in the City
Development Plan. 1 Subsequently, on December 19, 1968, the City Council of Cebu passed
Resolution No. 2755, authorizing the Acting City Mayor to sell the land through a public
bidding. 2 Pursuant thereto, the lot was awarded to the herein petitioner being the highest
bidder and on March 3, 1969, the City of Cebu, through the Acting City Mayor, executed a
deed of absolute sale to the herein petitioner for a total consideration of P10,800.00. 3 By
virtue of the aforesaid deed of absolute sale, the petitioner filed an application with the
Court of First instance of Cebu to have its title to the land registered. 4
On June 26, 1974, the Assistant Provincial Fiscal of Cebu filed a motion to dismiss the
application on the ground that the property sought to be registered being a public road
intended for public use is considered part of the public domain and therefore outside the
commerce of man. Consequently, it cannot be subject to registration by any private
individual. 5
After hearing the parties, on October 11, 1974 the trial court issued an order dismissing the
petitioner's application for registration of title. 6 Hence, the instant petition for review.
For the resolution of this case, the petitioner poses the following questions:
(1) Does the City Charter of Cebu City (Republic Act No. 3857) under
Section 31, paragraph 34, give the City of Cebu the valid right to
declare a road as abandoned? and

(2) Does the declaration of the road, as abandoned, make it the

patrimonial property of the City of Cebu which may be the object of a
common contract?
(1) The pertinent portions of the Revised Charter of Cebu City provides:
Section 31. Legislative Powers. Any provision of law and executive
order to the contrary notwithstanding, the City Council shall have the
following legislative powers:
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(34) ...; to close any city road, street or alley, boulevard, avenue, park
or square. Property thus withdrawn from public servitude may be used
or conveyed for any purpose for which other real property belonging to
the City may be lawfully used or conveyed.
From the foregoing, it is undoubtedly clear that the City of Cebu is empowered to close a
city road or street. In the case of Favis vs. City of Baguio, 7 where the power of the city
Council of Baguio City to close city streets and to vacate or withdraw the same from public
use was similarly assailed, this court said:
5. So it is, that appellant may not challenge the city council's act of
withdrawing a strip of Lapu-Lapu Street at its dead end from public use
and converting the remainder thereof into an alley. These are acts well
within the ambit of the power to close a city street. The city council, it
would seem to us, is the authority competent to determine whether or
not a certain property is still necessary for public use.
Such power to vacate a street or alley is discretionary. And the
discretion will not ordinarily be controlled or interfered with by the
courts, absent a plain case of abuse or fraud or collusion. Faithfulness
to the public trust will be presumed. So the fact that some private
interests may be served incidentally will not invalidate the vacation
ordinance.
(2) Since that portion of the city street subject of petitioner's application for registration of
title was withdrawn from public use, it follows that such withdrawn portion becomes
patrimonial property which can be the object of an ordinary contract.
Article 422 of 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."
Besides, the Revised Charter of the City of Cebu heretofore quoted, in very clear and
unequivocal terms, states that: "Property thus withdrawn from public servitude may be used
or conveyed for any purpose for which other real property belonging to the City may be
lawfully used or conveyed."

Accordingly, the withdrawal of the property in question from public use and its subsequent
sale to the petitioner is valid. Hence, the petitioner has a registerable title over the lot in
question.

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.

WHEREFORE, the order dated October 11, 1974, rendered by the respondent court in Land
Reg. Case No. N-948, LRC Rec. No. N-44531 is hereby set aside, and the respondent court
is hereby ordered to proceed with the hearing of the petitioner's application for registration
of title.

During the pre-trial conference, the following factual and legal issues were
defined and clarified.

SO ORDERED.

G.R. No. 109791

Factual Issues:
1. Whether or not [petitioner] is engaged in business;

July 14, 2003

PHILIPPINE PORTS AUTHORITY, petitioner,

vs.
CITY OF ILOILO, respondent.
AZCUNA, J.:

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;

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.

2. Whether by filing a motion to dismiss, [petitioner] impliedly admitted the

allegations in the complaint;

The factual antecedents are summarized by the trial court:

During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F.

Tulio and Mr. Leoncio Macrangala.

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 tax1984 to 1988) including its corresponding interests and penalty charges.

3. Whether Philippine Ports Authority is engaged in business. If in the negative,

whether or not it is exempt from payment of business taxes.

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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
petitioners lease of real property from the last quarter of 1984 up to 1988. It, however, held
that respondent may not collect business taxes on petitioners arrastre and stevedoring
services, as these form part of petitioners 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,
(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 petitioners 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 governmentowned 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:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
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[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]
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 petitioners 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:

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.

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.

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 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.

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 to disprove the factual basis of the new theory. It is thus
clear that the Lianga exception cannot apply in the case at bar.

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

Moreover, as correctly pointed out by respondent, we cannot ignore the fact that
petitioners new position runs contrary to its own admission in the pleadings filed in the
trial court. Under paragraph 3 of respondents complaint quoted hereunder, the fact of
petitioners ownership of the property was specifically alleged as follows:

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 pretrial further justifies the disallowance of petitioners new theory.

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]

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 petitioners 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 petitioners 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. 23We 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--vis roads which are public improvements
openly utilized by the public, the former are entirely different from the latter.
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 petitioners 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,
petitioners 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, petitioners
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:

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:
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e) those conferred under four basic codes namely:

(i) the Tariff and Customs Code, as amended;

SECTION 40. Exemptions from Real Property Tax. The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of 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.
Petitioners 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.
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

(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 petitioners 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 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 Code 34 clearly attests
against petitioners 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, petitioners 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 withdrawn by subsequent law, petitioners claim for exemption from real property
taxes for the entire assessed period fails.
We affirm the finding of the lower court on petitioners liability for business taxes for the
lease of its building to private corporations. During the trial, petitioner did not present any
evidence to refute respondents proof of petitioners 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 petitioners 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 NAPOCORs 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 nationbuilding, particularly in the local government level.
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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. 39
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 169836

July 31, 2007

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF
FINANCE and the CITY OF ILOILO,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the June 21, 2005 Decision 1 of the Court of Appeals
in CA-G.R. SP No. 81228, which held that petitioner Philippine Fisheries Development
Authority (hereafter referred to as Authority) is liable to pay real property taxes on the land

and buildings of the Iloilo Fishing Port Complex (IFPC) which are owned by the Republic
of the Philippines but operated and governed by the Authority.

WHEREFORE, premises considered, the instant Petition for Review is DENIED,

and accordingly the June 30, 2003 Decision and December 3, 2003 Order of the
Office of the President are hereby AFFIRMED.

The facts are not disputed.

SO ORDERED.8
On August 11, 1976, then President Ferdinand E. Marcos issued Presidential Decree No.
977 (PD 977) creating the Authority and placing it under the direct control and supervision
of the Secretary of Natural Resources. On February 8, 1982, Executive Order No. 772 (EO
772) was issued amending PD 977, and renaming the Authority as the now "Philippine
Fisheries Development Authority," and attaching said agency to the Ministry of Natural
Resources. Upon the effectivity of the Administrative Code (EO 292), the Authority
became an attached agency of the Department of Agriculture. 2
Meanwhile, beginning October 31, 1981, the then Ministry of Public Works and Highways
reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and
constructed thereon the IFPC, consisting of breakwater, a landing quay, a refrigeration
building, a market hall, a municipal shed, an administration building, a water and fuel oil
supply system and other port related facilities and machineries. Upon its completion, the
Ministry of Public Works and Highways turned over IFPC to the Authority, pursuant to
Section 11 of PD 977, which places fishing port complexes and related facilities under the
governance and operation of the Authority. Notwithstanding said turn over, title to the land
and buildings of the IFPC remained with the Republic.
The Authority thereafter leased portions of IFPC to private firms and individuals engaged
in fishing related businesses.
Sometime in May 1988, the City of Iloilo assessed the entire IFPC for real property taxes.
The assessment remained unpaid until the alleged total tax delinquency of the Authority for
the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and
interests. To satisfy the tax delinquency, the City of Iloilo scheduled on August 30, 1990,
the sale at public auction of the IFPC.

Hence, this petition.

The issues are as follows: Is the Authority liable to pay real property tax to the City of
Iloilo? If the answer is in the affirmative, may the IFPC be sold at public auction to satisfy
the tax delinquency?
To resolve said issues, the Court has to determine (1) whether the Authority is a
government owned or controlled corporation (GOCC) or an instrumentality of the national
government; and (2) whether the IFPC is a property of public dominion.
The Court rules that the Authority is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the Authority leased to private
entities. With respect to these properties, the Authority is liable to pay real property tax.
Nonetheless, the IFPC, being a property of public dominion cannot be sold at public
auction to satisfy the tax delinquency.
In Manila International Airport Authority (MIAA) v. Court of Appeals,9 the Court made a
distinction between a GOCC and an instrumentality. Thus:
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

The Authority filed an injunction case with the Regional Trial Court. At the pre-trial, the
parties agreed to avail of administrative proceedings, i.e., for the Authority to file a claim
for tax exemption with the Iloilo City Assessors Office. The latter, however, denied the
claim for exemption, hence, the Authority elevated the case to the Department of Finance
(DOF).
In its letter-decision3 dated March 6, 1992, the DOF ruled that the Authority is liable to pay
real property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC. The
DOF added, however, that in satisfying the amount of the unpaid real property taxes, the
property that is owned by the Authority shall be auctioned, and not the IFPC, which is a
property of the Republic.4
The Authority filed a petition before the Office of the President but it was dismissed. 5 It
also denied the motion for reconsideration filed by the Authority.6
On petition with the Court of Appeals, the latter affirmed the decision of the Office of the
President. It opined, however, that the IFPC may be sold at public auction to satisfy the tax
delinquency of the Authority.7 The dispositive portion thereof, reads:

(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.
xxxx

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.
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. 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. 10 (Emphasis supplied)
Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or
non-stock corporation. Two requisites must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is
authorized to distribute dividends and allotments of surplus and profits to its stockholders.
If only one requisite is present, it cannot be properly classified as a stock corporation. As
for non-stock corporations, they must have members and must not distribute any part of
their income to said members.11
On the basis of the parameters set in the MIAA case, the Authority should be classified as
an instrumentality of the national government. As such, it is generally exempt from
payment of real property tax, except those portions which have been leased to private
entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as
among the instrumentalities of the national government. Thus
Some of the national government instrumentalities vested by law with
juridical personalities are:Bangko Sentral ng Pilipinas, Philippine Rice
Research Institute, Laguna Lake Development Authority,Fisheries Development
Authority, Bases Conversion Development Authority, Philippine Ports Authority,
Cagayan de Oro Port Authority, San Fernando Port Authority, Cebu Port
Authority, and Philippine National Railways.

Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. 12 Also, it has no
stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-stock
corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as an
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.13 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, the Authority which is tasked with the special public function to carry out the
governments policy "to promote the development of the countrys fishing industry and
improve the efficiency in handling, preserving, marketing, and distribution of fish and other
aquatic products," exercises the governmental powers of eminent domain, 14 and the power
to levy fees and charges.15 At the same time, the Authority exercises "the general corporate
powers conferred by laws upon private and government-owned or controlled
corporations."16
The MIAA case held17 that unlike GOCCs, instrumentalities of the national government,
like MIAA, are exempt from local taxes pursuant to Section 133(o) of the Local
Government Code. This exemption, however, admits of an exception with respect to real
property taxes. Applying Section 234(a) of the Local Government Code, the Court ruled
that when an instrumentality of the national government grants to a taxable person the
beneficial use of a real property owned by the Republic, said instrumentality becomes
liable to pay real property tax. Thus, while MIAA was held to be an instrumentality of the
national government which is generally exempt from local taxes, it was at the same time
declared liable to pay real property taxes on the airport lands and buildings which it leased
to private persons. It was held that the real property tax assessments and notices of
delinquencies issued by the City of Pasay to MIAA are void except those pertaining to
portions of the airport which are leased to private parties. Pertinent portions of the decision,
reads:
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 Codeexpressly 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 andinstrumentalities, and local
government units.

By express mandate of the Local Government Code, local governments cannot

impose any kind of taxon 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. x x x

lands of the public domain and cannot, without Congressional fiat, be subject of a sale,
public or private, thus:21
The salient provisions of CA No. 141, on government reclaimed, foreshore and
marshy lands of the public domain, are as follows:
Sec. 59. The lands disposable under this title shall be classified as
follows:

xxxx

(a) Lands reclaimed by the Government by dredging, filling, or other

means;

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:

(b) Foreshore;

SEC. 234. Exemptions from Real Property Tax The following are
exempted from payment of the real property tax:

(c) Marshy lands or lands covered with water bordering upon the
shores or banks of navigable lakes or rivers;

(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.

(d) Lands not included in any of the foregoing classes.

x x x18 (Emphasis supplied)

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 Paraaque. We declare VOID all the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by
the City of Paraaque 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.
x x x x.19 (Emphasis added)
In light of the foregoing, the Authority should be classified as an instrumentality of the
national government which is liable to pay taxes only with respect to the portions of the
property, the beneficial use of which were vested in private entities. 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. 20
Thus, the real property tax assessments issued by the City of Iloilo should be upheld only
with respect to the portions leased to private persons. In case the Authority fails to pay the
real property taxes due thereon, said portions cannot be sold at public auction to satisfy the
tax delinquency. In Chavez v. Public Estates Authority it was held that reclaimed lands are

xxxx
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine
shall be disposed of to private parties by lease only and not otherwise, as soon
as the President, upon recommendation by the Secretary of Agriculture, shall
declare that the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may be disposed
of by sale or lease under the provisions of this Act." (Emphasis supplied)
xxxx
Since then and until now, the only way the government can sell to private parties
government reclaimed and marshy disposable lands of the public domain is for
the legislature to pass a law authorizing such sale. CA No. 141 does not authorize
the President to reclassify government reclaimed and marshy lands into other
non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d)
are the only alienable or disposable lands for non-agricultural purposes that the
government could sell to private parties. (Emphasis supplied)
In the same vein, the port built by the State in the Iloilo fishing complex is a property of the
public dominion and cannot therefore be sold at public auction. Article 420 of the Civil
Code, provides:
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.

Reclamation Authority (PRA) is a government-owned and controlled corporation (GOCC),

a taxable entity, and, therefore, . not exempt from payment of real property taxes. The
pertinent portion of the said order reads:

The Iloilo fishing port which was constructed by the State for public use and/or public
service falls within the term "port" in the aforecited provision. Being a property of public
dominion the same cannot be subject to execution or foreclosure sale. 22 In like manner, the
reclaimed land on which the IFPC is built cannot be the object of a private or public sale
without Congressional authorization. Whether there are improvements in the fishing
port complexthat should not be construed to be embraced within the term "port," involves
evidentiary matters that cannot be addressed in the present case. As for now, considering
that the Authority is a national government instrumentality, any doubt on whether the entire
IFPC may be levied upon to satisfy the tax delinquency should be resolved against the City
of Iloilo.

In view of the finding of this court that petitioner is not exempt from payment of real
property taxes, respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx
without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or
in excess of jurisdiction in issuing the warrants of levy on the subject properties.

In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only
with respect to those portions which are leased to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC, the latter or any part thereof, being a
property of public domain, cannot be sold at public auction. This means that the City of
Iloilo has to satisfy the tax delinquency through means other than the sale at public auction
of the IFPC.

WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit
Attached Supplemental Petition is denied and the supplemental petition attached thereto is
not admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of
Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its
Powers and Functions, Providing Funds Therefor and For Other Purposes) which took
effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their development
consistent with public interest.

WHEREFORE, the petition is GRANTED and the June 21, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81228 is SET ASIDE. The real property tax assessments
issued by the City Iloilo on the land and buildings of the Iloilo Fishing Port Complex, is
declared VOID except those pertaining to the portions leased to private parties. The City of
Iloilo is DIRECTED to refrain from levying on the Iloilo Fishing Port Complex to satisfy
the payment of the real property tax delinquency.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then
President Ferdinand Marcos, PEA was designated as the agency primarily responsible for
integrating, directing and coordinating all reclamation projects for and on behalf of the
National Government.

No costs.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.

SO ORDERED.

G.R. No. 191109

July 18, 2012

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE

RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore
areas of Manila Bay, including those located in Paraaque City, and was issued Original
Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer
Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the
reclaimed lands.
On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo)
issued Warrants of Levy on PRAs reclaimed properties (Central Business Park and
Barangay San Dionisio) located in Paraaque City based on the assessment for delinquent
real property taxes made by then Paraaque City Assessor Soledad Medina Cue for tax
years 2001 and 2002.

MENDOZA, J.:

On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary
restraining order (TRO) and/or writ of preliminary injunction against Carabeo before the
RTC.

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, on pure questions of law, assailing the January 8, 2010 Order 1 of the Regional
Trial Court, Branch 195, Parafiaque City (RTC), which ruled that petitioner Philippine

On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the
issuance of a temporary restraining order.

On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the
public auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo
sent a letter stating that the public auction could not be deferred because the RTC had
already denied PRAs TRO application.
On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary
injunction for being moot and academic considering that the auction sale of the subject
properties on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to
arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit
Attached Supplemental Petition which sought to declare as null and void the assessment for
real property taxes, the levy based on the said assessment, the public auction sale conducted
on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that
PRA was not exempt from payment of real property taxes, the RTC reasoned out that it was
a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation because
it had an authorized capital stock divided into no par value shares. In fact, PRA admitted its
corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of
Section 193 of Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was
the prevailing law in 2001 and 2002 with respect to real property taxation. The RTC also
ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been
expressly repealed by R.A. No. 7160 and that PRA failed to comply with the procedural
requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC
Order based on the following GROUNDS

is a government instrumentality vested with corporate powers and performing an essential

public service pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into shares, it is not authorized
to distribute dividends and allotment of surplus and profits to its stockholders. Therefore, it
may not be classified as a stock corporation because it lacks the second requisite of a stock
corporation which is the distribution of dividends and allotment of surplus and profits to the
stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members
and it is not organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers as provided in Section 88 of the Corporation
Code.
Moreover, PRA points out that it was not created to compete in the market place as there
was no competing reclamation company operated by the private sector. Also, while PRA is
vested with corporate powers under P.D. No. 1084, such circumstance does not make it a
corporation but merely an incorporated instrumentality and that the mere fact that an
incorporated instrumentality of the National Government holds title to real property does
not make said instrumentality a GOCC. Section 48, Chapter 12, Book I of the
Administrative Code of 1987 recognizes a scenario where a piece of land owned by the
Republic is titled in the name of a department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real
property is granted to a taxable person. PRA claims that based on Section 133(o) of the
LGC, local governments cannot tax the national government which delegate to local
governments the power to tax.

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE

TO PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS
CONSIDERING

It explains that reclaimed lands are part of the public domain, owned by the State, thus,
exempt from the payment of real estate taxes. Reclaimed lands retain their inherent
potential as areas for public use or public service. While the subject reclaimed lands are still
in its hands, these lands remain public lands and form part of the public domain. Hence, the
assessment of real property taxes made on said lands, as well as the levy thereon, and the
public sale thereof on April 7, 2003, including the issuance of the certificates of sale in
favor of the respondent Paraaque City, are invalid and of no force and effect.

THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE

NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF
REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT
7160 OR THE LOCAL GOVERNMENT CODE VIS--VIS MANILA
INTERNATIONAL AIRPORT AUTHORITY V. COURT OF APPEALS.

On the other hand, the City of Paraaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084)
declared it to be a GOCC and that it has entered into several thousands of contracts where it
represented itself to be a GOCC. In fact, PRA admitted in its original and amended
petitions and pre-trial brief filed with the RTC of Paraaque City that it was a GOCC.

II

Respondent further argues that PRA is a stock corporation with an authorized capital stock
divided into 3 million no par value shares, out of which 2 million shares have been
subscribed and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption
privileges granted to or presently enjoyed by all persons, whether natural or juridical,
including GOCCs.

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT

RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE,
EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of economic viability. Instead, PRA

Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.

THE COURTS RULING

The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
GOCC as follows:

Correlatively, 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." Section 87 thereof defines a non-stock corporation as "one where
no part of its income is distributable as dividends to its members, trustees or officers."
Further, Section 88 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."

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

Two requisites must concur before one may be classified as a stock corporation, namely:
(1) that it has capital stock divided into shares; and (2) that it is authorized to distribute
dividends and allotments of surplus and profits to its stockholders. If only one requisite is
present, it cannot be properly classified as a stock corporation. As for non-stock
corporations, they must have members and must not distribute any part of their income to
said members.3

SEC. 2. General Terms Defined. x x x x

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital
stock divided into no par value shares as provided in Section 7 4 of P.D. No. 1084, it is not
authorized to distribute dividends, surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525, 5 E.O. No. 6546 and EO No. 7987 that
authorizes PRA to distribute dividends, surplus allotments or profits to its stockholders.

(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

PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members. 8 Moreover, it was not organized for
any of the purposes mentioned in Section 88 of the Corporation Code. Specifically, it was
created to manage all government reclamation projects.

From the above definitions, it is clear that a GOCC must be "organized as a stock or nonstock corporation" while an instrumentality is vested by law with corporate powers.
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.

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section
16, Article XII of the 1987 Constitution provides as follows:

(51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government "instrumentality" as follows:

When the law vests in a government instrumentality corporate powers, the instrumentality
does not necessarily 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.
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 GOCC. 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. They are not,
however, GOCCs in the strict sense as understood under the Administrative Code, which is
the governing law defining the legal relationship and status of government entities. 2

Section 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.
The fundamental provision above authorizes Congress to create GOCCs through special
charters on two conditions: 1) the GOCC must be established for the common good; and 2)
the GOCC must meet the test of economic viability. In this case, PRA may have passed the
first condition of common good but failed the second one - economic viability.
Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial
activities. Neither was it created to compete in the market place considering that there were
no other competing reclamation companies being operated by the private sector. As
mentioned earlier, PRA was created essentially to perform a public service considering that
it was primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object of
maximizing their utilization and hastening their development consistent with the public
interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the State to provide for a
coordinated, economical and efficient reclamation of lands, and the administration and

operation of lands belonging to, managed and/or operated by the government, with the
object of maximizing their utilization and hastening their development consistent with the
public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling
or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease
and sell any and all kinds of lands, buildings, estates and other forms of real
property, owned, managed, controlled and/or operated by the government.
(c) To provide for, operate or administer such services as may be necessary for
the efficient, economical and beneficial utilization of the above properties.
The twin requirement of common good and economic viability was lengthily discussed in
the case of Manila International Airport Authority v. Court of Appeals, 9 the pertinent
portion of which reads:
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.
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 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
incometo meet operating expenses solely from commercial transactions in competition with
the private sector. The intent of the Constitution is to prevent the creation of governmentowned 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.1wphi1
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:
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.

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.

It is clear from Section 234 that real property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the beneficial use thereof has been
granted to a taxable person. In this case, there is no proof that PRA granted the beneficial
use of the subject reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable entity.

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 governmentowned 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. [Emphases
supplied]

This exemption should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing "taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." 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.

This Court is convinced that PRA is not a GOCC either under Section 2(3) of the
Introductory Provisions of the Administrative Code or under Section 16, Article XII of the
1987 Constitution. The facts, the evidence on record and jurisprudence on the issue support
the position that PRA was not organized either as a stock or a non-stock corporation.
Neither was it created by Congress to operate commercially and compete in the private
market. Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an incorporated government instrumentality,
it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands
managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section
133(o), exempts PRA from paying realty taxes and protects it from the taxing powers of
local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
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.
xxxx
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 supplied]

Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the 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, unless "the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."10
The rationale behind Section 133(o) has also been explained in the case of the Manila
International Airport Authority,11 to wit:
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."
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.
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 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"
(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. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public
domain, owned by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
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 60 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 provided

by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of waterpower, beneficial use may be the measure and limit of
the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
[Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and
offshore areas of Manila Bay. As such, these lands remain public lands and form part of the
public domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal
Development Corporation,12 the Court held that foreshore and submerged areas irrefutably
belonged to the public domain and were inalienable unless reclaimed, classified as
alienable lands open to disposition and further declared no longer needed for public service.
The fact that alienable lands of the public domain were transferred to the PEA (now PRA)
and issued land patents or certificates of title in PEAs name did not automatically make
such lands private. This Court also held therein that reclaimed lands retained their inherent
potential as areas for public use or public service.
As the central implementing agency tasked to undertake reclamation projects nationwide,
with authority to sell reclaimed lands, PEA took the place of DENR as the government
agency charged with leasing or selling reclaimed lands of the public domain. The reclaimed
lands being leased or sold by PEA are not private lands, in the same manner that DENR,
when it disposes of other alienable lands, does not dispose of private lands but alienable
lands of the public domain. Only when qualified private parties acquire these lands will the
lands become private lands. In the hands of the government agency tasked and authorized
to dispose of alienable of disposable lands of the public domain, these lands are still public,
not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public
domain" as well as "any and all kinds of lands." PEA can hold both lands of the public
domain and private lands. Thus, the mere fact that alienable lands of the public domain like
the Freedom Islands are transferred to PEA and issued land patents or certificates of title in
PEA's name does not automatically make such lands private. 13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion 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.
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They
are properties of public dominion. The ownership of such lands remains with the State
unless they are withdrawn by law or presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas
of Manila Bay are part of the "lands of the public domain, waters x x x and other natural
resources" and consequently "owned by the State." As such, foreshore and submerged areas
"shall not be alienated," unless they are classified as "agricultural lands" of the public
domain. The mere reclamation of these areas by PEA does not convert these inalienable
natural resources of the State into alienable or disposable lands of the public domain. There
must be a law or presidential proclamation officially classifying these reclaimed lands as
alienable or disposable and open to disposition or concession. Moreover, these reclaimed
lands cannot be classified as alienable or disposable if the law has reserved them for some
public or quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not subject to
execution or foreclosure sale.14 Thus, the assessment, levy and foreclosure made on the
subject reclaimed lands by respondent, as well as the issuances of certificates of title in
favor of respondent, are without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional
Trial Court, Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed
properties owned by the Philippine Reclamation Authority are hereby declared EXEMPT
from real estate taxes. All real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Paraaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003; and the Certificates of Sale
subsequently issued by the Paraaque City Treasurer in favor of the City of Paraaque, are
all declared VOID.
SO ORDERED.
G.R. No. 193443

April 16, 2012

JEAN TAN, ROSELLER C. ANACINTO, CARLO LOILO ESPINEDA and DAISY

ALIADO MANAOIS, represented in this act by their Attorney-in-Fact, MA.
WILHELMINA E. TOBIAS, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
RESOLUTION
REYES, J.:
This is a petition for review under Rule 45 of the Decision 1 dated July 6, 2009 and
Resolution2 dated August 12, 2010 Resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 88995. The facts leading to its filing are as follows:

On June 14, 2001, the petitioners filed with the Regional Trial Court (RTC) of Naic, Cavite,
an application for land registration covering a parcel of land identified as Lot 9972, Cad459-D of Indang Cadastre, situated in Barangay Bancod, Indang, Cavite and with an area of
6,920 square meters.3 The petitioners alleged that they acquired the subject property from
Gregonio Gatdula pursuant to a Deed of Absolute Sale dated April 25, 1996; and they and
their predecessors-in-interest have been in open, continuous and exclusive possession of the
subject property in the concept of an owner for more than 30 years. 4
After trial and hearing, the RTC issued a Decision on July 29, 2006, granting the
petitioners application, thus:
"WHEREFORE, in view of the foregoing, this Court confirming its previous Order of
general default, decrees and adjudges Lot No. 9972 consisting of 6,920 square meters, Cad.
459-D, Indang Cadastre and its technical description as herein above-described situated in
Brgy. Bancod, Indang, Cavite, pursuant to the provisions of Act 496 as amended by P.D.
1529, as it is hereby decreed and adjudged to be confirmed and registered in the names of
Jean Tan, of legal age, Filipino, single, with postal address at Room 54 T. Pinpin St.,
Binondo, Manila; Roseller C. Anaci[n]to, of legal age, Filipino, single, with postal address
at Moncario Villag[e], Ampid-1, San Mateo, Rizal; Carlo Loilo Espineda, of legal age,
Filipino, with postal address at Cluster F. Cogeo, Antipolo, Rizal and Daisy Aliado
Manaois, of legal age, Filipino and resident of Panghulo Road, Malabon, Metro Manila.
Once this decision becomes final, let the corresponding decree of registration be issued by
the Administrator, Land Registration Authority.
SO ORDERED."5
The CA gave due course to the appeal filed by the Republic of the Philippines. By way of
the assailed Decision, the CA ruled that the petitioners failed to prove that they and their
predecessors-in-interest have been in possession of the subject property for the requisite
period of 30 years. The CA posit:
We now determine if appellees have the right to register their title on such land despite the
fact that their possession commenced only after 12 June 1945. Records show that the
appellees possession over the subject property can be reckoned only from 21 June 1983,
the date when according to evidence, the subject property became alienable and disposable.
From said date up to the filing of the application for registration of title over the subject
property on 14 June 2001, only eighteen (18) years had lapsed. Thus, appellees possession
of the subject property fell short of the requirement of open, continuous and exclusive
possession of at least 30 years.
Moreover, there was no adequate evidence which would show that appellees and their
predecessors-in-interest exercised acts of dominion over the subject land as to indicate
possession in the concept of owner. The testimonies of appellees witnesses regarding
actual possession are belied by the absence of evidence on actual use of or improvements
on the subject property. Appellees presented only various tax declarations to prove
possession. However, except for the Certification, showing payment of tax due on tax
declaration for the year 2003, there are no other evidence showing that all the taxes due
corresponding to the rest of the tax declarations were in fact paid by appellees or their
predecessors-in-interest.

In sum, appellees were unable to prove that they or their predecessors-in-interest have been
in possession of the subject property for more than 30 years, which possession is
characterized as open, continuous, exclusive, and notorious, in the concept of an owner.
Appellees failed to discharge their duty of substantiating possession and title to the subject
land.

i. no opposition to the petitioners application was filed before the

LRA;

WHEREFORE, the appeal is hereby GRANTED and the Decision dated 29 July 2006 of
the Regional Trial Court (RTC) of Naic, Cavite, Branch 15 is REVERSED and SET
ASIDE.

iii. no title covering the subject property was previously issued;

SO ORDERED. (citation omitted)

The petitioners moved for reconsideration but this was denied by the CA in its August 12,
2010 Resolution.7
The petitioners question the conclusion arrived at by the CA, alleging that the evidence
they presented prove that they and their predecessors-in-interest have been in possession
and occupation of the subject property for more than 30 years. The petitioners claim that
the following sufficed to demonstrate that they acquired title over the subject property by
prescription:
a. the testimony of their attorney-in-fact, Ma. Wilhelmina Tobias, stating that:
i. the petitioners have been in actual, notorious and open possession of
the subject property since the time they purchased the same in 1996;
ii. the petitioners have regularly paid the taxes due on the subject
property;
iii. the petitioners predecessors-in-interest, Victorio Garcia, Felipe
Gatdula and Gregonio Gatdula, had been in possession of the subject
property for more than 30 years and had religiously paid the taxes due
thereon; and
iv. the subject property is agricultural, alienable and disposable;
b. the testimony of the caretaker of the subject property, Margarito Pena, stating that:

ii. an examiner of the LRA found nothing wrong with the petitioners
application; and

d. Tax Declaration Nos. 2935, 2405 and 1823 for the years 1961, 1967 and 1974 in the
name of Victorio Garcia;8
e. Tax Declaration Nos. 1534 and 3850 for the years 1980 and 1985 in the name of Felipe
Gatdula;9
f. Tax Declaration Nos. 22453-A and 2925 for the years 1991 and 1994 in the name of
Gregonio Gatdula;10
g. Tax Declaration Nos. 21956-A, 22096-A, 22097-A and 97-05078 in the name of the
petitioners;11
h. Resolution No. 69, Series of 1998, of the Sangguniang Bayan of Indang, Cavite, which
approved the reclassification of several lots, including the subject property, from
agricultural to residential/commercial; 12
i. DARCO Conversion Order No. 040210005-(340)-99, Series of 2000, issued by the
Department of Agrarian Reform on July 13, 2000, which converted several parcels of land,
including the subject property, from agricultural to residential/commercial; 13
j. Certification issued by the Department of Environment and Natural Resources (DENR)
CALABARZON dated October 29, 2002, stating that "the subject area falls within the
Alienable and Disposable Land Project No. 13-A of Indang, Cavite per LC Map 3091
certified on June 21, 1983".14
Issue
This Court is faced with the lone issue of whether the petitioners have proven themselves
qualified to the benefits under the relevant laws on the confirmation of imperfect or
incomplete titles.

i. he resides near the subject property;

Our Ruling
ii. he witnessed the execution of the deed of sale that petitioners entered
into with Gregonio Gatdula; and
iii. the petitioners and predecessors-in-interest have been in possession
of the subject property for more than 30 years;
c. the testimony of Ferdinand Encarnacion, a clerk in the Docket Division of the Land
Registration Authority (LRA), stating that:

Commonwealth Act No. 141, otherwise known as the "Public Land Act" governs the
classification and disposition of lands forming part of the public domain. Section 11 thereof
provides that one of the modes of disposing public lands suitable for agricultural purposes
is by "confirmation of imperfect or incomplete titles". Section 48 thereof enumerates those
who are considered to have acquired an imperfect or incomplete title over an alienable and
disposable public land.

Presidential Decree No. 1529 (P.D. No. 1529), otherwise known as the "Property
Registration Decree", is a codification of all the laws relative to the registration of property
and Section 14 thereof specifies those who are qualified to register their incomplete title
over an alienable and disposable public land under the Torrens system. Particularly:
Section 14. Who may apply. The following persons may file in the proper Court of First
Instance an application for registration of title to land, whether personally or through their
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 provision 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.
As this Court clarified in Heirs of Malabanan v. Republic of the Philippines, 15 and Republic
of the Philippines v. East Silverlane Realty Development Corporation, 16 Section 14(1)
covers "alienable and disposable lands" while Section 14(2) covers "private property".
Thus, for ones possession and occupation of an alienable and disposable public land to
give rise to an imperfect title, the same should have commenced on June 12, 1945 or
earlier. On the other, for one to claim that his possession and occupation of private property
has ripened to imperfect title, the same should have been for the prescriptive period
provided under the Civil Code. Without need for an extensive extrapolation, the private
property contemplated in Section 14(2) is patrimonial property as defined in Article 421 in
relation to Articles 420 and 422 of the Civil Code.
Going further, it was explained in Heirs of Malabanan and East Silverlane, that possession
and occupation of an alienable and disposable public land for the periods provided under
the Civil Code will not convert it to patrimonial or private property. There must be an
express declaration that the property is no longer intended for public service or the
development of national wealth. In the absence thereof, the property remains to be alienable
and disposable and may not be acquired by prescription under Section 14(2) of P.D. No.
1529. Thus:
In Heirs of Malabanan, this Court ruled that possession and occupation of an alienable and
disposable public land for the periods provided under the Civil Code do not automatically
convert said property into private property or release it from the public domain. There must
be an express declaration that the property is no longer intended for public service or
development of national wealth. Without such express declaration, the property, even if
classified as alienable or disposable, remains property of the State, and thus, may not be
acquired by prescription.

Nonetheless, Article 422 of the Civil Code states that "[p]roperty of public dominion, when
no longer intended for public use or for public service, shall form part of the patrimonial
property of the State." It is this provision that controls how public dominion property may
be converted into patrimonial property susceptible to acquisition by prescription. After all,
Article 420 (2) makes clear that those property "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" are public dominion property. For as long as the property belongs to the
State, although already classified as alienable or disposable, it remains property of the
public dominion if when it is "intended for some public service or for the development of
the national wealth". (emphasis supplied)
Accordingly, there must be an express declaration by the State that the public
dominion property is no longer intended for public service or the development of the
national wealth or that the property has been converted into patrimonial. Without
such express declaration, the property, even if classified as alienable or disposable,
remains property of the public dominion, pursuant to Article 420(2), and thus
incapable of acquisition by prescription. It is only when such alienable and disposable
lands are expressly declared by the State to be no longer intended for public service or
for the development of the national wealth that the period of acquisitive prescription
can begin to run. Such declaration shall be in the form of a law duly enacted by
Congress or a Presidential Proclamation in cases where the President is duly
authorized by law.
In other words, for one to invoke the provisions of Section 14(2) and set up acquisitive
prescription against the State, it is primordial that the status of the property as patrimonial
be first established. Furthermore, the period of possession preceding the classification of
the property as patrimonial cannot be considered in determining the completion of the
prescriptive period.17
The petitioners application is obviously anchored on Section 14(2) of P.D. No. 1529 as
they do not claim to have possessed, by themselves or their predecessors-in-interest, the
subject property since June 12, 1945 or earlier. That it was thru prescription that they had
acquired an imperfect title over the subject property is the foundation upon which the
petitioners rest their application.
Unfortunately, this Court finds the evidence presented by the petitioners to be wanting. The
petitioners failed to demonstrate that they and their predecessors-in-interest possessed the
property in the requisite manner, which this Court explained as follows:
It is concerned with lapse of time in the manner and under conditions laid down by law,
namely, that the possession should be in the concept of an owner, public, peaceful,
uninterrupted and adverse. Possession is open when it is patent, visible, apparent, notorious
and not clandestine. It is continuous when uninterrupted, unbroken and not intermittent or
occasional; exclusive when the adverse possessor can show exclusive dominion over the
land and an appropriation of it to his own use and benefit; and notorious when it is so
conspicuous that it is generally known and talked of by the public or the people in the
neighborhood. The party who asserts ownership by adverse possession must prove the
presence of the essential elements of acquisitive prescription. 18
Tax declarations per se do not qualify as competent evidence of actual possession for
purposes of prescription. More so, if the payment of the taxes due on the property is
episodic, irregular and random such as in this case. Indeed, how can the petitioners claim

of possession for the entire prescriptive period be ascribed any ounce of credibility when
taxes were paid only on eleven (11) occasions within the 40-year period from 1961 to
2001? In Wee v. Republic of the Philippines,19 this Court stated that:
It bears stressing that petitioner presented only five tax declarations (for the years 1957,
1961, 1967, 1980 and 1985) for a claimed possession and occupation of more than 45 years
(1945-1993). This type of intermittent and sporadic assertion of alleged ownership does not
prove open, continuous, exclusive and notorious possession and occupation. In any event,
in the absence of other competent evidence, tax declarations do not conclusively establish
either possession or declarants right to registration of title. 20 (emphasis supplied and
citation omitted)
In East Silverlane, it was emphasized that adverse, continuous, open, public possession in
the concept of an owner is a conclusion of law and the burden to prove it by clear, positive
and convincing evidence is on the applicant. A claim of ownership will not proper on the
basis of tax declarations if unaccompanied by proof of actual possession. 21
While there was an attempt to supplement the tax declaration by testimonial evidence, the
same is futile and frivolous. The testimonies of Margarito Pena and Ma. Wilhelmina Tobias
do not merit consideration and do not make up for the inherent inadequacy of the eleven
(11) tax declarations submitted by the petitioners. Such witnesses did not state what
specific acts of ownership or dominion were performed by the petitioners and predecessorsin-interest and simply made that general assertion that the latter possessed and occupied the
subject property for more than thirty (30) years, which, by all means, is a mere conclusion
of law. The RTC should have tackled evidence of such nature with a disposition to
incredulity, if not with an outright rejection.1wphi1
Furthermore, the petitioners application was filed after only (1) year from the time the
subject property may be considered patrimonial. DARCO Conversion Order No.
040210005-(340)-99, Series of 2000, was issued by the DAR only on July 13, 2000, which
means that the counting of the thirty (30)-year prescriptive period for purposes of acquiring
ownership of a public land under Section 14(2) can only start from such date. Before the
property was declared patrimonial by virtue of such conversion order, it cannot be acquired
by prescription. This is clear from the pronouncements of this Court in Heirs of Malabanan
quoted above and in Republic of the Philippines v. Rizalvo, 22 which states:
On this basis, respondent would have been eligible for application for registration because
his claim of ownership and possession over the subject property even exceeds thirty (30)
years. However, it is jurisprudentially clear that the thirty (30)-year period of prescription
for purposes of acquiring ownership and registration of public land under Section 14 (2) of
P.D. No. 1529 only begins from the moment the State expressly declares that the public
dominion property is no longer intended for public service or the development of the
national wealth or that the property has been converted into patrimonial. 23
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The
July 6, 2009 Decision and August 12, 2010 Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.
G.R. No. 157285

February 16, 2007

WOODRIDGE SCHOOL, INC., and MIGUELA JIMENEZ-JAVIER, Petitioners,

vs.
ARB CONSTRUCTION CO., INC., Respondent.
DECISION
CORONA, J.:
Petitioners Woodridge School, Inc. (Woodridge) and Miguela Jimenez-Javier come to us
assailing the decision1dated September 30, 2002 and resolution2 dated February 14, 2003 of
the Court of Appeals in CA-G.R. CV No. 515333 which, in turn, modified the ruling of the
Regional Trial Court (RTC) of Imus, Cavite awarding P500,000 to respondent ARB
Construction Co., Inc. (ARB) as reasonable indemnity for the use of ARB's road lot. 3
Woodridge is the usufructuary of a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-363902 in the name of spouses Ernesto T. Matugas and Filomena U. Matugas.
Its co-petitioner, Miguela Jimenez-Javier, is the registered owner of the adjacent lot under
TCT No. T-330688.
On the other hand, ARB is the owner and developer of Soldiers Hills Subdivision in
Bacoor, Cavite, which is composed of four phases. Phase I of the subdivision was already
accessible from the Marcos Alvarez Avenue. To provide the same accessibility to the
residents of Phase II of the subdivision, ARB constructed the disputed road to link the two
phases.
As found by the appellate court, petitioners' properties sit right in the middle of several
estates: Phase I of Soldiers Hills Subdivision in the north, a creek in the east and Green
Valley Subdivision the farther east, a road within Soldiers Hills Subdivision IV which leads
to the Marcos Alvarez Avenue in the west and Phase III of Soldiers Hills Subdivision in the
south.
Initially, petitioners offered to pay ARB P50,000 as indemnity for the use of the road.
Adamant, ARB refused the offer and fenced the perimeter of the road fronting the
properties of petitioners. By doing so, ARB effectively cut off petitioners' access to and
from the public highway.
After failing to settle the matter amicably, petitioners jointly filed a complaint 4 in the RTC
of Imus, Cavite to enjoin ARB from depriving them of the use of the disputed subdivision
road and to seek a compulsory right of way after payment of proper indemnity. On
November 24, 1995, the trial court rendered its decision in favor of petitioners:
The reasons why this case is not one for a right of way as an easement are not difficult to
discern.
The questioned road is part and parcel of the road network of Soldiers Hills IV, Phase II.
This road was constructed pursuant to the approved subdivision plan of Soldiers Hills IV,
Phase II. As such, the road has already been withdrawn from the commerce of men as the
ownership of which was automatically vested in the government without need of any
compensation, although it is still registered in the name of the [ARB], the moment the
subdivision plan was approved. While it is not yet donated to the government [,] [it] is of
no moment for donating this road to the government is a mere formality.

Differently stated, the government automatically becomes the owner of the subdivisions'
roads the moment the subdivision plan is approved. From that time on, the roads are
withdrawn from the commerce of men even [if] the titles are still registered in the name of
the subdivision owners and the roads are not yet donated to the government. Thus, the
subdivision owner can no longer sell or alienate the roads for they are already owned by the
government; thus, even if [petitioners] want to buy this road, and the [ARB] wants to sell
the same, this transaction cannot materialize for the above-stated reasons. Accordingly,
[ARB] cannot prevent/prohibit plaintiffs from using the road as the same belongs to the
government.

Moreover, [ARB] should be compensated for the wear and tear that [petitioners'] use of the
road would contribute to; it is [ARB] which is solely to be credited for the completion of
the road lot. Going by the conservative valuation of the Municipality of Bacoor, Cavite
presented by [petitioners], the 4,760 sq. m. road lot would cost P1,904,000 but as stated
what is compensated is the use of the road lot not its alienation.

xxx xxx xxx

Unsatisfied with the ruling of the appellate court, petitioners filed this petition for review
on certiorari insisting that ARB is not entitled to be paid any indemnity.

WHEREFORE, [ARB] is ordered to cease and desist from preventing [petitioners] in

using the subject road or any other road in the subdivision.
xxx xxx xxx
SO ORDERED. 5 (citations omitted)
ARB elevated the case to the Court of Appeals. 6 Finding merit in the appeal, the appellate
court reversed the decision of the lower court. It explained that the 1991 case of White
Plains Subdivision[7] did not apply to the present case which was decided under a different
factual milieu:
In the assailed Decision, the Court below relied on the ruling of the Supreme Court in
White Plains Association, Inc. vs. Legaspi (193 SCRA 765). The ruling is not applicable. In
the White Plains case, the disputed area was specifically set aside by the Quezon City
Government, with the concurrence of the owner and developer of the White Plains
Subdivision in Quezon City, for the purpose of constructing a major thoroughfare open to
the general public. The case was filed by the association of homeowners of White Plains in
Quezon City when the owner-developer sought to convert the disputed lot to residential
lots. The Supreme Court initially held that the disputed lot was not longer within the
commerce of men, it having been segregated for a particular purpose, that of being used as
"part of a mandatory open space reserved for public use to be improved into the widened
Katipunan Road". It was within this context that the Supreme Court held that "ownership
was automatically vested in the Quezon City government and/or the Republic of the
Philippines, without need of paying any compensation". 8
The appellate court went on to rule that a compulsory right of way exists in favor of
petitioners as "[t]here is no other existing adequate outlet to and from [petitioners']
properties to the Marcos Alvarez Avenue other than the subject existing road lot designated
as Lot No. 5827-F-1 belonging to [ARB]." 9 In addition, it awarded P500,000 to ARB as
reasonable indemnity for the use of the road lot.
Acting on petitioners' motion for reconsideration, the appellate court justified the monetary
award in this manner:
In [o]ur Decision, [w]e awarded the amount of P500,000.00 merely as reasonable
indemnity for the use of the road lot, not the alienation thereof. The amount was based on
equitable considerations foremost of which is that, while there is no alienation to speak of,
the easement is of long-standing, that is, until a shorter and adequate outlet is established.

[Petitioners'] original offer cannot be considered a reasonable indemnity, there being a

knotty legal question involved and it is not [ARB's] fault that the parties had to resort to the
courts for a resolution.10

Petitioners argue that the contested road lot is a property of public dominion pursuant to
Article 42011 of the Civil Code. Specifically, petitioners point out that the disputed road lot
falls under the category "others of similar character" which is the last clause of Article 420
(1).12 Hence, it is a property of public dominion which can be used by the general public
without need for compensation. Consequently, it is wrong for ARB to exclude petitioners
from using the road lot or to make them pay for the use of the same.
We disagree.
In the case of Abellana, Sr. v. Court of Appeals,13 the Court held that "the road lots in a
private subdivision are private property, hence, the local government should first acquire
them by donation, purchase, or expropriation, if they are to be utilized as a public
road."14 Otherwise, they remain to be private properties of the owner-developer.
Contrary to the position of petitioners, the use of the subdivision roads by the general
public does not strip it of its private character. The road is not converted into public
property by mere tolerance of the subdivision owner of the public's passage through it. To
repeat, "the local government should first acquire them by donation, purchase, or
expropriation, if they are to be utilized as a public road."15
Likewise, we hold the trial court in error when it ruled that the subject road is public
property pursuant to Section 2 of Presidential Decree No. 1216. 16 The pertinent portion of
the provision reads:
Section 2. xxx xxx xxx
Upon their completion as certified to by the Authority, the roads, alleys, sidewalks and
playgrounds shall be donated by the owner or developer to the city or municipality and it
shall be mandatory for the local governments to accept them provided, however, that the
parks and playgrounds may be donated to the Homeowners Association of the project with
the consent of the city or municipality concerned
The law is clear. The transfer of ownership from the subdivision owner-developer to the
local government is not automatic but requires a positive act from the owner-developer
before the city or municipality can acquire dominion over the subdivision roads. Therefore,
until and unless the roads are donated,17 ownership remains with the owner-developer.18

Since no donation has been made in favor of any local government and the title to the road
lot is still registered in the name of ARB, the disputed property remains private.
This is not to say that ARB may readily exclude petitioners from passing through the
property. As correctly pointed out by the Court of Appeals, the circumstances clearly make
out a case of legal easement of right of way. It is an easement which has been imposed by
law and not by the parties and it has "for (its) object either public use or the interest of
private persons."19
To be entitled to a legal easement of right of way, the following requisites must concur: (1)
the dominant estate is surrounded by other immovables and has no adequate outlet to a
public highway; (2) payment of proper indemnity; (3) the isolation was not due to acts of
the proprietor of the dominant estate and (4) the right of way claimed is at the point least
prejudicial to the servient estate.20
The appellate and trial courts found that the properties of petitioners are enclosed by other
estates without any adequate access to a public highway except the subject road lot which
leads to Marcos Alvarez Avenue. 21Although it was shown that the shortest distance from the
properties to the highway is toward the east across a creek, this alternative route does not
provide an adequate outlet for the students of the proposed school. This route becomes
marshy as the creek overflows during the rainy season and will endanger the students
attending the school.
All told, the only requisite left unsatisfied is the payment of proper indemnity.
Petitioners assert that their initial offer of P50,000 should be sufficient compensation for
the right of way. Further, they should not be held accountable for the increase in the value
of the property since the delay was attributable to the stubborn refusal of ARB to accept
their offer.22
Again, we are not persuaded.
In the case of a legal easement, Article 649 of the Civil Code prescribes the parameters by
which the proper indemnity may be fixed. Since the intention of petitioners is to establish a
permanent passage, the second paragraph of Article 649 of the Civil Code particularly
applies:
Art 649. xxx xxx xxx

Should this easement be established in such a manner that its use may be continuous for all
the needs of the dominant estate, establishing a permanent passage, the indemnity shall
consist of the value of the land occupied and the amount of the damage caused to the
servient estate. xxx. (Emphasis supplied)
On that basis, we further hold that the appellate court erred in arbitrarily awarding
indemnity for the use of the road lot.
The Civil Code categorically provides for the measure by which the proper indemnity may
be computed: value of the land occupied plus the amount of the damage caused to the
servient estate. Settled is the rule in statutory construction that "when the law is clear, the
function of the courts is simple application."23 Thus, to award the indemnity using factors
different from that given by the law is a complete disregard of these clear statutory
provisions and is evidently arbitrary. This the Court cannot countenance. The Civil Code
has clearly laid down the parameters and we cannot depart from them. Verba legis non est
recedendum.
Having settled the legal issues, we order the remand of this case to the trial court for
reception of evidence and determination of the limits of the property to be covered by the
easement, the proper indemnity to be paid and the respective contributions of petitioners.
For the guidance of the trial court, the fact that the disputed road lot is used by the general
public may be taken in consideration to mitigate the amount of damage that the servient
estate is entitled to, in the sense that the wear and tear of the subject road is not entirely
attributable to petitioners.
WHEREFORE, this petition is partially GRANTED. The September 30, 2002 Decision
and February 14, 2003 resolution of the Court of Appeals in CA-G.R. CV No. 515333
are ANNULLED and SET ASIDE in so far as petitioners are ordered to pay an indemnity
of P500,000. The case is hereby remanded to the trial court for reception of evidence and
determination of the limits of the property to be covered by the easement, the proper
indemnity to be paid and the respective contributions of petitioners.
SO ORDERED.