Republic of the PhilippinesSUPREME COURTBaguio CityFIRST
DIVISIONG.R. No. 113412 April 17, 1996Spouses PONCIANO ALMEDA and
EUFEMIA P. ALMEDA,petitioner,vs.THE COURT OF APPEALS and PHILIPPINE
NATIONAL BANK,respondents.KAPUNAN,J.:pOn various dates in 1981, the
Philippine National Bank granted to herein petitioners, the spouses
Ponciano L. Almeda and Eufemia P. Almeda several loan/credit
accommodations totaling P18.0 Million pesos payable in a period of
six years at an interest rate of 21%per annum. To secure the loan,
the spouses Almeda executed a Real Estate Mortgage Contract
covering a 3,500 square meter parcel of land, together with the
building erected thereon (the Marvin Plaza) located at Pasong Tamo,
Makati, Metro Manila. A credit agreement embodying the terms and
conditions of the loan was executed between the parties. Pertinent
portions of the said agreement are quoted below:SPECIAL
CONDITIONSxxx xxx xxxThe loan shall be subject to interest at the
rate of twenty one per cent (21%)per annum, payable semi-annually
in arrears, the first interest payment to become due and payable
six (6) months from date of initial release of the loan. The loan
shall likewise be subject to the appropriate service charge and a
penalty charge of three per cent (30%)per annumto be imposed on any
amount remaining unpaid or not rendered when due.xxx xxx xxxIII.
OTHER CONDITIONS(c) Interest and Charges(1) The Bank reserves the
right to increase the interest ratewithin the limits allowed by
lawat any time depending on whatever policy it may adopt in the
future; provided, that the interest rate on this/these
accommodations shall be correspondingly decreased in the event that
the applicable maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in
theinterestrateagreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest
rate.1Between 1981 and 1984, petitioners made several partial
payments on the loan totaling. P7,735,004.66,2a substantial portion
of which was applied to accrued interest.3On March 31, 1984,
respondent bank, over petitioners' protestations, raised the
interest rate to 28%, allegedly pursuant to Section III-c (1) of
its credit agreement. Said interest rate thereupon increased from
an initial 21% to a high of 68% between March of 1984 to September,
1986.4Petitioner protested the increase in interest rates, to no
avail. Before the loan was to mature in March, 1988, the spouses
filed on February 6, 1988 a petition for declaratory relief with
prayer for a writ of preliminary injunction and temporary
restraining order with the Regional Trial Court of Makati, docketed
as Civil Case No. 18872. In said petition, which was raffled to
Branch 134 presided by Judge Ignacio Capulong, the spouses sought
clarification as to whether or not the PNB could unilaterally raise
interest rates on the loan, pursuant to the credit agreement's
escalation clause, and in relation to Central Bank Circular No.
905. As a preliminary measure, the lower court, on March 3, 1988,
issued a writ of preliminary injunction enjoining the Philippine
National Bank from enforcing an interest rate above the 21%
stipulated in the credit agreement. By this time the spouses were
already in default of their loan obligations.Invoking the Law on
Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB
countered by ordering the extrajudicial foreclosure of petitioner's
mortgaged properties and scheduled an auction sale for March 14,
1989. Upon motion by petitioners, however, the lower court, on
April 5, 1989, granted a supplemental writ of preliminary
injunction, staying the public auction of the mortgaged property.On
January 15, 1990, upon the posting of a counterbond by the PNB, the
trial court dissolved the supplemental writ of preliminary
injunction. Petitioners filed a motion for reconsideration. In the
interim, respondent bank once more set a new date for the
foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to
the scheduled date, however, petitioners tendered to respondent
bank the amount of P40,142,518.00, consisting of the principal
(P18,000,000.00) and accrued interest calculated at the originally
stipulated rate of 21%. The PNB refused to accept the payment.5As a
result of PNB's refusal of the tender of payment, petitioners, on
March 8, 1990, formally consigned the amount of P40,142,518.00 with
the Regional Trial Court in Civil Case No. 90-663. They prayed
therein for a writ of preliminary injunction with a temporary
restraining order. The case was raffled to Branch 147, presided by
Judge Teofilo Guadiz. On March 15, 1990, respondent bank sought the
dismissal of the case.On March 30, 1990 Judge Guadiz in Civil Case
No. 90-663 issued an order granting the writ of preliminary
injunction enjoining the foreclosure sale of "Marvin Plaza"
scheduled on March 12, 1990. On April 17, 1990 respondent bank
filed a motion for reconsideration of the said order.On August 16,
1991, Civil Case No. 90-663 we transferred to Branch 66 presided by
Judge Eriberto Rosario who issued an order consolidating said case
with Civil Case 18871 presided by Judge Ignacio Capulong.For Judge
Ignacio's refusal to lift the writ of preliminary injunction issued
March 30, 1990, respondent bank filed a petition forCertiorari,
Prohibition andMandamuswith respondent Court of Appeals, assailing
the following orders of the Regional Trial Court:1. Order dated
March 30, 1990 of Judge Guadiz granting the writ of preliminary
injunction restraining the foreclosure sale of Mavin Plaza set on
March 12, 1990;2. Order of Judge Ignacio Capulong dated January 10,
1992 denying respondent bank's motion to lift the writ of
injunction issued by Judge Guadiz as well as its motion to dismiss
Civil Case No. 90-663;3. Order of Judge Capulong dated July 3, 1992
denying respondent bank's subsequent motion to lift the writ of
preliminary injunction; and4. Order of Judge Capulong dated October
20, 1992 denying respondent bank's motion for reconsideration.On
August 27, 1993, respondent court rendered its decision setting
aside the assailed orders and upholding respondent bank's right to
foreclose the mortgaged property pursuant to Act 3135, as amended
and P.D. 385. Petitioners' Motion for Reconsideration and
Supplemental Motion for Reconsideration, dated September 15, 1993
and October 28, 1993, respectively, were denied by respondent court
in its resolution dated January 10, 1994.Hence the instant
petition.This appeal bycertiorarifrom the respondent court's
decision dated August 27, 1993 raises two principal issues namely:
1) Whether or not respondent bank was authorized to raise its
interest rates from 21% to as high as 68% under the credit
agreement; and 2) Whether or not respondent bank is granted the
authority to foreclose the Marvin Plaza under the mandatory
foreclosure provisions of P.D. 385.In its comment dated April 19,
1994, respondent bank vigorously denied that the increases in the
interest rates were illegal, unilateral, excessive and arbitrary,
it argues that the escalated rates of interest it imposed was based
on the agreement of the parties. Respondent bank further contends
that it had a right to foreclose the mortgaged property pursuant to
P.D. 385, after petitioners were unable to pay their loan
obligations to the bank based on the increased rates upon maturity
in 1984.The instant petition is impressed with merit.The binding
effect of any agreement between parties to a contract is premised
on two settled principles: (1) that any obligation arising from
contract has the force of law between the parties; and (2) that
there must be mutuality between the parties based on their
essential equality.6Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.It is plainly
obvious, therefore, from the undisputed facts of the case that
respondent bank unilaterally altered the terms of its contract with
petitioners by increasing the interest rates on the loan without
the prior assent of the latter. In fact, the manner of agreement is
itself explicitly stipulated by the Civil Code when it provides, in
Article 1956 that "No interest shall be due unless it has been
expressly stipulated in writing." What has been "stipulated in
writing" from a perusal of interest rate provision of the credit
agreement signed between the parties is that petitioners were bound
merely to pay 21% interest, subject to a possible escalation or
de-escalation, when 1) the circumstances warrant such escalation or
de-escalation; 2) within the limits allowed by law; and 3) upon
agreement.Indeed, the interest rate which appears to have been
agreed upon by the parties to the contract in this case was the 21%
rate stipulated in the interest provision. Any doubt about this is
in fact readily resolved by a careful reading of the credit
agreement because the same plainly uses the phrase "interest
rateagreed upon," in reference to the original 21% interest rate.
The interest provision states:(c) interest and Charges(1) The Bank
reserves the right to increase the interest ratewithin the limits
allowed by lawat any time depending on whatever policy it may adopt
in the future; provided, that the interest rate on this/these
accommodations shall be correspondingly decreased in the event that
the applicable maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in theinterest rate
agreed uponshall take effect on the effectivity date of the
increase or decrease of the maximum interest rate.InPhilippine
National Bank v.Court of Appeals,7this Court disauthorized
respondent bank from unilaterally raising the interest rate in the
borrower's loan from 18% to 32%, 41% and 48% partly because the
aforestated increases violated the principle of mutuality of
contracts expressed in Article 1308 of the Civil Code. The Court
held:CB Circular No. 905, Series of 1982 (Exh. 11) removed the
Usury Law ceiling on interest rates . . . increases in interest
rates are not subject to any ceiling prescribed by the Usury
Law.but it did not authorize the PNB, or any bank for that matter,
to unilaterally and successively increase the agreed interest rates
from 18% to 48% within a span of four (4) months, in violation of
P.D. 116 which limits such changes to once every twelve
months.Besides violating P.D. 116, the unilateral action of the PNB
in increasing the interest rate on the private respondent's loan,
violated the mutuality of contracts ordained in Article 1308 of the
Civil Code:Art. 308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
one of them.In order that obligations arising from contracts may
have the force of law between the parties, there must
bemutualitybetween the parties based on their essential equality. A
contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have
been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the alternative "to take it
or lease it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil.
85). Such a contract is a veritable trap for the weaker party whom
the courts of justice must protect against abuse and
imposition.PNB's successive increases of the interest rate on the
private respondent's loan, over the latter's protest, were
arbitrary as they violated an express provision of the Credit
Agreement (Exh. 1) Section 9.01 that its terms "may be amended only
by an instrument in writing signed by the party to be bound as
burdened by such amendment." The increases imposed by PNB also
contravene Art. 1956 of the Civil Code which provides that "no
interest shall be due unless it has been expressly stipulated in
writing."The debtor herein never agreed in writing to pay the
interest increases fixed by the PNB beyond 24%per annum, hence, he
is not bound to pay a higher rate than that.That an increase in the
interest rate from 18% to 48% within a period of four (4) months is
excessive, as found by the Court of Appeals, is
indisputable.Clearly, the galloping increases in interest rate
imposed by respondent bank on petitioners' loan, over the latter's
vehement protests, were arbitrary.Moreover, respondent bank's
reliance on C.B. Circular No. 905, Series of 1982 did not authorize
the bank, or any lending institution for that matter, to
progressively increase interest rates on borrowings to an extent
which would have made it virtually impossible for debtors to comply
with their own obligations. True, escalation clauses in credit
agreements are perfectly valid and do not contravene public policy.
Such clauses, however, (as are stipulations in other contracts) are
nonetheless still subject to laws and provisions governing
agreements between parties, which agreements while they may be the
law between the contracting parties implicitly incorporate
provisions of existing law. Consequently, while the Usury Law
ceiling on interest rates was lifted by C.B. Circular 905, nothing
in the said circular could possibly be read as granting respondent
bankcarte blancheauthority to raise interest rates to levels which
would either enslave its borrowers or lead to a hemorrhaging of
their assets. Borrowing represents a transfusion of capital from
lending institutions to industries and businesses in order to
stimulate growth. This would not, obviously, be the effect of PNB's
unilateral and lopsided policy regarding the interest rates of
petitioners' borrowings in the instant case.Apart from violating
the principle of mutuality of contracts, there is authority for
disallowing the interest rates imposed by respondent bank, for the
credit agreement specifically requires that the increase be "within
the limits allowed by law". In the case ofPNB v.Court of Appeals,
cited above, this Court clearly emphasized that C.B. Circular No.
905 could not be properly invoked to justify the escalation clauses
of such contracts, not being a grant of specific
authority.Furthermore, the escalation clause of the credit
agreement requires that the same be made "within the limits allowed
by law," obviously referring specifically to legislative enactments
not administrative circulars. Note that the phrase "limits imposed
by law," refers only to the escalation clause. However, the same
agreement allows reduction on the basis of law or the Monetary
Board. Had the parties intended the word "law" to refer to both
legislative enactments and administrative circulars and issuances,
the agreement would not have gone as far as making a distinction
between "law or the Monetary Board Circulars" in referring to
mutually agreed upon reductions in interest rates. This distinction
was the subject of the Court's disquisition in the case ofBanco
Filipino Savings and Mortgage Bank v.Navarro8where the Court held
that:What should be resolved is whether BANCO FILIPINO can increase
the interest rate on the LOAN from 12% to 17%per annumunder the
Escalation Clause. It is our considered opinion that it may not.The
Escalation Clause reads as follows:I/We hereby authorize Banco
Filipino tocorrespondingly increase.the interest rate stipulated in
this contract without advance notice to me/us in the event.a
lawincreasingthe lawful rates of interest that may be chargedon
this particularkind of loan. (Paragraphing and emphasis supplied)It
is clear from the stipulation between the parties that the interest
rate may be increased "in the event alawshould be enacted
increasing the lawful rate of interest that may be chargedon this
particular kind of loan." The Escalation Clause was dependent on an
increase of rate made by "law" alone.CIRCULAR No. 494, although it
has the effect of law, is not a law. "Although a circular duly
issuedis not strictly a statute or a law, it has, however, the
force and effect of law." (Emphasis supplied). "An administrative
regulation adopted pursuant to law has the force and effect of
law." "That administrative rules and regulations have the force of
law can no longer be questioned."The distinction between a law and
an administrative regulation is recognized in the Monetary Board
guidelines quoted in the latter to the BORROWER of Ms. Paderes of
September 24, 1976 (supra). According to the guidelines, for a
loan's interest to be subject to the increases provided in CIRCULAR
No. 494, there must be an Escalation Clause allowing the increase
"in the event thatany law or Central Bank regulationis promulgated
increasing the maximum rate for loans." The guidelines thus
presuppose that a Central Bank regulation is not within the term
"any law."The distinction is again recognized by P.D. No. 1684,
promulgated on March 17, 1980, adding section 7-a to the Usury Law,
providing that parties to an agreement pertaining to a loan could
stipulate that the rate of interest agreed upon may be increased in
the event that the applicable maximum rate of interest is increased
"by law or by the Monetary Board." To quote:Sec. 7-a. Parties to an
agreement pertaining to a loan or forbearance of money, goods or
credits may stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of
interestis increased by law or by the Monetary Board:Provided, That
such stipulation shall be valid only if there is also a stipulation
in the agreement that the rate of interest agreed upon shall be
reduced in the event that the applicable maximum rate of interest
is reduced by law or by the Monetary Board;Provided, further, That
the adjustment in the rate of interest agreed upon shall take
effect on or after the effectivity of the increase or decrease in
the maximum rate of interest.' (Paragraphing and emphasis
supplied).It is now clear that from March 17, 1980, escalation
clauses to be valid should specifically provide: (1) that there can
be an increase in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid, it must
include a provision for reduction of the stipulated interest "in
the event that the applicable maximum rate of interest is reduced
by law or by the Monetary Board."Petitioners never agreed in
writing to pay the increased interest rates demanded by respondent
bank in contravention to the tenor of their credit agreement. That
an increase in interest rates from 18% to as much as 68% is
excessive and unconscionable is indisputable. Between 1981 and
1984, petitioners had paid an amount equivalent to virtually half
of the entire principal (P7,735,004.66)which was applied to
interest alone. By the time the spouses tendered the amount of
P40,142,518.00 in settlement of their obligations; respondent bank
was demanding P58,377,487.00 over and above those amounts already
previously paid by the spouses.Escalation clauses are not basically
wrong or legally objectionable so long as they are not solely
potestative but based on reasonable and valid grounds.9Here, as
clearly demonstrated above, not only the increases of the interest
rates on the basis of the escalation clause patently unreasonable
and unconscionable, but also there are no valid and reasonable
standards upon which the increases are anchored.We go now to
respondent bank's claim that the principal issue in the case at
bench involves its right to foreclose petitioners' properties under
P.D. 385. We find respondent's pretense untenable.Presidential
Decree No. 385 was issued principally to guarantee that government
financial institutions would not be denied substantial cash inflows
necessary to finance the government's development projects all over
the country by large borrowers who resort to litigation to prevent
or delay the government's collection of their debts or loans.10In
facilitating collection of debts through its automatic foreclosure
provisions, the government is however, not exempted from observing
basic principles of law, and ordinary fairness and decency under
the due process clause of the Constitution.11In the first place,
because of the dispute regarding the interest rate increases, an
issue which was never settled on merit in the courts below, the
exact amount of petitioner's obligations could not be determined.
Thus, the foreclosure provisions of P.D. 385 could be validly
invoked by respondent only after settlement of the question
involving the interest rate on the loan, and only after the spouses
refused to meet their obligations following such determination.
InFilipinas Marble Corporation v.Intermediate Appellate
Court,12involving P.D. 385's provisions on mandatory foreclosure,
we held that:We cannot, at this point, conclude that respondent DBP
together with the Bancom people actually misappropriated and
misspent the $5 million loan in whole or in part although the trial
court found that there is "persuasive" evidence that such acts were
committed by the respondent. This matter should rightfully be
litigated below in the main action. Pending the outcome of such
litigation, P.D. 385 cannot automatically be applied for if it is
really proven that respondent DBP is responsible for the
misappropriation of the loan, even if only in part, then the
foreclosure of the petitioner's properties under the provisions of
P.D. 385 to satisfy the whole amount of the loan would be a gross
mistake. It would unduly prejudice the petitioner, its employees
and their families.Only after trial on the merits of the main case
can the true amount of the loan which was applied wisely or not,
for the benefit of the petitioner be determined. Consequently, the
extent of the loan where there was no failure of consideration and
which may be properly satisfied by foreclosure proceedings under
P.D. 385 will have to await the presentation of evidence in a trial
on the merits.InRepublic Planters Bank v.Court of Appeals13the
Court reiterating thedictumin Filipinas Marble Corporation,
held:The enforcement of P.D. 385 will sweep under the rug' this
iceberg of a scandal in the sugar industry during the Marcos
Martial Law years. This we can not allow to happen. For the benefit
of future generations, all the dirty linen in the
PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so
that the same may NEVER be repeated.It is of paramount national
interest, that we allow the trial court to proceed with dispatch to
allow the parties below to present their evidence.Furthermore,
petitioners made a valid consignation of what they, in good faith
and in compliance with the letter of the Credit Agreement, honestly
believed to be the real amount of their remaining obligations with
the respondent bank. The latter could not therefore claim that
there was no honest-to-goodness attempt on the part of the spouse
to settle their obligations. Respondent's rush to inequitably
invoke the foreclosure provisions of P.D. 385 through its legal
machinations in the courts below, in spite of the unsettled
differences in interpretation of the credit agreement was obviously
made in bad faith, to gain the upper hand over petitioners.In the
face of the unequivocal interest rate provisions in the credit
agreement and in the law requiring the parties to agree to changes
in the interest rate in writing, we hold that the unilateral and
progressive increases imposed by respondent PNB were null and void.
Their effect was to increase the total obligation on an eighteen
million peso loan to an amount way over three times that which was
originally granted to the borrowers. That these increases,
occasioned by crafty manipulations in the interest rates is
unconscionable and neutralizes the salutary policies of extending
loans to spur business cannot be disputed.WHEREFORE, PREMISES
CONSIDERED, the decision of the Court of Appeals dated August 27,
1993, as well as the resolution dated February 10, 1994 is hereby
REVERSED AND SET ASIDE. The case is remanded to the Regional Trial
Court of Makati for further proceedings.SO ORDERED.
Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No.
133250 July 9, 2002FRANCISCO I. CHAVEZ,petitioner,vs.PUBLIC ESTATES
AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION,respondents.CARPIO,J.:This is an original Petition for
Mandamus with prayer for a writ of preliminary injunction and a
temporary restraining order. The petition seeks to compel the
Public Estates Authority ("PEA" for brevity) to disclose all facts
on PEA's then on-going renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to reclaim portions
of Manila Bay. The petition further seeks to enjoin PEA from
signing a new agreement with AMARI involving such reclamation.The
FactsOn November 20, 1973, the government, through the Commissioner
of Public Highways, signed a contract with the Construction and
Development Corporation of the Philippines ("CDCP" for brevity) to
reclaim certain foreshore and offshore areas of Manila Bay. The
contract also included the construction of Phases I and II of the
Manila-Cavite Coastal Road. CDCP obligated itself to carry out all
the works in consideration of fifty percent of the total reclaimed
land.On February 4, 1977, then President Ferdinand E. Marcos issued
Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA
"to reclaim land, including foreshore and submerged areas," and "to
develop, improve, acquire, x x x lease and sell any and all kinds
of lands."1On the same date, then President Marcos issued
Presidential Decree No. 1085 transferring to PEA the "lands
reclaimed in the foreshore and offshore of the Manila Bay"2under
the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP).On
December 29, 1981, then President Marcos issued a memorandum
directing PEA to amend its contract with CDCP, so that "[A]ll
future works in MCCRRP x x x shall be funded and owned by PEA."
Accordingly, PEA and CDCP executed a Memorandum of Agreement dated
December 29, 1981, which stated:"(i) CDCP shall undertake all
reclamation, construction, and such other works in the MCCRRP as
may be agreed upon by the parties, to be paid according to progress
of works on a unit price/lump sum basis for items of work to be
agreed upon, subject to price escalation, retention and other terms
and conditions provided for in Presidential Decree No. 1594. All
the financing required for such works shall be provided by PEA.x x
x(iii) x x x CDCP shall give up all its development rights and
hereby agrees to cede and transfer in favor of PEA, all of the
rights, title, interest and participation of CDCP in and to all the
areas of land reclaimed by CDCP in the MCCRRP as of December 30,
1981 which have not yet been sold, transferred or otherwise
disposed of by CDCP as of said date, which areas consist of
approximately Ninety-Nine Thousand Four Hundred Seventy Three
(99,473) square meters in the Financial Center Area covered by land
pledge No. 5 and approximately Three Million Three Hundred Eighty
Two Thousand Eight Hundred Eighty Eight (3,382,888) square meters
of reclaimed areas at varying elevations above Mean Low Water Level
located outside the Financial Center Area and the First
Neighborhood Unit."3On January 19, 1988, then President Corazon C.
Aquino issued Special Patent No. 3517, granting and transferring to
PEA "the parcels of land so reclaimed under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP) containing a total
area of one million nine hundred fifteen thousand eight hundred
ninety four (1,915,894) square meters." Subsequently, on April 9,
1988, the Register of Deeds of the Municipality of Paraaque issued
Transfer Certificates of Title Nos. 7309, 7311, and 7312, in the
name of PEA, covering the three reclaimed islands known as the
"Freedom Islands" located at the southern portion of the
Manila-Cavite Coastal Road, Paraaque City. The Freedom Islands have
a total land area of One Million Five Hundred Seventy Eight
Thousand Four Hundred and Forty One (1,578,441) square meters or
157.841 hectares.On April 25, 1995, PEA entered into a Joint
Venture Agreement ("JVA" for brevity) with AMARI, a private
corporation, to develop the Freedom Islands. The JVA also required
the reclamation of an additional 250 hectares of submerged areas
surrounding these islands to complete the configuration in the
Master Development Plan of the Southern Reclamation Project-MCCRRP.
PEA and AMARI entered into the JVA through negotiation without
public bidding.4On April 28, 1995, the Board of Directors of PEA,
in its Resolution No. 1245, confirmed the JVA.5On June 8, 1995,
then President Fidel V. Ramos, through then Executive Secretary
Ruben Torres, approved the JVA.6On November 29, 1996, then Senate
President Ernesto Maceda delivered a privilege speech in the Senate
and denounced the JVA as the "grandmother of all scams." As a
result, the Senate Committee on Government Corporations and Public
Enterprises, and the Committee on Accountability of Public Officers
and Investigations, conducted a joint investigation. The Senate
Committees reported the results of their investigation in Senate
Committee Report No. 560 dated September 16, 1997.7Among the
conclusions of their report are: (1) the reclaimed lands PEA seeks
to transfer to AMARI under the JVA are lands of the public domain
which the government has not classified as alienable lands and
therefore PEA cannot alienate these lands; (2) the certificates of
title covering the Freedom Islands are thus void, and (3) the JVA
itself is illegal.On December 5, 1997, then President Fidel V.
Ramos issued Presidential Administrative Order No. 365 creating a
Legal Task Force to conduct a study on the legality of the JVA in
view of Senate Committee Report No. 560. The members of the Legal
Task Force were the Secretary of Justice,8the Chief Presidential
Legal Counsel,9and the Government Corporate Counsel.10The Legal
Task Force upheld the legality of the JVA, contrary to the
conclusions reached by the Senate Committees.11On April 4 and 5,
1998, thePhilippine Daily InquirerandTodaypublished reports that
there were on-going renegotiations between PEA and AMARI under an
order issued by then President Fidel V. Ramos. According to these
reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and
retired Navy Officer Sergio Cruz composed the negotiating panel of
PEA.On April 13, 1998, Antonio M. Zulueta filed before the Court
aPetition for Prohibition with Application for the Issuance of a
Temporary Restraining Order and Preliminary Injunctiondocketed as
G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the
petition "for unwarranted disregard of judicial hierarchy, without
prejudice to the refiling of the case before the proper court."12On
April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for
brevity) as a taxpayer, filed the instantPetition for Mandamus with
Prayer for the Issuance of a Writ of Preliminary Injunction and
Temporary Restraining Order. Petitioner contends the government
stands to lose billions of pesos in the sale by PEA of the
reclaimed lands to AMARI. Petitioner prays that PEA publicly
disclose the terms of any renegotiation of the JVA, invoking
Section 28, Article II, and Section 7, Article III, of the 1987
Constitution on the right of the people to information on matters
of public concern. Petitioner assails the sale to AMARI of lands of
the public domain as a blatant violation of Section 3, Article XII
of the 1987 Constitution prohibiting the sale of alienable lands of
the public domain to private corporations. Finally, petitioner
asserts that he seeks to enjoin the loss of billions of pesos in
properties of the State that are of public dominion.After several
motions for extension of time,13PEA and AMARI filed their Comments
on October 19, 1998 and June 25, 1998, respectively. Meanwhile, on
December 28, 1998, petitioner filed an Omnibus Motion: (a) to
require PEA to submit the terms of the renegotiated PEA-AMARI
contract; (b) for issuance of a temporary restraining order; and
(c) to set the case for hearing on oral argument. Petitioner filed
a Reiterative Motion for Issuance of a TRO dated May 26, 1999,
which the Court denied in a Resolution dated June 22, 1999.In a
Resolution dated March 23, 1999, the Court gave due course to the
petition and required the parties to file their respective
memoranda.On March 30, 1999, PEA and AMARI signed the Amended Joint
Venture Agreement ("Amended JVA," for brevity). On May 28, 1999,
the Office of the President under the administration of then
President Joseph E. Estrada approved the Amended JVA.Due to the
approval of the Amended JVA by the Office of the President,
petitioner now prays that on "constitutional and statutory grounds
the renegotiated contract be declared null and void."14The
IssuesThe issues raised by petitioner, PEA15and AMARI16are as
follows:I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION
ARE MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;II. WHETHER THE
PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE PRINCIPLE
GOVERNING THE HIERARCHY OF COURTS;III. WHETHER THE PETITION MERITS
DISMISSAL FOR NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES;IV. WHETHER
PETITIONER HASLOCUS STANDITO BRING THIS SUIT;V. WHETHER THE
CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL INFORMATION
ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT;VI. WHETHER THE
STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT FOR THE
TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE
RECLAIMED, VIOLATE THE 1987 CONSTITUTION; ANDVII. WHETHER THE COURT
IS THE PROPER FORUM FOR RAISING THE ISSUE OF WHETHER THE AMENDED
JOINT VENTURE AGREEMENT IS GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT.The Court's RulingFirst issue: whether the principal
reliefs prayed for in the petition are moot and academic because of
subsequent events.The petition prays that PEA publicly disclose the
"terms and conditions of the on-going negotiations for a new
agreement." The petition also prays that the Court enjoin PEA from
"privately entering into, perfecting and/or executing any new
agreement with AMARI."PEA and AMARI claim the petition is now moot
and academic because AMARI furnished petitioner on June 21, 1999 a
copy of the signed Amended JVA containing the terms and conditions
agreed upon in the renegotiations. Thus, PEA has satisfied
petitioner's prayer for a public disclosure of the renegotiations.
Likewise, petitioner's prayer to enjoin the signing of the Amended
JVA is now moot because PEA and AMARI have already signed the
Amended JVA on March 30, 1999. Moreover, the Office of the
President has approved the Amended JVA on May 28, 1999.Petitioner
counters that PEA and AMARI cannot avoid the constitutional issue
by simply fast-tracking the signing and approval of the Amended JVA
before the Court could act on the issue. Presidential approval does
not resolve the constitutional issue or remove it from the ambit of
judicial review.We rule that the signing of the Amended JVA by PEA
and AMARI and its approval by the President cannot operate to moot
the petition and divest the Court of its jurisdiction. PEA and
AMARI have still to implement the Amended JVA. The prayer to enjoin
the signing of the Amended JVA on constitutional grounds
necessarily includes preventing its implementation if in the
meantime PEA and AMARI have signed one in violation of the
Constitution. Petitioner's principal basis in assailing the
renegotiation of the JVA is its violation of Section 3, Article XII
of the Constitution, which prohibits the government from alienating
lands of the public domain to private corporations. If the Amended
JVA indeed violates the Constitution, it is the duty of the Court
to enjoin its implementation, and if already implemented, to annul
the effects of such unconstitutional contract.The Amended JVA is
not an ordinary commercial contract but one which seeks totransfer
title and ownership to 367.5 hectares of reclaimed lands and
submerged areas of Manila Bay to a single private corporation. It
now becomes more compelling for the Court to resolve the issue to
insure the government itself does not violate a provision of the
Constitution intended to safeguard the national patrimony.
Supervening events, whether intended or accidental, cannot prevent
the Court from rendering a decision if there is a grave violation
of the Constitution. In the instant case, if the Amended JVA runs
counter to the Constitution, the Court can still prevent the
transfer of title and ownership of alienable lands of the public
domain in the name of AMARI. Even in cases where supervening events
had made the cases moot, the Court did not hesitate to resolve the
legal or constitutional issues raised to formulate controlling
principles to guide the bench, bar, and the public.17Also, the
instant petition is a case of first impression. All previous
decisions of the Court involving Section 3, Article XII of the 1987
Constitution, or its counterpart provision in the 1973
Constitution,18coveredagricultural landssold to private
corporations which acquired the lands from private parties. The
transferors of the private corporations claimed or could claim the
right tojudicial confirmation of their imperfect titles19underTitle
IIof Commonwealth Act. 141 ("CA No. 141" for brevity). In the
instant case, AMARI seeks to acquire from PEA, a public
corporation, reclaimed lands and submerged areas
fornon-agriculturalpurposes bypurchaseunder PD No. 1084 (charter of
PEA) andTitle IIIof CA No. 141. Certain undertakings by AMARI under
the Amended JVA constitute the consideration for the purchase.
Neither AMARI nor PEA can claim judicial confirmation of their
titles because the lands covered by the Amended JVA are newly
reclaimed or still to be reclaimed. Judicial confirmation of
imperfect title requires open, continuous, exclusive and notorious
occupation of agricultural lands of the public domain for at least
thirty years since June 12, 1945 or earlier. Besides, the deadline
for filing applications for judicial confirmation of imperfect
title expired on December 31, 1987.20Lastly, there is a need to
resolve immediately the constitutional issue raised in this
petition because of the possible transfer at any time by PEA to
AMARI of title and ownership to portions of the reclaimed lands.
Under the Amended JVA, PEA is obligated to transfer to AMARI the
latter's seventy percent proportionate share in the reclaimed areas
as the reclamation progresses. The Amended JVA even allows AMARI to
mortgage at any time theentirereclaimed area to raise financing for
the reclamation project.21Second issue: whether the petition merits
dismissal for failing to observe the principle governing the
hierarchy of courts.PEA and AMARI claim petitioner ignored the
judicial hierarchy by seeking relief directly from the Court. The
principle of hierarchy of courts applies generally to cases
involving factual questions. As it is not a trier of facts, the
Court cannot entertain cases involving factual issues. The instant
case, however, raises constitutional issues of transcendental
importance to the public.22The Court can resolve this case without
determining any factual issue related to the case. Also, the
instant case is a petition for mandamus which falls under the
original jurisdiction of the Court under Section 5, Article VIII of
the Constitution. We resolve to exercise primary jurisdiction over
the instant case.Third issue: whether the petition merits dismissal
for non-exhaustion of administrative remedies.PEA faults petitioner
for seeking judicial intervention in compelling PEA to disclose
publicly certain information without first asking PEA the needed
information. PEA claims petitioner's direct resort to the Court
violates the principle of exhaustion of administrative remedies. It
also violates the rule that mandamus may issue only if there is no
other plain, speedy and adequate remedy in the ordinary course of
law.PEA distinguishes the instant case from Taada v. Tuvera23where
the Court granted the petition for mandamus even if the petitioners
there did not initially demand from the Office of the President the
publication of the presidential decrees. PEA points out that in
Taada, the Executive Department had anaffirmative statutoryduty
under Article 2 of the Civil Code24and Section 1 of Commonwealth
Act No. 63825to publish the presidential decrees. There was,
therefore, no need for the petitioners in Taada to make an initial
demand from the Office of the President. In the instant case, PEA
claims it has no affirmative statutory duty to disclose publicly
information about its renegotiation of the JVA. Thus, PEA asserts
that the Court must apply the principle of exhaustion of
administrative remedies to the instant case in view of the failure
of petitioner here to demand initially from PEA the needed
information.The original JVA sought to dispose to AMARI public
lands held by PEA, a government corporation. Under Section 79 of
the Government Auditing Code,26the disposition of government lands
to private parties requires public bidding.PEA was under a positive
legal duty to disclose to the public the terms and conditions for
the sale of its lands. The law obligated PEA to make this public
disclosure even without demand from petitioner or from anyone. PEA
failed to make this public disclosure because the original JVA,
like the Amended JVA, was the result of anegotiated contract, not
of a public bidding. Considering that PEA had an affirmative
statutory duty to make the public disclosure, and was even in
breach of this legal duty, petitioner had the right to seek direct
judicial intervention.Moreover, and this alone is determinative of
this issue, the principle of exhaustion of administrative remedies
does not apply when the issue involved is a purely legal or
constitutional question.27The principal issue in the instant case
is the capacity of AMARI to acquire lands held by PEA in view of
the constitutional ban prohibiting the alienation of lands of the
public domain to private corporations. We rule that the principle
of exhaustion of administrative remedies does not apply in the
instant case.Fourth issue: whether petitioner has locus standi to
bring this suitPEA argues that petitioner has no standing to
institutemandamusproceedings to enforce his constitutional right to
information without a showing that PEA refused to perform an
affirmative duty imposed on PEA by the Constitution. PEA also
claims that petitioner has not shown that he will suffer any
concrete injury because of the signing or implementation of the
Amended JVA. Thus, there is no actual controversy requiring the
exercise of the power of judicial review.The petitioner has
standing to bring this taxpayer's suit because the petition seeks
to compel PEA to comply with its constitutional duties. There are
two constitutional issues involved here. First is the right of
citizens to information on matters of public concern. Second is the
application of a constitutional provision intended to insure the
equitable distribution of alienable lands of the public domain
among Filipino citizens. The thrust of the first issue is to compel
PEA to disclose publicly information on the sale of government
lands worth billions of pesos, information which the Constitution
and statutory law mandate PEA to disclose. The thrust of the second
issue is to prevent PEA from alienating hundreds of hectares of
alienable lands of the public domain in violation of the
Constitution, compelling PEA to comply with a constitutional duty
to the nation.Moreover, the petition raises matters of
transcendental importance to the public. InChavez v. PCGG,28the
Court upheld the right of a citizen to bring a taxpayer's suit on
matters of transcendental importance to the public, thus -"Besides,
petitioner emphasizes, the matter of recovering the ill-gotten
wealth of the Marcoses is an issue of 'transcendental importance to
the public.' He asserts that ordinary taxpayers have a right to
initiate and prosecute actions questioning the validity of acts or
orders of government agencies or instrumentalities, if the issues
raised are of 'paramount public interest,' and if they 'immediately
affect the social, economic and moral well being of the
people.'Moreover, the mere fact that he is a citizen satisfies the
requirement of personal interest, when the proceeding involves the
assertion of a public right, such as in this case. He invokes
several decisions of this Court which have set aside the procedural
matter oflocus standi, when the subject of the case involved public
interest.x x xInTaada v. Tuvera, the Court asserted that when the
issue concerns a public right and the object of mandamus is to
obtain the enforcement of a public duty, the people are regarded as
the real parties in interest; and because it is sufficient that
petitioner is a citizen and as such is interested in the execution
of the laws, he need not show that he has any legal or special
interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters
of public concern, a right then recognized in Section 6, Article IV
of the 1973 Constitution, in connection with the rule that laws in
order to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated. In ruling for the
petitioners' legal standing, the Court declared that the right they
sought to be enforced 'is a public right recognized by no less than
the fundamental law of the land.'Legaspi v. Civil Service
Commission, while reiterating Taada, further declared that 'when a
mandamus proceeding involves the assertion of a public right, the
requirement of personal interest is satisfied by the mere fact that
petitioner is a citizen and, therefore, part of the general
'public' which possesses the right.'Further, inAlbano v. Reyes, we
said that while expenditure of public funds may not have been
involved under the questioned contract for the development,
management and operation of the Manila International Container
Terminal, 'public interest [was] definitely involved considering
the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial
consideration involved.' We concluded that, as a consequence, the
disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioner's
standing.Similarly, the instant petition is anchored on the right
of the people to information and access to official records,
documents and papers a right guaranteed under Section 7, Article
III of the 1987 Constitution. Petitioner, a former solicitor
general, is a Filipino citizen. Because of the satisfaction of the
two basic requisites laid down by decisional law to sustain
petitioner's legal standing, i.e. (1) the enforcement of a public
right (2) espoused by a Filipino citizen, we rule that the petition
at bar should be allowed."We rule that since the instant petition,
brought by a citizen, involves the enforcement of constitutional
rights - to information and to the equitable diffusion of natural
resources - matters of transcendental public importance, the
petitioner has the requisitelocus standi.Fifth issue: whether the
constitutional right to information includes official information
on on-going negotiations before a final agreement.Section 7,
Article III of the Constitution explains the people's right to
information on matters of public concern in this manner:"Sec. 7.
The right of the people to information on matters of public concern
shall be recognized. Access to official records, and to documents,
and papers pertaining to official acts, transactions, or decisions,
as well as to government research data used as basis for policy
development, shall be afforded the citizen, subject to such
limitations as may be provided by law." (Emphasis supplied)The
State policy of full transparency in all transactions involving
public interest reinforces the people's right to information on
matters of public concern. This State policy is expressed in
Section 28, Article II of the Constitution, thus:"Sec. 28. Subject
to reasonable conditions prescribed by law, the State adopts and
implements apolicy of full public disclosure of all its
transactions involving public interest." (Emphasis supplied)These
twin provisions of the Constitution seek to promote transparency in
policy-making and in the operations of the government, as well as
provide the people sufficient information to exercise effectively
other constitutional rights. These twin provisions are essential to
the exercise of freedom of expression. If the government does not
disclose its official acts, transactions and decisions to citizens,
whatever citizens say, even if expressed without any restraint,
will be speculative and amount to nothing. These twin provisions
are also essential to hold public officials "at all times x x x
accountable to the people,"29for unless citizens have the proper
information, they cannot hold public officials accountable for
anything. Armed with the right information, citizens can
participate in public discussions leading to the formulation of
government policies and their effective implementation. An informed
citizenry is essential to the existence and proper functioning of
any democracy. As explained by the Court inValmonte v. Belmonte,
Jr.30"An essential element of these freedoms is to keep open a
continuing dialogue or process of communication between the
government and the people. It is in the interest of the State that
the channels for free political discussion be maintained to the end
that the government may perceive and be responsive to the people's
will. Yet, this open dialogue can be effective only to the extent
that the citizenry is informed and thus able to formulate its will
intelligently. Only when the participants in the discussion are
aware of the issues and have access to information relating thereto
can such bear fruit."PEA asserts, citingChavez v. PCGG,31that in
cases of on-going negotiations the right to information is limited
to "definite propositions of the government." PEA maintains the
right does not include access to "intra-agency or inter-agency
recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in
the 'exploratory stage'."Also, AMARI contends that petitioner
cannot invoke the right at the pre-decisional stage or before the
closing of the transaction. To support its contention, AMARI cites
the following discussion in the 1986 Constitutional Commission:"Mr.
Suarez. And when we say 'transactions' which should be
distinguished from contracts, agreements, or treaties or whatever,
does the Gentleman refer to the steps leading to the consummation
of the contract, or does he refer to the contract itself?Mr.
Ople:The 'transactions' used here, I suppose is generic and
therefore, it can cover both steps leading to a contract and
already a consummated contract, Mr. Presiding Officer.Mr. Suarez:
This contemplates inclusion of negotiations leading to the
consummation of the transaction.Mr. Ople: Yes, subject only to
reasonable safeguards on the national interest.Mr. Suarez:Thank
you."32(Emphasis supplied)AMARI argues there must first be a
consummated contract before petitioner can invoke the right.
Requiring government officials to reveal their deliberations at the
pre-decisional stage will degrade the quality of decision-making in
government agencies. Government officials will hesitate to express
their real sentiments during deliberations if there is immediate
public dissemination of their discussions, putting them under all
kinds of pressure before they decide.We must first distinguish
between information the law on public bidding requires PEA to
disclose publicly, and information the constitutional right to
information requires PEA to release to the public. Before the
consummation of the contract, PEA must, on its own and without
demand from anyone, disclose to the public matters relating to the
disposition of its property. These include the size, location,
technical description and nature of the property being disposed of,
the terms and conditions of the disposition, the parties qualified
to bid, the minimum price and similar information. PEA must prepare
all these data and disclose them to the public at the start of the
disposition process, long before the consummation of the contract,
because the Government Auditing Code requirespublic bidding. If PEA
fails to make this disclosure, any citizen can demand from PEA this
information at any time during the bidding process.Information,
however, onon-going evaluation or reviewof bids or proposals being
undertaken by the bidding or review committee is not immediately
accessible under the right to information. While the evaluation or
review is still on-going, there are no "official acts,
transactions, or decisions" on the bids or proposals. However, once
the committee makes itsofficial recommendation, there arises
a"definite proposition"on the part of the government. From this
moment, the public's right to information attaches, and any citizen
can access all the non-proprietary information leading to such
definite proposition. InChavez v. PCGG,33the Court ruled as
follows:"Considering the intent of the framers of the Constitution,
we believe that it is incumbent upon the PCGG and its officers, as
well as other government representatives, to disclose sufficient
public information on any proposed settlement they have decided to
take up with the ostensible owners and holders of ill-gotten
wealth. Such information, though, must pertain todefinite
propositions of the government, not necessarily to intra-agency or
inter-agency recommendations or communications during the stage
when common assertions are still in the process of being formulated
or are in the "exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of information in
general, as discussed earlier such as on matters involving national
security, diplomatic or foreign relations, intelligence and other
classified information." (Emphasis supplied)Contrary to AMARI's
contention, the commissioners of the 1986 Constitutional Commission
understood that the right to information"contemplates inclusion of
negotiations leading to the consummation of the
transaction."Certainly, a consummated contract is not a requirement
for the exercise of the right to information. Otherwise, the people
can never exercise the right if no contract is consummated, and if
one is consummated, it may be too late for the public to expose its
defects.1wphi1.ntRequiring a consummated contract will keep the
public in the dark until the contract, which may be grossly
disadvantageous to the government or even illegal, becomes afait
accompli. This negates the State policy of full transparency on
matters of public concern, a situation which the framers of the
Constitution could not have intended. Such a requirement will
prevent the citizenry from participating in the public discussion
of anyproposedcontract, effectively truncating a basic right
enshrined in the Bill of Rights. We can allow neither an
emasculation of a constitutional right, nor a retreat by the State
of its avowed "policy of full disclosure of all its transactions
involving public interest."The right covers three categories of
information which are "matters of public concern," namely: (1)
official records; (2) documents and papers pertaining to official
acts, transactions and decisions; and (3) government research data
used in formulating policies. The first category refers to any
document that is part of the public records in the custody of
government agencies or officials. The second category refers to
documents and papers recording, evidencing, establishing,
confirming, supporting, justifying or explaining official acts,
transactions or decisions of government agencies or officials. The
third category refers to research data, whether raw, collated or
processed, owned by the government and used in formulating
government policies.The information that petitioner may access on
the renegotiation of the JVA includes evaluation reports,
recommendations, legal and expert opinions, minutes of meetings,
terms of reference and other documents attached to such reports or
minutes, all relating to the JVA. However, the right to information
does not compel PEA to prepare lists, abstracts, summaries and the
like relating to the renegotiation of the JVA.34The right only
affords access to records, documents and papers, which means the
opportunity to inspect and copy them. One who exercises the right
must copy the records, documents and papers at his expense. The
exercise of the right is also subject to reasonable regulations to
protect the integrity of the public records and to minimize
disruption to government operations, like rules specifying when and
how to conduct the inspection and copying.35The right to
information, however, does not extend to matters recognized as
privileged information under the separation of powers.36The right
does not also apply to information on military and diplomatic
secrets, information affecting national security, and information
on investigations of crimes by law enforcement agencies before the
prosecution of the accused, which courts have long recognized as
confidential.37The right may also be subject to other limitations
that Congress may impose by law.There is no claim by PEA that the
information demanded by petitioner is privileged information rooted
in the separation of powers. The information does not cover
Presidential conversations, correspondences, or discussions during
closed-door Cabinet meetings which, like internal deliberations of
the Supreme Court and other collegiate courts, or executive
sessions of either house of Congress,38are recognized as
confidential. This kind of information cannot be pried open by a
co-equal branch of government. A frank exchange of exploratory
ideas and assessments, free from the glare of publicity and
pressure by interested parties, is essential to protect the
independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power.39This is not the
situation in the instant case.We rule, therefore, that the
constitutional right to information includes official information
onon-going negotiationsbefore a final contract. The information,
however, must constitute definite propositions by the government
and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters
affecting national security and public order.40Congress has also
prescribed other limitations on the right to information in several
legislations.41Sixth issue: whether stipulations in the Amended JVA
for the transfer to AMARI of lands, reclaimed or to be reclaimed,
violate the Constitution.The Regalian DoctrineThe ownership of
lands reclaimed from foreshore and submerged areas is rooted in the
Regalian doctrine which holds that the State owns all lands and
waters of the public domain. Upon the Spanish conquest of the
Philippines, ownership of all "lands, territories and possessions"
in the Philippines passed to the Spanish Crown.42The King, as the
sovereign ruler and representative of the people, acquired and
owned all lands and territories in the Philippines except those he
disposed of by grant or sale to private individuals.The 1935, 1973
and 1987 Constitutions adopted the Regalian doctrine substituting,
however, the State, in lieu of the King, as the owner of all lands
and waters of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land ownership that
"all lands that were not acquired from the Government, either by
purchase or by grant, belong to the public domain."43Article 339 of
the Civil Code of 1889, which is now Article 420 of the Civil Code
of 1950, incorporated the Regalian doctrine.Ownership and
Disposition of Reclaimed LandsThe Spanish Law of Waters of 1866 was
the first statutory law governing the ownership and disposition of
reclaimed lands in the Philippines. On May 18, 1907, the Philippine
Commission enacted Act No. 1654 which providedfor the lease, but
not the sale, of reclaimed lands of the government to corporations
and individuals. Later, on November 29, 1919, the Philippine
Legislature approved Act No. 2874, the Public Land Act, which
authorizedthe lease, but not the sale, of reclaimed lands of the
government to corporations and individuals. On November 7, 1936,
the National Assembly passed Commonwealth Act No. 141, also known
as the Public Land Act, whichauthorized the lease, but not the
sale, of reclaimed lands of the government to corporations and
individuals. CA No. 141 continues to this day as the general law
governing the classification and disposition of lands of the public
domain.The Spanish Law of Waters of 1866 and the Civil Code of
1889Under the Spanish Law of Waters of 1866, the shores, bays,
coves, inlets and all waters within the maritime zone of the
Spanish territory belonged to the public domain for public
use.44The Spanish Law of Waters of 1866 allowed the reclamation of
the sea under Article 5, which provided as follows:"Article 5.
Lands reclaimed from the sea in consequence of works constructed by
the State, or by the provinces, pueblos or private persons, with
proper permission, shall become the property of the party
constructing such works, unless otherwise provided by the terms of
the grant of authority."Under the Spanish Law of Waters, land
reclaimed from the sea belonged to the party undertaking the
reclamation, provided the government issued the necessary permit
and did not reserve ownership of the reclaimed land to the
State.Article 339 of the Civil Code of 1889 defined property of
public dominion as follows:"Art. 339. Property of public dominion
is 1. That devoted to public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, riverbanks,
shores, roadsteads, and that of a similar character;2. That
belonging exclusively to the State which, without being of general
public use, is employed in some public service, or in the
development of the national wealth, such as walls, fortresses, and
other works for the defense of the territory, and mines, until
granted to private individuals."Property devoted to public use
referred to property open for use by the public. In contrast,
property devoted to public service referred to property used for
some specific public service and open only to those authorized to
use the property.Property of public dominion referred not only to
property devoted to public use, but also to property not so used
but employedto develop the national wealth. This class of property
constituted property of public dominion although employed for some
economic or commercial activity to increase the national
wealth.Article 341 of the Civil Code of 1889 governed the
re-classification of property of public dominion into private
property, to wit:"Art. 341. Property of public dominion, when no
longer devoted to public use or to the defense of the territory,
shall become a part of the private property of the State."This
provision, however, was not self-executing. The legislature, or the
executive department pursuant to law, must declare the property no
longer needed for public use or territorial defense before the
government could lease or alienate the property to private
parties.45Act No. 1654 of the Philippine CommissionOn May 8, 1907,
the Philippine Commission enacted Act No. 1654 which regulated the
lease of reclaimed and foreshore lands. The salient provisions of
this law were as follows:"Section 1. Thecontrol and disposition of
the foreshoreas defined in existing law, and thetitle to all
Government or public lands made or reclaimed by the Government by
dredging or fillingor otherwise throughout the Philippine
Islands,shall be retained by the Governmentwithout prejudice to
vested rights and without prejudice to rights conceded to the City
of Manila in the Luneta Extension.Section 2. (a) The Secretary of
the Interior shall cause all Government or public lands made or
reclaimed by the Government by dredging or filling or otherwise to
be divided into lots or blocks, with the necessary streets and
alleyways located thereon, and shall cause plats and plans of such
surveys to be prepared and filed with the Bureau of Lands.(b) Upon
completion of such plats and plans theGovernor-General shall give
notice to the public that such parts of the lands so made or
reclaimed as are not needed for public purposes will be leased for
commercial and business purposes, x x x.x x x(e)The leases above
provided for shall be disposed of to the highest and best
biddertherefore, subject to such regulations and safeguards as the
Governor-General may by executive order prescribe." (Emphasis
supplied)Act No. 1654 mandated that thegovernment should retain
title to all lands reclaimed by the government. The Act also vested
in the government control and disposition of foreshore lands.
Private parties could lease lands reclaimed by the government only
if these lands were no longer needed for public purpose. Act No.
1654 mandatedpublic biddingin the lease of government reclaimed
lands. Act No. 1654 made government reclaimed landssui generisin
that unlike other public lands which the government could sell to
private parties, these reclaimed lands were available only for
lease to private parties.Act No. 1654, however, did not repeal
Section 5 of the Spanish Law of Waters of 1866. Act No. 1654 did
not prohibit private parties from reclaiming parts of the sea under
Section 5 of the Spanish Law of Waters. Lands reclaimed from the
sea by private parties with government permission remained private
lands.Act No. 2874 of the Philippine LegislatureOn November 29,
1919, the Philippine Legislature enacted Act No. 2874, the Public
Land Act.46The salient provisions of Act No. 2874, on reclaimed
lands, were as follows:"Sec. 6.The Governor-General, upon the
recommendation of the Secretary of Agriculture and Natural
Resources, shall from time to time classify the lands of the public
domain into(a)Alienable or disposable,(b) Timber, and(c) Mineral
lands, x x x.Sec. 7. For the purposes of the government and
disposition of alienable or disposable public lands,the
Governor-General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall from time to time declare
what lands are open to disposition or concession under this
Act."Sec. 8.Only those lands shall be declared open to disposition
or concession which have been officially delimited or classifiedx x
x.x x xSec. 55. Any tract of land of the public domain which, being
neither timber nor mineral land, shall be classified assuitable for
residential purposes or for commercial, industrial, or other
productive purposes other than agricultural purposes, and shall be
open to disposition or concession, shall be disposed of under the
provisions of this chapter, and not otherwise.Sec. 56.The lands
disposable under this title shall be classified as follows:(a)
Lands reclaimed by the Government by dredging, filling, or other
means;(b) Foreshore;(c) Marshy landsor lands covered with water
bordering upon the shores or banks of navigable lakes or rivers;(d)
Lands not included in any of the foregoing classes.x x x.Sec.
58.The lands comprised in classes (a), (b), and (c) of section
fifty-six shall be disposed of to private parties by lease only and
not otherwise, as soon asthe Governor-General, upon recommendation
by the Secretary of Agriculture and Natural Resources, shall
declare that the same are not necessary for the public service and
are open to dispositionunder this chapter.The lands included in
class (d) may be disposed of by sale or lease under the provisions
of this Act." (Emphasis supplied)Section 6 of Act No. 2874
authorized the Governor-General to "classify lands of the public
domain into x x x alienable or disposable"47lands. Section 7 of the
Act empowered the Governor-General to "declare what lands are open
to disposition or concession." Section 8 of the Act limited
alienable or disposable lands only to those lands which have been
"officially delimited and classified."Section 56 of Act No. 2874
stated that lands "disposable under this title48shall be
classified" as government reclaimed, foreshore and marshy lands, as
well as other lands. All these lands, however, must be suitable for
residential, commercial, industrial or other
productivenon-agriculturalpurposes. These provisions vested upon
the Governor-General the power to classify inalienable lands of the
public domain into disposable lands of the public domain. These
provisions also empowered the Governor-General to classify further
such disposable lands of the public domain into government
reclaimed, foreshore or marshy lands of the public domain, as well
as other non-agricultural lands.Section 58 of Act No. 2874
categorically mandated that disposable lands of the public domain
classified as government reclaimed, foreshore and marshy
lands"shall be disposed of to private parties by lease only and not
otherwise."The Governor-General, before allowing the lease of these
lands to private parties, must formally declare that the lands were
"not necessary for the public service." Act No. 2874 reiterated the
State policy to lease and not to sell government reclaimed,
foreshore and marshy lands of the public domain, a policy first
enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore
and marshy lands remainedsui generis, as the only alienable or
disposable lands of the public domain that the government could not
sell to private parties.The rationale behind this State policy is
obvious. Government reclaimed, foreshore and marshy public lands
for non-agricultural purposes retain their inherent potential as
areas for public service. This is the reason the government
prohibited the sale, and only allowed the lease, of these lands to
private parties. The State always reserved these lands for some
future public service.Act No. 2874 did not authorize the
reclassification of government reclaimed, foreshore and marshy
lands into other non-agricultural lands under Section 56 (d). Lands
falling under Section 56 (d) were the only lands for
non-agricultural purposes the government could sell to private
parties. Thus, under Act No. 2874, the government could not sell
government reclaimed, foreshore and marshy lands to private
parties, unless the legislature passed a law allowing their
sale.49Act No. 2874 did not prohibit private parties from
reclaiming parts of the sea pursuant to Section 5 of the Spanish
Law of Waters of 1866. Lands reclaimed from the sea by private
parties with government permission remained private
lands.Dispositions under the 1935 ConstitutionOn May 14, 1935, the
1935 Constitution took effect upon its ratification by the Filipino
people. The 1935 Constitution, in adopting the Regalian doctrine,
declared in Section 1, Article XIII, that "Section 1. All
agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy and other natural resources of the
Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to
citizens of the Philippines or to corporations or associations at
least sixty per centum of the capital of which is owned by such
citizens, subject to any existing right, grant, lease, or
concession at the time of the inauguration of the Government
established under this Constitution.Natural resources, with the
exception of public agricultural land, shall not be alienated, and
no license, concession, or lease for the exploitation, development,
or utilization of any of the natural resources shall be granted for
a period exceeding twenty-five years, renewable for another
twenty-five years, except as to water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of
water power, in which cases beneficial use may be the measure and
limit of the grant." (Emphasis supplied)The 1935 Constitution
barred the alienation of all natural resources except public
agricultural lands, which were the only natural resources the State
could alienate. Thus, foreshore lands, considered part of the
State's natural resources, became inalienable by constitutional
fiat, available only for lease for 25 years, renewable for another
25 years. The government could alienate foreshore lands only after
these lands were reclaimed and classified as alienable agricultural
lands of the public domain. Government reclaimed and marshy lands
of the public domain, being neither timber nor mineral lands, fell
under the classification of public agricultural lands.50However,
government reclaimed and marshy lands, although subject to
classification as disposable public agricultural lands, could only
be leased and not sold to private parties because of Act No.
2874.The prohibition on private parties from acquiring ownership of
government reclaimed and marshy lands of the public domain was only
a statutory prohibition and the legislature could therefore remove
such prohibition. The 1935 Constitution did not prohibit
individuals and corporations from acquiring government reclaimed
and marshy lands of the public domain that were classified as
agricultural lands under existing public land laws. Section 2,
Article XIII of the 1935 Constitution provided as follows:"Section
2.No private corporation or association may acquire, lease, or hold
public agricultural lands in excess of one thousand and twenty four
hectares, nor may any individual acquire such lands by purchase in
excess of one hundred and forty hectares, or by lease in excess of
one thousand and twenty-four hectares, or by homestead in excess of
twenty-four hectares. Lands adapted to grazing, not exceeding two
thousand hectares, may be leased to an individual, private
corporation, or association." (Emphasis supplied)Still, after the
effectivity of the 1935 Constitution, the legislature did not
repeal Section 58 of Act No. 2874 to open for sale to private
parties government reclaimed and marshy lands of the public domain.
On the contrary, the legislature continued the long established
State policy of retaining for the government title and ownership of
government reclaimed and marshy lands of the public
domain.Commonwealth Act No. 141 of the Philippine National
AssemblyOn November 7, 1936, the National Assembly approved
Commonwealth Act No. 141, also known as the Public Land Act, which
compiled the then existing laws on lands of the public domain. CA
No. 141, as amended, remains to this day theexisting general
lawgoverning the classification and disposition of lands of the
public domain other than timber and mineral lands.51Section 6 of CA
No. 141 empowers the President to classify lands of the public
domain into "alienable or disposable"52lands of the public domain,
which prior to such classification are inalienable and outside the
commerce of man. Section 7 of CA No. 141 authorizes the President
to "declare what lands are open to disposition or concession."
Section 8 of CA No. 141 states that the government can declare open
for disposition or concession only lands that are "officially
delimited and classified." Sections 6, 7 and 8 of CA No. 141 read
as follows:"Sec. 6.The President, upon the recommendation of the
Secretary of Agriculture and Commerce, shall from time to time
classify the lands of the public domain into(a) Alienable or
disposable,(b) Timber, and(c) Mineral lands,and may at any time and
in like manner transfer such lands from one class to another,53for
the purpose of their administration and disposition.Sec. 7. For the
purposes of the administration and disposition of alienable or
disposable public lands,the President, upon recommendation by the
Secretary of Agriculture and Commerce, shall from time to time
declare what lands are open to disposition or concessionunder this
Act.Sec. 8.Only those lands shall be declared open to disposition
or concession which have been officially delimited and
classifiedand, when practicable, surveyed,and which have not been
reserved for public or quasi-public uses, nor appropriated by the
Government, nor in any manner become private property, nor those on
which a private right authorized and recognized by this Act or any
other valid law may be claimed, or which, having been reserved or
appropriated, have ceased to be so. x x x."Thus, before the
government could alienate or dispose of lands of the public domain,
the President must first officially classify these lands as
alienable or disposable, and then declare them open to disposition
or concession. There must be no law reserving these lands for
public or quasi-public uses.The salient provisions of CA No. 141,
on government reclaimed, foreshore and marshy lands of the public
domain, are as follows:"Sec. 58.Any tract of land of the public
domain which, being neither timber nor mineral land, is intended to
be used for residential purposes or for commercial, industrial, or
other productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the
provisions of this chapter and not otherwise.Sec. 59.The lands
disposable under this title shall be classified as follows:(a)
Lands reclaimed by the Government by dredging, filling, or other
means;(b) Foreshore;(c) Marshy landsor lands covered with water
bordering upon the shores or banks of navigable lakes or rivers;(d)
Lands not included in any of the foregoing classes.Sec. 60. Any
tract of land comprised under this title may be leased or sold, as
the case may be, to any person, corporation, or association
authorized to purchase or lease public lands for agricultural
purposes. x x x.Sec. 61.The lands comprised in classes (a), (b),
and (c) of section fifty-nine shall be disposed of to private
parties by lease only and not otherwise, as soon asthe President,
upon recommendation by the Secretary of Agriculture,shall declare
that the same are not necessary for the public serviceand are open
to disposition under this chapter.The lands included in class (d)
may be disposed of by sale or lease under the provisions of this
Act." (Emphasis supplied)Section 61 of CA No. 141 readopted, after
the effectivity of the 1935 Constitution, Section 58 of Act No.
2874 prohibiting the sale of government reclaimed, foreshore and
marshy disposable lands of the public domain. All these lands are
intended for residential, commercial, industrial or other
non-agricultural purposes. As before, Section 61 allowed only the
lease of such lands to private parties. The government could sell
to private parties only lands falling under Section 59 (d) of CA
No. 141, or those lands for non-agricultural purposes not
classified as government reclaimed, foreshore and marshy disposable
lands of the public domain. Foreshore lands, however, became
inalienable under the 1935 Constitution which only allowed the
lease of these lands to qualified private parties.Section 58 of CA
No. 141 expressly states that disposable lands of the public domain
intended for residential, commercial, industrial or other
productive purposes other than agricultural "shall be disposed of
under the provisions of this chapter and not otherwise." Under
Section 10 of CA No. 141, the term "disposition" includes lease of
the land. Any disposition of government reclaimed, foreshore and
marshy disposable lands for non-agricultural purposes must comply
with Chapter IX, Title III of CA No. 141,54unless a subsequent law
amended or repealed these provisions.In his concurring opinion in
the landmark case ofRepublic Real Estate Corporation v. Court of
Appeals,55Justice Reynato S. Puno summarized succinctly the law on
this matter, as follows:"Foreshore lands are lands of public
dominion intended for public use. So too are lands reclaimed by the
government by dredging, filling, or other means. Act 1654 mandated
that the control and disposition of the foreshore and lands under
water remained in the national government. Said law allowed only
the 'leasing' of reclaimed land. The Public Land Acts of 1919 and
1936 also declared that the foreshore and lands reclaimed by the
government were to be "disposed of to private parties by lease only
and not otherwise." Before leasing, however, the Governor-General,
upon recommendation of the Secretary of Agriculture and Natural
Resources, had first to determine that the land reclaimed was not
necessary for the public service. This requisite must have been met
before the land could be disposed of.But even then, the foreshore
and lands under water were not to be alienated and sold to private
parties. The disposition of the reclaimed land was only by lease.
The land remained property of the State." (Emphasis supplied)As
observed by Justice Puno in his concurring opinion, "Commonwealth
Act No. 141 has remained in effect at present."The State policy
prohibiting the sale to private parties of government reclaimed,
foreshore and marshy alienable lands of the public domain, first
implemented in 1907 was thus reaffirmed in CA No. 141 after the
1935 Constitution took effect. The prohibition on the sale of
foreshore lands, however, became a constitutional edict under the
1935 Constitution. Foreshore lands became inalienable as natural
resources of the State, unless reclaimed by the government and
classified as agricultural lands of the public domain, in which
case they would fall under the classification of government
reclaimed lands.After the effectivity of the 1935 Constitution,
government reclaimed and marshy disposable lands of the public
domain continued to be only leased and not sold to private
parties.56These lands remainedsui generis, as the only alienable or
disposable lands of the public domain the government could not sell
to private parties.Since then and until now, the only way the
government can sell to private parties government reclaimed and
marshy disposable lands of the public domain is for the legislature
to pass a law authorizing such sale. CA No. 141 does not authorize
the President to reclassify government reclaimed and marshy lands
into other non-agricultural lands under Section 59 (d). Lands
classified under Section 59 (d) are the only alienable or
disposable lands for non-agricultural purposes that the government
could sell to private parties.Moreover, Section 60 of CA No.
141expresslyrequires congressional authority before lands under
Section 59 that the government previously transferred to government
units or entities could be sold to private parties. Section 60 of
CA No. 141 declares that "Sec. 60. x x x The area so leased or sold
shall be such as shall, in the judgment of the Secretary of
Agriculture and Natural Resources, be reasonably necessary for the
purposes for which such sale or lease is requested, and shall not
exceed one hundred and forty-four hectares: Provided, however, That
this limitation shall not apply to grants, donations, or transfers
made to a province, municipality or branch or subdivision of the
Government for the purposes deemed by said entities conducive to
the public interest;but the land so granted, donated, or
transferred to a province, municipality or branch or subdivision of
the Government shall not be alienated, encumbered, or otherwise
disposed of in a manner affecting its title, except when authorized
by Congress: x x x." (Emphasis supplied)The congressional authority
required in Section 60 of CA No. 141 mirrors the legislative
authority required in Section 56 of Act No. 2874.One reason for the
congressional authority is that Section 60 of CA No. 141 exempted
government units and entities from the maximum area of public lands
that could be acquired from the State. These government units and
entities should not just turn around and sell these lands to
private parties in violation of constitutional or statutory
limitations. Otherwise, the transfer of lands for non-agricultural
purposes to government units and entities could be used to
circumvent constitutional limitations on ownership of alienable or
disposable lands of the public domain. In the same manner, such
transfers could also be used to evade the statutory prohibition in
CA No. 141 on the sale of government reclaimed and marshy lands of
the public domain to private parties. Section 60 of CA No. 141
constitutes by operation of law a lien on these lands.57In case
ofsale or leaseof disposable lands of the public domain falling
under Section 59 of CA No. 141, Sections 63 and 67 require a public
bidding. Sections 63 and 67 of CA No. 141 provide as follows:"Sec.
63. Whenever it is decided that lands covered by this chapter are
not needed for public purposes, the Director of Lands shall ask the
Secretary of Agriculture and Commerce (now the Secretary of Natural
Resources) for authority to dispose of the same. Upon receipt of
such authority, the Director of Lands shall give notice by public
advertisement in the same manner as in the case of leases or sales
of agricultural public land, x x x.Sec. 67.The lease or sale shall
be made by oral bidding; and adjudication shall be made to the
highest bidder. x x x." (Emphasis supplied)Thus, CA No. 141
mandates the Government to put to public auction all leases or
sales of alienable or disposable lands of the public domain.58Like
Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal
Section 5 of the Spanish Law of Waters of 1866. Private parties
could still reclaim portions of the sea with government permission.
However, thereclaimed land could become private land only if
classified as alienable agricultural land of the public domainopen
to disposition under CA No. 141. The 1935 Constitution prohibited
the alienation of all natural resources except public agricultural
lands.The Civil Code of 1950The Civil Code of 1950 readopted
substantially the definition of property of public dominion found
in the Civil Code of 1889. Articles 420 and 422 of the Civil Code
of 1950 state that "Art. 420. The following things are property of
public dominion:(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar
character;(2) Those which belong to the State, without being for
public use, and are intended for some public service or for the
development of the national wealth.x x x.Art. 422. Property of
public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the
State."Again, the government must formally declare that the
property of public dominion is no longer needed for public use or
public service, before the same could be classified as patrimonial
property of the State.59In the case of government reclaimed and
marshy lands of the public domain, the declaration of their being
disposable, as well as the manner of their disposition, is governed
by the applicable provisions of CA No. 141.Like the Civil Code of
1889, the Civil Code of 1950 included as property of public
dominion those properties of the State which, without being for
public use, are intended for public service or the "development of
the national wealth." Thus, government reclaimed and marshy lands
of the State, even if not employed for public use or public
service, if developed to enhance the national wealth, are
classified as property of public dominion.Dispositions under the
1973 ConstitutionThe 1973 Constitution, which took effect on
January 17, 1973, likewise adopted the Regalian doctrine. Section
8, Article XIV of the 1973 Constitution stated that "Sec. 8. All
lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries,
wildlife, and other natural resources of the Philippines belong to
the State.With the exception of agricultural, industrial or
commercial, residential, and resettlement lands of the public
domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development,
exploitation, or utilization of any of the natural resources shall
be granted for a period exceeding twenty-five years, renewable for
not more than twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than
the development of water power, in which cases, beneficial use may
be the measure and the limit of the grant." (Emphasis supplied)The
1973 Constitution prohibited the alienation of all natural
resources with the exception of "agricultural, industrial or
commercial, residential, and resettlement lands of the public
domain." In contrast, the 1935 Constitution barred the alienation
of all natural resources except "public agricultural lands."
However, the term "public agricultural lands" in the 1935
Constitution encompassed industrial, commercial, residential and
resettlement lands of the publi