Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, Petitioner,

G.R. No. 179554 Present: PUNO, C.J., Chairperson, CARPIO LEONARDO-DE CASTRO, BERSAMIN, and VILLARAMA, JR., JJ.

-versusMORALES,

TRACKWORKS RAIL TRANSIT ADVERTISING, VENDING Promulgated: AND PROMOTIONS, INC., Respondent. December 16, 2009 x-----------------------------------------------------------------------------------------x

RESOLUTION BERSAMIN, J.: This case concerns whether the Metropolitan Manila Development Authority (MMDA) could unilaterally dismantle the billboards, signages and other advertizing media in the structures of the Metro Rail Transit 3 (MRT3) installed by respondent advertising company by virtue of its existing contract with the owner of the MRT3. The trial and appellate courts ruled that MMDA did not have the authority to dismantle. MMDA is now before the Court to assail such adverse ruling.

Antecedents In 1997, the Government, through the Department of Transportation and Communications, entered into a build-lease-transfer agreement (BLT agreement) with Metro Rail Transit Corporation, Limited (MRTC) pursuant to Republic Act No. 6957 (Build, Operate and Transfer Law), under which MRTC undertook to build MRT3 subject to the condition that MRTC would own MRT3 for 25 years, upon the expiration of which the ownership would transfer to the Government. The BLT agreement stipulated, among others, that MRTC could build and develop commercial premises in the MRT3 structures, or obtain advertising income therefrom,viz:
16.1. Details of Development Rights. DOTC hereby confirms and awards to Metro Rail the rights to (a) develop commercial premises in the Depot and the air space above the Stations, which shall be allowed to such height as is legally and technically feasible, (b) lease or sub-lease interests or assign such interests in the Depot and such air space and (c) obtain any advertising income from the Depot and such air space and LRTS Phase I. LRTS Phase I means the rail transport system comprising about 16.9 line kilometers extending from Taft Avenue, Pasay City, to North Avenue, Quezon City, occupying a strip in the center of EDSA approximately 10.5 meters wide (approximately 12 meters wide at or around the Boni Avenue, Santolan and Buendia Stations), plus about 0.1 to 0.2 line kilometers extending from the North Avenue Station to the Depot, together with the Stations, 73 Light Rail Vehicles and all ancillary plant, equipment and facilities, as more particularly detailed in the Specifications. 16.2. Assignment of Rights. During the Development Rights Period, Metro Rail shall be entitled to assign all or any of its rights, titles and interests in the Development Rights to bona fide real estate developers. In this connection, Metro Rail may enter into such development, lease, sub-lease or other agreements or contracts relating to the Depot and the air space above the Stations (the space not needed for all or any portion of the operation of the LRTS) for all or any portion of the Development Rights Period.

In 1998, respondent Trackworks Rail Transit Advertising, Vending & Promotions, Inc. (Trackworks) entered into a contract for advertising services with MRTC. Trackworks thereafter installed commercial billboards, signages and other

advertizing media in the different parts of the MRT3. In 2001, however, MMDA requested Trackworks to dismantle the billboards, signages and other advertizing media pursuant to MMDA Regulation No. 96-009, whereby MMDA prohibited the posting, installation and display of any kind or form of billboards, signs, posters, streamers, in any part of the road, sidewalk, center island, posts, trees, parks and open space. After Trackworks refused the request of MMDA, MMDA proceeded to dismantle the formers billboards and similar forms of advertisement. On March 1, 2002, Trackworks filed against MMDA in the Regional Trial Court (RTC) in Pasig City an injunction suit (with prayer for the issuance of a temporary restraining order [TRO] and preliminary injunction), docketed as Civil Case No. 68864. On March 6, 2002, the RTC (Branch 155) issued a TRO, enjoining MMDA from dismantling or destroying Trackworks billboards, signages and other advertizing media. On March 25, 2002, the RTC issued a writ of preliminary injunction for the same purpose. Without filing a motion for reconsideration to challenge the RTCs issuances, MMDA brought a petition for certiorari and prohibition before the Court of Appeals (CA), docketed as C.A.-G.R. SP No. 70932, but the CA denied the petition and affirmed the RTC on August 31, 2004. The CA ultimately denied MMDAs motion for reconsiderationthrough its resolution issued on March 14, 2005. Thence, MMDA appealed to this Court (G.R. No. 167514), which denied MMDAs petition for review on October 25, 2005.[1] Ruling of the RTC In the meanwhile, on October 10, 2005, the RTC (Branch 155) rendered its decision permanently enjoining MMDA from dismantling, removing or destroying the billboards, signages and other advertizing media installed by Trackworks on the interior and exterior structures of the MRT3.[2]

Ruling of the CA MMDA appealed the RTCs decision to the CA. On April 30, 2007, the CA denied the MMDAs appeal,[3] holding that Trackworks right to install billboards, signages and other advertizing media on the interior and exterior structures of the MRT3 must be protected by a writ of permanent injunction; and that MMDA had no power to dismantle, remove or destroy Trackworks billboards, signages and other advertizing media.[4] MMDA moved for reconsideration, but the CA resolution denied the motion for reconsideration on September 3, 2007.[5] Hence, this appeal by petition for review. Issues MMDA claims that its mandate under its charter[6] of formulating, coordinating and monitoring of policies, standards, progress and projects for the use of thoroughfares and the promotion of safe and convenient movement of persons and goods prompted its issuance of MMDA Regulation No. 96-009, which reads in part:
h. ) It is unlawful for any person/s, private or public corporations, advertising and promotions companies, movie producers, professionals and service contractors to post, install, display any kind or form of billboards, signs, posters, streamers, professional service advertisements and other visual clutters in any part of the road, sidewalk, center island, posts, trees parks and open space.

MMDA avers that the conversion of the center island of Epifanio Delos Santos Avenue (EDSA) into the carriageway of the MRT3 line did not exempt the EDSA center island from the coverage of the MMDA regulation;[7] that the Governments grant of development rights to MRTC was not an abdication of its right to regulate, and, therefore, the development of the MRT3 remained subject to

all existing and applicable national and local laws, ordinances, rules and regulations;[8] that MMDA was merely implementing existing and applicable laws;[9] that Trackworks advertising materials were placed indiscriminately and without due regard to safety, and as such might be classified as obstructions and distractions to the motorists traversing EDSA;[10] and that the interests of a few should not prevail over the good of the greater number in the community whose safety and general welfare MMDA was mandated to protect.[11] Trackworks maintains, on the other hand, that MMDAs petition was defective for its failure to raise any genuine question of law; and that the CAs decision dated April 30, 2007 was valid and correct.[12] Ruling of the Court The petition has no merit. That Trackworks derived its right to install its billboards, signages and other advertizing media in the MRT3 from MRTCs authority under the BLT agreement to develop commercial premises in the MRT3 structure or to obtain advertising income therefrom is no longer debatable. Under the BLT agreement, indeed, MRTC owned the MRT3 for 25 years, upon the expiration of which MRTC would transfer ownership of the MRT3 to the Government. Considering that MRTC remained to be the owner of the MRT3 during the time material to this case, and until this date, MRTCs entering into the contract for advertising services with Trackworks was a valid exercise of ownership by the former. In fact, in Metropolitan Manila Development Authority v. Trackworks Rail Transit Advertising, Vending & Promotions, Inc.,[13] this Court expressly recognized Trackworks right to install the billboards, signages and other advertising media pursuant to said contract. The latters right should, therefore, be respected. It is futile for MMDA to simply invoke its legal mandate to justify the dismantling of Trackworks billboards, signages and other advertising media.

MMDA simply had no power on its own to dismantle, remove, or destroy the billboards, signages and other advertising media installed on the MRT3 structure by Trackworks. In Metropolitan Manila Development Authority v. Bel-Air Village Association, Inc.,[14] Metropolitan Manila Development Authority v. Viron Transportation Co., Inc.,[15] and Metropolitan Manila Development Authority v. Garin,[16] the Court had the occasion to rule that MMDAs powers were limited to the formulation, coordination, regulation, implementation, preparation, management, monitoring, setting of policies, installing a system, and administration. Nothing in Republic Act No. 7924 granted MMDA police power, let alone legislative power.[17] Clarifying the real nature of MMDA, the Court held:
xxx The MMDA is, as termed in the charter itself, a development authority. It is an agency created for the purpose of laying down policies and coordinating with the various national government agencies, peoples organizations, nongovernmental organizations and the private sector for the efficient and expeditious delivery of basic services in the vast metropolitan area. All its functions are administrative in nature and these are actually summed up in the charter itself, viz:
Sec.2. Creation of the Metropolitan Manila Development Authority.- xxx. The MMDA shall perform planning, monitoring and coordinative functions, and in the process exercise regulatory and supervisory authority over the delivery of metro-wide services within Metro Manila, without diminution of the autonomy of local government units concerning purely local matters.[18]

The Court also agrees with the CAs ruling that MMDA Regulation No. 96009 and MMC Memorandum Circular No. 88-09 did not apply to Trackworks billboards, signages and other advertising media. The prohibition against posting, installation and display of billboards, signages and other advertising media applied only to public areas, but MRT3, being private property pursuant to the BLT agreement between the Government and MRTC, was not one of the areas as to which the prohibition applied. Moreover, MMC Memorandum Circular No. 88-09 did not apply to Trackworks billboards, signages and other advertising media in MRT3, because it did not specifically cover MRT3, and because it was issued a year prior to the construction of MRT3 on the center island of EDSA. Clearly,

MMC Memorandum Circular No. 88-09 could not have included MRT3 in its prohibition. MMDAs insistence that it was only implementing Presidential Decree No. 1096 (Building Code) and its implementing rules and regulations is not persuasive. The power to enforce the provisions of the Building Code was lodged in the Department of Public Works and Highways (DPWH), not in MMDA, considering the laws following provision, thus:
Sec. 201. Responsibility for Administration and Enforcement. The administration and enforcement of the provisions of this Code including the imposition of penalties for administrative violations thereof is hereby vested in the Secretary of Public Works, Transportation and Communications, hereinafter referred to as the Secretary.

There is also no evidence showing that MMDA had been delegated by DPWH to implement the Building Code. WHEREFORE, we deny the petition for review, and affirm the decision dated April 30, 2007 and the resolution dated September 3, 2007. Costs against the petitioner.

SO ORDERED.

LUCAS P. BERSAMIN Associate Justice

WE CONCUR:

REYNATO S. PUNO Chief Justice Chairperson

CONCHITA CARPIO MORALES TERESITA J. LEONARDO-DE CASTRO Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Chief Justice

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 122846 January 20, 2009

WHITE LIGHT CORPORATION, TITANIUM CORPORATION and STA. MESA TOURIST & DEVELOPMENT CORPORATION, Petitioners, vs. CITY OF MANILA, represented by DE CASTRO, MAYOR ALFREDO S. LIM, Respondent. DECISION Tinga, J.: With another city ordinance of Manila also principally involving the tourist district as subject, the Court is confronted anew with the incessant clash between government power and individual liberty in tandem with the archetypal tension between law and morality. In City of Manila v. Laguio, Jr.,1 the Court affirmed the nullification of a city ordinance barring the operation of motels and inns, among other establishments, within the Ermita-Malate area. The petition at bar assails a similarly-motivated city ordinance that prohibits those same establishments from offering short-time admission, as well as pro-rated or "wash up" rates for such abbreviated stays. Our earlier decision tested the city ordinance against our sacred constitutional rights to liberty, due process

and equal protection of law. The same parameters apply to the present petition. This Petition2 under Rule 45 of the Revised Rules on Civil Procedure, which seeks the reversal of the Decision3 in C.A.-G.R. S.P. No. 33316 of the Court of Appeals, challenges the validity of Manila City Ordinance No. 7774 entitled, "An Ordinance Prohibiting Short-Time Admission, Short-Time Admission Rates, and Wash-Up Rate Schemes in Hotels, Motels, Inns, Lodging Houses, Pension Houses, and Similar Establishments in the City of Manila" (the Ordinance). I. The facts are as follows: On December 3, 1992, City Mayor Alfredo S. Lim (Mayor Lim) signed into law the Ordinance.4 The Ordinance is reproduced in full, hereunder: SECTION 1. Declaration of Policy. It is hereby the declared policy of the City Government to protect the best interest, health and welfare, and the morality of its constituents in general and the youth in particular. SEC. 2. Title. This ordinance shall be known as "An Ordinance" prohibiting short time admission in hotels, motels, lodging houses, pension houses and similar establishments in the City of Manila. SEC. 3. Pursuant to the above policy, short-time admission and rate [sic], wash-up rate or other similarly concocted terms, are hereby prohibited in hotels, motels, inns, lodging houses, pension houses and similar establishments in the City of Manila. SEC. 4. Definition of Term[s]. Short-time admission shall mean admittance and charging of room rate for less than twelve (12) hours at any given time or the renting out of rooms more than twice a day or any other term that may be concocted by owners or managers of said establishments but would mean the same or would bear the same meaning. SEC. 5. Penalty Clause. Any person or corporation who shall violate any provision of this ordinance shall upon conviction thereof be punished by a fine of Five Thousand (P5,000.00) Pesos or imprisonment for a period of not exceeding one (1) year or both such fine and imprisonment at the discretion of the court; Provided, That in case of [a] juridical person, the president, the manager, or the persons in charge of the operation thereof shall be liable: Provided, further, That in case of subsequent conviction for the same offense, the business license of the guilty party shall automatically be cancelled. SEC. 6. Repealing Clause. Any or all provisions of City ordinances not consistent with or contrary to this measure or any portion hereof are hereby deemed repealed. SEC. 7. Effectivity. This ordinance shall take effect immediately upon approval. Enacted by the city Council of Manila at its regular session today, November 10, 1992. Approved by His Honor, the Mayor on December 3, 1992. On December 15, 1992, the Malate Tourist and Development Corporation (MTDC) filed a complaint for declaratory relief with prayer for a writ of preliminary injunction and/or temporary restraining order ( TRO)5 with the Regional Trial Court (RTC) of Manila, Branch 9 impleading as defendant, herein respondent City of Manila (the City) represented by Mayor Lim.6 MTDC prayed that the Ordinance, insofar as it includes motels and inns as among its prohibited establishments, be declared invalid and unconstitutional. MTDC claimed that as owner and operator of the Victoria Court in Malate, Manila it was authorized by Presidential Decree (P.D.) No. 259 to admit customers on a short time basis as well as to charge customers wash up rates for stays of only three hours. On December 21, 1992, petitioners White Light Corporation (WLC), Titanium Corporation (TC) and Sta. Mesa Tourist and

Development Corporation (STDC) filed a motion to intervene and to admit attached complaint-in-intervention7 on the ground that the Ordinance directly affects their business interests as operators of drive-in-hotels and motels in Manila.8 The three companies are components of the Anito Group of Companies which owns and operates several hotels and motels in Metro Manila.9 On December 23, 1992, the RTC granted the motion to intervene.10 The RTC also notified the Solicitor General of the proceedings pursuant to then Rule 64, Section 4 of the Rules of Court. On the same date, MTDC moved to withdraw as plaintiff.11 On December 28, 1992, the RTC granted MTDC's motion to withdraw.12 The RTC issued a TRO on January 14, 1993, directing the City to cease and desist from enforcing the Ordinance.13 The City filed an Answer dated January 22, 1993 alleging that the Ordinance is a legitimate exercise of police power.14 On February 8, 1993, the RTC issued a writ of preliminary injunction ordering the city to desist from the enforcement of the Ordinance.15 A month later, on March 8, 1993, the Solicitor General filed his Comment arguing that the Ordinance is constitutional. During the pre-trial conference, the WLC, TC and STDC agreed to submit the case for decision without trial as the case involved a purely legal question.16 On October 20, 1993, the RTC rendered a decision declaring the Ordinance null and void. The dispositive portion of the decision reads: WHEREFORE, in view of all the foregoing, [O]rdinance No. 7774 of the City of Manila is hereby declared null and void. Accordingly, the preliminary injunction heretofor issued is hereby made permanent. SO ORDERED.17 The RTC noted that the ordinance "strikes at the personal liberty of the individual guaranteed and jealously guarded by the Constitution."18 Reference was made to the provisions of the Constitution encouraging private enterprises and the incentive to needed investment, as well as the right to operate economic enterprises. Finally, from the observation that the illicit relationships the Ordinance sought to dissuade could nonetheless be consummated by simply paying for a 12-hour stay, the RTC likened the law to the ordinance annulled in Ynot v. Intermediate Appellate Court,19 where the legitimate purpose of preventing indiscriminate slaughter of carabaos was sought to be effected through an inter-province ban on the transport of carabaos and carabeef. The City later filed a petition for review on certiorari with the Supreme Court.20 The petition was docketed as G.R. No. 112471. However in a resolution dated January 26, 1994, the Court treated the petition as a petition forcertiorari and referred the petition to the Court of Appeals.21 Before the Court of Appeals, the City asserted that the Ordinance is a valid exercise of police power pursuant to Section 458 (4)(iv) of the Local Government Code which confers on cities, among other local government units, the power: [To] regulate the establishment, operation and maintenance of cafes, restaurants, beerhouses, hotels, motels, inns, pension houses, lodging houses and other similar establishments, including tourist guides and transports.22 The Ordinance, it is argued, is also a valid exercise of the power of the City under Article III, Section 18(kk) of the Revised Manila Charter, thus: "to enact all ordinances it may deem necessary and proper for the sanitation and safety, the furtherance of the prosperity and the promotion of the morality, peace, good order, comfort, convenience and general welfare of the city and its inhabitants, and such others as be necessary to carry into effect and discharge the powers and duties conferred by this Chapter; and to fix penalties for the violation of ordinances which shall not exceed two hundred pesos fine or six months imprisonment, or both such fine and imprisonment for a single offense.23

Petitioners argued that the Ordinance is unconstitutional and void since it violates the right to privacy and the freedom of movement; it is an invalid exercise of police power; and it is an unreasonable and oppressive interference in their business. The Court of Appeals reversed the decision of the RTC and affirmed the constitutionality of the Ordinance.24 First, it held that the Ordinance did not violate the right to privacy or the freedom of movement, as it only penalizes the owners or operators of establishments that admit individuals for short time stays. Second, the virtually limitless reach of police power is only constrained by having a lawful object obtained through a lawful method. The lawful objective of the Ordinance is satisfied since it aims to curb immoral activities. There is a lawful method since the establishments are still allowed to operate. Third, the adverse effect on the establishments is justified by the well-being of its constituents in general. Finally, as held in Ermita-Malate Motel Operators Association v. City Mayor of Manila, liberty is regulated by law. TC, WLC and STDC come to this Court via petition for review on certiorari.25 In their petition and Memorandum, petitioners in essence repeat the assertions they made before the Court of Appeals. They contend that the assailed Ordinance is an invalid exercise of police power. II. We must address the threshold issue of petitioners standing. Petitioners allege that as owners of establishments offering "washup" rates, their business is being unlawfully interfered with by the Ordinance. However, petitioners also allege that the equal protection rights of their clients are also being interfered with. Thus, the crux of the matter is whether or not these establishments have the requisite standing to plead for protection of their patrons' equal protection rights. Standing or locus standi is the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case. More importantly, the doctrine of standing is built on the principle of separation of powers,26 sparing as it does unnecessary interference or invalidation by the judicial branch of the actions rendered by its co-equal branches of government. The requirement of standing is a core component of the judicial system derived directly from the Constitution.27The constitutional component of standing doctrine incorporates concepts which concededly are not susceptible of precise definition.28 In this jurisdiction, the extancy of "a direct and personal interest" presents the most obvious cause, as well as the standard test for a petitioner's standing.29 In a similar vein, the United States Supreme Court reviewed and elaborated on the meaning of the three constitutional standing requirements of injury, causation, and redressability in Allen v. Wright.30 Nonetheless, the general rules on standing admit of several exceptions such as the overbreadth doctrine, taxpayer suits, third party standing and, especially in the Philippines, the doctrine of transcendental importance.31 For this particular set of facts, the concept of third party standing as an exception and the overbreadth doctrine are appropriate. In Powers v. Ohio,32 the United States Supreme Court wrote that: "We have recognized the right of litigants to bring actions on behalf of third parties, provided three important criteria are satisfied: the litigant must have suffered an injury-in-fact, thus giving him or her a "sufficiently concrete interest" in the outcome of the issue in dispute; the litigant must have a close relation to the third party; and there must exist some hindrance to the third party's ability to protect his or her own interests."33 Herein, it is clear that the business interests of the petitioners are likewise injured by the Ordinance. They rely on the patronage of their customers for their continued viability which appears to be threatened by the enforcement of the Ordinance. The relative silence in constitutional litigation of such special interest groups in our nation such as the American Civil Liberties Union in the United States may also be construed as a hindrance for customers to bring suit.34 American jurisprudence is replete with examples where parties-in-interest were allowed standing to advocate or invoke the fundamental due process or equal protection claims of other persons or classes of persons injured by state action. In Griswold v. Connecticut,35 the United States Supreme Court held that physicians had standing to challenge a reproductive health statute that would penalize them as accessories as well as to plead the constitutional protections available to their patients. The Court held that:

"The rights of husband and wife, pressed here, are likely to be diluted or adversely affected unless those rights are considered in a suit involving those who have this kind of confidential relation to them."36 An even more analogous example may be found in Craig v. Boren,37 wherein the United States Supreme Court held that a licensed beverage vendor has standing to raise the equal protection claim of a male customer challenging a statutory scheme prohibiting the sale of beer to males under the age of 21 and to females under the age of 18. The United States High Court explained that the vendors had standing "by acting as advocates of the rights of third parties who seek access to their market or function."38 Assuming arguendo that petitioners do not have a relationship with their patrons for the former to assert the rights of the latter, the overbreadth doctrine comes into play. In overbreadth analysis, challengers to government actionare in effect permitted to raise the rights of third parties. Generally applied to statutes infringing on the freedom of speech, the overbreadth doctrine applies when a statute needlessly restrains even constitutionally guaranteed rights.39 In this case, the petitioners claim that the Ordinance makes a sweeping intrusion into the right to liberty of their clients. We can see that based on the allegations in the petition, the Ordinance suffers from overbreadth. We thus recognize that the petitioners have a right to assert the constitutional rights of their clients to patronize their establishments for a "wash-rate" time frame. III. To students of jurisprudence, the facts of this case will recall to mind not only the recent City of Manila ruling, but our 1967 decision in Ermita-Malate Hotel and Motel Operations Association, Inc., v. Hon. City Mayor of Manila.40Ermita-Malate concerned the City ordinance requiring patrons to fill up a prescribed form stating personal information such as name, gender, nationality, age, address and occupation before they could be admitted to a motel, hotel or lodging house. This earlier ordinance was precisely enacted to minimize certain practices deemed harmful to public morals. A purpose similar to the annulled ordinance in City of Manila which sought a blanket ban on motels, inns and similar establishments in the Ermita-Malate area. However, the constitutionality of the ordinance in Ermita-Malate was sustained by the Court. The common thread that runs through those decisions and the case at bar goes beyond the singularity of the localities covered under the respective ordinances. All three ordinances were enacted with a view of regulating public morals including particular illicit activity in transient lodging establishments. This could be described as the middle case, wherein there is no wholesale ban on motels and hotels but the services offered by these establishments have been severely restricted. At its core, this is another case about the extent to which the State can intrude into and regulate the lives of its citizens. The test of a valid ordinance is well established. A long line of decisions including City of Manila has held that for an ordinance to be valid, it must not only be within the corporate powers of the local government unit to enact and pass according to the procedure prescribed by law, it must also conform to the following substantive requirements: (1) must not contravene the Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be partial or discriminatory; (4) must not prohibit but may regulate trade; (5) must be general and consistent with public policy; and (6) must not be unreasonable.41 The Ordinance prohibits two specific and distinct business practices, namely wash rate admissions and renting out a room more than twice a day. The ban is evidently sought to be rooted in the police power as conferred on local government units by the Local Government Code through such implements as the general welfare clause. A. Police power, while incapable of an exact definition, has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response as the conditions warrant.42 Police power is based upon the concept of necessity of the State and its corresponding right to protect itself and its people.43 Police power has been used as justification for numerous and varied actions by the State. These range from the regulation of dance halls,44 movie theaters,45 gas stations46 and cockpits.47 The awesome scope of police power is best

demonstrated by the fact that in its hundred or so years of presence in our nations legal system, its use has rarely been denied. The apparent goal of the Ordinance is to minimize if not eliminate the use of the covered establishments for illicit sex, prostitution, drug use and alike. These goals, by themselves, are unimpeachable and certainly fall within the ambit of the police power of the State. Yet the desirability of these ends do not sanctify any and all means for their achievement. Those means must align with the Constitution, and our emerging sophisticated analysis of its guarantees to the people. The Bill of Rights stands as a rebuke to the seductive theory of Macchiavelli, and, sometimes even, the political majorities animated by his cynicism. Even as we design the precedents that establish the framework for analysis of due process or equal protection questions, the courts are naturally inhibited by a due deference to the co-equal branches of government as they exercise their political functions. But when we are compelled to nullify executive or legislative actions, yet another form of caution emerges. If the Court were animated by the same passing fancies or turbulent emotions that motivate many political decisions, judicial integrity is compromised by any perception that the judiciary is merely the third political branch of government. We derive our respect and good standing in the annals of history by acting as judicious and neutral arbiters of the rule of law, and there is no surer way to that end than through the development of rigorous and sophisticated legal standards through which the courts analyze the most fundamental and far-reaching constitutional questions of the day. B. The primary constitutional question that confronts us is one of due process, as guaranteed under Section 1, Article III of the Constitution. Due process evades a precise definition.48 The purpose of the guaranty is to prevent arbitrary governmental encroachment against the life, liberty and property of individuals. The due process guaranty serves as a protection against arbitrary regulation or seizure. Even corporations and partnerships are protected by the guaranty insofar as their property is concerned. The due process guaranty has traditionally been interpreted as imposing two related but distinct restrictions on government, "procedural due process" and "substantive due process." Procedural due process refers to the procedures that the government must follow before it deprives a person of life, liberty, or property.49 Procedural due process concerns itself with government action adhering to the established process when it makes an intrusion into the private sphere. Examples range from the form of notice given to the level of formality of a hearing. If due process were confined solely to its procedural aspects, there would arise absurd situation of arbitrary government action, provided the proper formalities are followed. Substantive due process completes the protection envisioned by the due process clause. It inquires whether the government has sufficient justification for depriving a person of life, liberty, or property.50 The question of substantive due process, moreso than most other fields of law, has reflected dynamism in progressive legal thought tied with the expanded acceptance of fundamental freedoms. Police power, traditionally awesome as it may be, is now confronted with a more rigorous level of analysis before it can be upheld. The vitality though of constitutional due process has not been predicated on the frequency with which it has been utilized to achieve a liberal result for, after all, the libertarian ends should sometimes yield to the prerogatives of the State. Instead, the due process clause has acquired potency because of the sophisticated methodology that has emerged to determine the proper metes and bounds for its application. C. The general test of the validity of an ordinance on substantive due process grounds is best tested when assessed with the evolved footnote 4 test laid down by the U.S. Supreme Court in U.S. v. Carolene Products.51 Footnote 4 of the Carolene Products case acknowledged that the judiciary would defer to the legislature unless there is a discrimination against a "discrete and insular" minority or infringement of a "fundamental right."52 Consequently, two standards of judicial review were established: strict scrutiny for laws dealing with freedom of the mind or restricting the political process, and the rational basis standard of review for economic legislation. A third standard, denominated as heightened or immediate scrutiny, was later adopted by the U.S. Supreme Court for evaluating

classifications based on gender53 and legitimacy.54 Immediate scrutiny was adopted by the U.S. Supreme Court in Craig,55 after the Court declined to do so in Reed v. Reed.56 While the test may have first been articulated in equal protection analysis, it has in the United States since been applied in all substantive due process cases as well. We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges.57 Using the rational basis examination, laws or ordinances are upheld if they rationally further a legitimate governmental interest.58 Under intermediate review, governmental interest is extensively examined and the availability of less restrictive measures is considered.59 Applying strict scrutiny, the focus is on the presence of compelling, rather than substantial, governmental interest and on the absence of less restrictive means for achieving that interest. In terms of judicial review of statutes or ordinances, strict scrutiny refers to the standard for determining the quality and the amount of governmental interest brought to justify the regulation of fundamental freedoms.60 Strict scrutiny is used today to test the validity of laws dealing with the regulation of speech, gender, or race as well as other fundamental rights as expansion from its earlier applications to equal protection.61 The United States Supreme Court has expanded the scope of strict scrutiny to protect fundamental rights such as suffrage,62 judicial access63 and interstate travel.64 If we were to take the myopic view that an Ordinance should be analyzed strictly as to its effect only on the petitioners at bar, then it would seem that the only restraint imposed by the law which we are capacitated to act upon is the injury to property sustained by the petitioners, an injury that would warrant the application of the most deferential standard the rational basis test. Yet as earlier stated, we recognize the capacity of the petitioners to invoke as well the constitutional rights of their patrons those persons who would be deprived of availing short time access or wash-up rates to the lodging establishments in question. Viewed cynically, one might say that the infringed rights of these customers were are trivial since they seem shorn of political consequence. Concededly, these are not the sort of cherished rights that, when proscribed, would impel the people to tear up their cedulas. Still, the Bill of Rights does not shelter gravitas alone. Indeed, it is those "trivial" yet fundamental freedoms which the people reflexively exercise any day without the impairing awareness of their constitutional consequence that accurately reflect the degree of liberty enjoyed by the people. Liberty, as integrally incorporated as a fundamental right in the Constitution, is not a Ten Commandments-style enumeration of what may or what may not be done; but rather an atmosphere of freedom where the people do not feel labored under a Big Brother presence as they interact with each other, their society and nature, in a manner innately understood by them as inherent, without doing harm or injury to others. D. The rights at stake herein fall within the same fundamental rights to liberty which we upheld in City of Manila v. Hon. Laguio, Jr. We expounded on that most primordial of rights, thus: Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include "the right to exist and the right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere freedom from physical restraint of the person of the citizen, but is deemed to embrace the right of man to enjoy the facilities with which he has been endowed by his Creator, subject only to such restraint as are necessary for the common welfare."[65] In accordance with this case, the rights of the citizen to be free to use his faculties in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; and to pursue any avocation are all deemed embraced in the concept of liberty.[66] The U.S. Supreme Court in the case of Roth v. Board of Regents, sought to clarify the meaning of "liberty." It said: While the Court has not attempted to define with exactness the liberty . . . guaranteed [by the Fifth and Fourteenth Amendments], the term denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of his own conscience, and generally to enjoy those privileges long recognized . . . as essential to the orderly pursuit of happiness by free men. In a Constitution for a free people, there can be no doubt that the meaning of "liberty" must be broad indeed.67[Citations omitted]

It cannot be denied that the primary animus behind the ordinance is the curtailment of sexual behavior. The City asserts before this Court that the subject establishments "have gained notoriety as venue of prostitution, adultery and fornications in Manila since they provide the necessary atmosphere for clandestine entry, presence and exit and thus became the ideal haven for prostitutes and thrill-seekers."68 Whether or not this depiction of a mise-en-scene of vice is accurate, it cannot be denied that legitimate sexual behavior among willing married or consenting single adults which is constitutionally protected69 will be curtailed as well, as it was in the City of Manila case. Our holding therein retains significance for our purposes: The concept of liberty compels respect for the individual whose claim to privacy and interference demands respect. As the case of Morfe v. Mutuc, borrowing the words of Laski, so very aptly stated: Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation, are indefeasible; indeed, they are so fundamental that they are the basis on which his civic obligations are built. He cannot abandon the consequences of his isolation, which are, broadly speaking, that his experience is private, and the will built out of that experience personal to himself. If he surrenders his will to others, he surrenders himself. If his will is set by the will of others, he ceases to be a master of himself. I cannot believe that a man no longer a master of himself is in any real sense free. Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of which should be justified by a compelling state interest. Morfe accorded recognition to the right to privacy independently of its identification with liberty; in itself it is fully deserving of constitutional protection. Governmental powers should stop short of certain intrusions into the personal life of the citizen.70 We cannot discount other legitimate activities which the Ordinance would proscribe or impair. There are very legitimate uses for a wash rate or renting the room out for more than twice a day. Entire families are known to choose pass the time in a motel or hotel whilst the power is momentarily out in their homes. In transit passengers who wish to wash up and rest between trips have a legitimate purpose for abbreviated stays in motels or hotels. Indeed any person or groups of persons in need of comfortable private spaces for a span of a few hours with purposes other than having sex or using illegal drugs can legitimately look to staying in a motel or hotel as a convenient alternative. E. That the Ordinance prevents the lawful uses of a wash rate depriving patrons of a product and the petitioners of lucrative business ties in with another constitutional requisite for the legitimacy of the Ordinance as a police power measure. It must appear that the interests of the public generally, as distinguished from those of a particular class, require an interference with private rights and the means must be reasonably necessary for the accomplishment of the purpose and not unduly oppressive of private rights.71 It must also be evident that no other alternative for the accomplishment of the purpose less intrusive of private rights can work. More importantly, a reasonable relation must exist between the purposes of the measure and the means employed for its accomplishment, for even under the guise of protecting the public interest, personal rights and those pertaining to private property will not be permitted to be arbitrarily invaded.72 Lacking a concurrence of these requisites, the police measure shall be struck down as an arbitrary intrusion into private rights. As held in Morfe v. Mutuc, the exercise of police power is subject to judicial review when life, liberty or property is affected.73 However, this is not in any way meant to take it away from the vastness of State police power whose exercise enjoys the presumption of validity.74 Similar to the Comelec resolution requiring newspapers to donate advertising space to candidates, this Ordinance is a blunt and heavy instrument.75 The Ordinance makes no distinction between places frequented by patrons engaged in illicit activities and patrons engaged in legitimate actions. Thus it prevents legitimate use of places where illicit activities are rare or even unheard of. A plain reading of section 3 of the Ordinance shows it makes no classification of places of lodging, thus deems them all susceptible to illicit patronage and subject them without exception to the unjustified prohibition. The Court has professed its deep sentiment and tenderness of the Ermita-Malate area, its longtime home,76 and it is skeptical of those who wish to depict our capital city the Pearl of the Orient as a modern-day Sodom or Gomorrah for the Third World set.

Those still steeped in Nick Joaquin-dreams of the grandeur of Old Manila will have to accept that Manila like all evolving big cities, will have its problems. Urban decay is a fact of mega cities such as Manila, and vice is a common problem confronted by the modern metropolis wherever in the world. The solution to such perceived decay is not to prevent legitimate businesses from offering a legitimate product. Rather, cities revive themselves by offering incentives for new businesses to sprout up thus attracting the dynamism of individuals that would bring a new grandeur to Manila. The behavior which the Ordinance seeks to curtail is in fact already prohibited and could in fact be diminished simply by applying existing laws. Less intrusive measures such as curbing the proliferation of prostitutes and drug dealers through active police work would be more effective in easing the situation. So would the strict enforcement of existing laws and regulations penalizing prostitution and drug use. These measures would have minimal intrusion on the businesses of the petitioners and other legitimate merchants. Further, it is apparent that the Ordinance can easily be circumvented by merely paying the whole day rate without any hindrance to those engaged in illicit activities. Moreover, drug dealers and prostitutes can in fact collect "wash rates" from their clientele by charging their customers a portion of the rent for motel rooms and even apartments. IV. We reiterate that individual rights may be adversely affected only to the extent that may fairly be required by the legitimate demands of public interest or public welfare. The State is a leviathan that must be restrained from needlessly intruding into the lives of its citizens. However well-intentioned the Ordinance may be, it is in effect an arbitrary and whimsical intrusion into the rights of the establishments as well as their patrons. The Ordinance needlessly restrains the operation of the businesses of the petitioners as well as restricting the rights of their patrons without sufficient justification. The Ordinance rashly equates wash rates and renting out a room more than twice a day with immorality without accommodating innocuous intentions. The promotion of public welfare and a sense of morality among citizens deserves the full endorsement of the judiciary provided that such measures do not trample rights this Court is sworn to protect.77 The notion that the promotion of public morality is a function of the State is as old as Aristotle.78 The advancement of moral relativism as a school of philosophy does not delegitimize the role of morality in law, even if it may foster wider debate on which particular behavior to penalize. It is conceivable that a society with relatively little shared morality among its citizens could be functional so long as the pursuit of sharply variant moral perspectives yields an adequate accommodation of different interests.79 To be candid about it, the oft-quoted American maxim that "you cannot legislate morality" is ultimately illegitimate as a matter of law, since as explained by Calabresi, that phrase is more accurately interpreted as meaning that efforts to legislate morality will fail if they are widely at variance with public attitudes about right and wrong.80 Our penal laws, for one, are founded on age-old moral traditions, and as long as there are widely accepted distinctions between right and wrong, they will remain so oriented. Yet the continuing progression of the human story has seen not only the acceptance of the right-wrong distinction, but also the advent of fundamental liberties as the key to the enjoyment of life to the fullest. Our democracy is distinguished from non-free societies not with any more extensive elaboration on our part of what is moral and immoral, but from our recognition that the individual liberty to make the choices in our lives is innate, and protected by the State. Independent and fair-minded judges themselves are under a moral duty to uphold the Constitution as the embodiment of the rule of law, by reason of their expression of consent to do so when they take the oath of office, and because they are entrusted by the people to uphold the law.81 Even as the implementation of moral norms remains an indispensable complement to governance, that prerogative is hardly absolute, especially in the face of the norms of due process of liberty. And while the tension may often be left to the courts to relieve, it is possible for the government to avoid the constitutional conflict by employing more judicious, less drastic means to promote morality. WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, is REINSTATED. Ordinance No. 7774 is hereby declared UNCONSTITUTIONAL. No pronouncement as to costs. SO ORDERED.

DANTE O. TINGA Associate Justice WE CONCUR: REYNATO S. PUNO Chief Justice LEONARDO A. QUISUMBING Associate Justice (On Official Leave) ANTONIO T. CARPIO Associate Justice RENATO C. CORONA Associate Justice ADOLFO S. AZCUNA Associate Justice MINITA V. CHICO-NAZARIO Associate Justice TERESITA LEONARDO DE CASTRO Associate Justice CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Associate Justice CONCHITA CARPIO MORALES Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice ANTONIO EDUARDO B. NACHUR Associate Justice (On Sick Leave) ARTURO D. BRION Associate Justice

(On Official Leave) DIOSDADO M. PERALTA Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. REYNATO S. PUNO Chief Justice

Footnotes
1

G.R. 118127, 12 April 2005, 455 SCRA 308. See rollo, pp. 4-41.

Id. at 42-59. Penned by Associate Justice Jaime M. Lantin, concurred in by Associate Justices Ricardo P. Galvez (later, Solicitor-General) and Antonio P. Solano.
4

Id. at 46. Id. at 62-69. Id. at 45-46. Id. at 70-77. Id. at 47. Id. Id. Id. at 48. Id. at 81. Id. at 82-83. Id. at 84-99. Id. at 104-105. Id. at 49. Id. at 52. Id. at 120. No. L-74457, 20 March 1987, 148 SCRA 659. Rollo, pp. 129-145. Id. at 158. Id. at 53. Id. Id. at 43-59. Id. at 4-40. Allen v. Wright, 468 U.S. 737 (1984).

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Const., Art. VIII , Sec. 5, Sanlakas v. Executive Secretary Reyes, 466 Phil. 482 (2004). Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 100, 99 S.Ct. 1601, 1608, 60 L.Ed.2d 66 (1979).

28

29

See Domingo v. Carague, G.R. No. 161065, 15 April 2005, 456 SCRA 450. See also Macasiano v. National Housing Authority, G.R. No. 107921, 1 July 1993, 224 SCRA 236.
30

468 U.S. 737 (1984). Supra note 29. 499 U.S. 400 (1991). Id. at p 410-411.

31

32

33

34

See Kelsey McCowan Heilman, The Rights of Others: Protection and Advocacy Organizations Associational Standing to Sue, 157 U. Pa. L. Rev. 237, for a general discussion on advocacy groups.
35

381 U.S. 479(1965). Id. at 481. 429 U.S. 190 (1976). Id. at 194.

36

37

38

39

Chavez v. Comelec, G.R. No. 162777, 31 August 2004, 437 SCRA 415; Adiong v. Comelec, G.R. No. 103956, 31 March 1992, 207 SCRA 712.
40

127 Phil. 306 (1967).

41

City of Manila v. Laguio, Jr., supra note 1; Tatel v. Municipality of Virac, G.R. No. 40243, 11 March 1992, 207 SCRA 157, 161; Solicitor General v. Metropolitan Manila Authority, G.R. No. 102782, 11 December 1991, 204 SCRA 837, 845; Magtajas v. Pryce Properties Corp., Inc., G.R. No. 111097, 20 July 1994, 234 SCRA 255, 268267.
42

Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, 127 Phil. 306 (1967).

43

JMM Promotion and Management Inc. v. Court of Appeals, 329 Phil. 87, 94 (1996) citing Rubi v. Provincial Board of Mindoro, 39 Phil. 660 (1919).
44

U.S. v. Rodriguez, 38 Phil. 759. People v. Chan, 65 Phil. 611 (1938). Javier v. Earnshaw, 64 Phil. 626 (1937). Pedro v. Provincial Board of Rizal, 56 Phil. 123 (1931). See U.S. v. Ling Su Fan, 10 Phil. 104 (1908); Insular Government v. Ling Su Fan, 15 Phil. 58 (1910).

45

46

47

48

49

Lopez v. Director of Lands, 47 Phil. 23, 32 (1924).

50

See City of Manila v. Hon. Laguio, Jr., supra note 1 at 330 citing CHEMERINSKY, ERWIN, CONSTITUTIONAL LAW PRINCIPLES AND POLICIES, 2nd Ed. 523 (2002).
51

304 U.S. 144 (1938). Id, at 152. Craig v. Boren, 429 U.S. 190 (1976). Clark v. Jeter, 486 U.S. 456 (1988). 429 U.S. 190 (1976). 404 U.S. 71 (1971).

52

53

54

55

56

Central Bank Employees Association v. Bangko Sentral ng Pilipinas, 487 Phil. 531 (2004); Association of Small Landowners in the Philippines v. Secretary of Agrarian Reform, G.R. Nos. 78742, 79310, 79744, and 79777, July 14, 1989, 175 SCRA 343; In Ermita-Malate, supra note 1 at 324, the Court in fact noted: "if the liberty involved were freedom of the mind or the person, the standard for the validity of government acts is much more rigorous and exacting, but where the liberty curtailed affects what are at the most rights of property, the permissible scope of regulatory measures is wider."
57 58

Central Bank Employees Association v. Bangko Sentral ng Pilipinas, supra note 57. Id.

59

60

Mendoza, J., Concurring Opinion in Estrada v. Sandiganbayan, G.R. No. 148560, 19 November 2001, 369 SCRA 394.
61

Id. Bush v. Gore, 531 U.S. 98 (2000). Boddie v. Connecticut, 401 U.S. 371 (1971).

62

63

64

Shapiro v. Thompson, 394 U.S. 618 (1969). It has been opined by Chemerinsky that the use of the equal protection clause was to avoid the use of substantive due process since the latter fell into disfavor in the United States. See Erwin Chemerinsky, Constitutional Law, Principles and Policies (2nd ed. 2002).
65

Morfe v. Mutuc, 130 Phil. 415 (1968). Id. at 440. City of Manila v. Laguio, Jr., supra note 1 at 336-337. Rollo, p. 258. "Motel patrons who are single and unmarried may invoke this right to autonomy to consummate their bonds in

66

67

68

69

intimate sexual conduct within the motel's premises be it stressed that their consensual sexual behavior does not contravene any fundamental state policy as contained in the Constitution. (See Concerned Employee v. Glenda Espiritu Mayor, A.M. No. P-02-1564, 23 November 2004) Adults have a right to choose to forge such relationships with others in the confines of their own private lives and still retain their dignity as free persons. The liberty protected by the Constitution allows persons the right to make this choice. Their right to liberty under the due process clause gives them the full right to engage in their conduct without intervention of the government, as long as they do not run afoul of the law. Liberty should be the rule and restraint the exception. Liberty in the constitutional sense not only means freedom from unlawful government restraint; it must include privacy as well, if it is to be a repository of freedom. The right to be let alone is the beginning of all freedom it is the most comprehensive of rights and the right most valued by civilized men." City of Manila v. Hon. Laguio, Jr. supra note 1 at 337-338.
70

City of Manila v. Laguio, Jr., supra note 1 at 338-339.

71

Metro Manila Development Authority v. Viron Transportation Co., G.R. Nos. 170656 and 170657, 15 August 2007, 530 SCRA 341.
72

U.S. v. Toribio, 15 Phil. 85 (1910). 130 Phil. 415 (1968).

73

74

Carlos Superdrug v. DSWD, G.R. No. 166494, June 29, 2007, Alalayan v. National Power Corporation, 24 Phil. 172 (1968); U.S. v. Salaveria, 39 Phil. 102 (1918).
75

Philippine Press Institute v. Comelec, 314 Phil. 131 (1995). Supra note 1.

76

77

City of Manila v. Hon. Laguio, Jr., supra note 1; De La Cruz, et al. v. Hon. Paras, et al., 208 Phil. 490 (1983); Ermita-Malate Hotel and Motel Operations Association, Inc. v. City Mayor of Manila, supra note 42.
78

"The end of the state is not mere life; it is, rather, a good quality of life." Therefore any state "which is truly so called, and is not merely one in name, must devote itself to the end of encouraging goodness. Otherwise, a political association sinks into a mere alliance" The law "should be a rule of life such as will make the members of a [state] good and just." Otherwise it "becomes a mere covenant or (in the phrase of the Sophist Lycophron) a guarantor of mens rights against one another." Politics II.9.6-8.1280 31-1280bii; cited in Hamburger, M., Morals and Law: The Growth of Aristotles Legal Theory (1951 ed.), p. 178.
79

Greenwalt, K., Conflicts of Law and Morality (1989 ed.), at 38.

Steven G., Render Unto Caesar that which is Caesars, and unto God that which is Gods, 31 Harv. J.L. & Pub. Pol'y 495. He cites the example of the failed Twentieth (?) Amendment to the U.S. Constitution, which prohibited the sale and consumption of liquor, where it was clear that the State cannot justly and successfully regulate consumption of alcohol, when huge portions of the population engage in its consumption.
80

See also Posner, Richard H., The Problematics of Moral And Legal Theory, The Belknap Press of Harvard University Press (2002). He writes: . . . Holmes warned long ago of the pitfalls of misunderstanding law by taking its moral vocabulary too seriously. A big part of legal education consists of showing students how to skirt those pitfalls. The law

uses moral terms in part because of its origin, in part to be impressive, in part to speak a language that the laity, to whom the commands of the law are addressed, is more likely to understand and in part, because there is a considerable overlap between law and morality. The overlap, however, is too limited to justify trying to align these two systems of social control (the sort of project that Islamic nations such as Iran, Pakistan, and Afghanistan have been engaged in of late). It is not a scandal when the law to pronounce it out of phase with current moral feeling. If often is, and for good practical reasons (in particular, the law is a flywheel, limiting the effects of wide swings in public opinion). When people make that criticismas many do of the laws, still found on the statute books of many states, punishing homosexual relationswhat they mean is that the law neither is supported by public opinion nor serves any temporal purpose, even that of stability, that it is merely a vestige, an empty symbol.
81

See Burton, S., Judging in Good Faith, (1992 ed.), at 218.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 124795 December 10, 2008

FORFOM DEVELOPMENT CORPORATION, petitioner,

vs. PHILIPPINE NATIONAL RAILWAYS, respondent. DECISION CHICO-NAZARIO, J.: Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks to set aside the Decision1 of the Court of Appeals dated 24 April 1996. Petitioner Forfom Development Corporation (Forfom) is a domestic corporation duly organized and existing under the laws of the Philippines with principal office at Cabuyao, Laguna, while respondent Philippine National Railways (PNR) is a government corporation engaged in proprietary functions with principal office at the PNR Railway Station, C.M. Recto Avenue, Tutuban, Binondo, Manila. The facts, stripped of the non-essentials, are as follows: Forfom is the registered owner of several parcels of land in San Vicente, San Pedro, Laguna under Transfer Certificates of Title (TCT) Nos. T-34384, T-34386 and 34387, all of the Registry of Deeds of Laguna. Said parcels of land were originally registered in the name of Felix Limcaoco, predecessor-in-interest of Forfom, under Original Certificates of Title (OCT) Nos. (0-326) 0-384 and (0-328) 0-386. In a cabinet meeting held on 1 November 1972, then President Ferdinand E. Marcos approved the Presidential Commuter Service Project, more commonly known as the Carmona Project of the President. Per Resolution No. 751 dated 2 November 1972 of the PNR Board of Directors, its General Manager was authorized to implement the project. The San Pedro-Carmona Commuter Line Project was implemented with the installation of railroad facilities and appurtenances. During the construction of said commuter line, several properties owned by private individuals/corporations were traversed as right-of-way. Among the properties through which the commuter line passed was a 100,128 square-meter portion owned by Forfom covered by TCT Nos. T-34384, T-34386 and T-34387. On 24 August 1990, Forfom filed before the Regional Trial Court (RTC) of Binan, Laguna a complaint2 for Recovery of Posssession of Real Property and/or Damages. It alleged that PNR, with the aid of military men, and without its consent and against its will, occupied 100,128 square meters of its property located in San Pedro, Laguna and installed thereon railroad and railway facilities and appurtenances. It further alleged that PNR rented out portions of the property to squatters along the railroad tracks. Despite repeated verbal and written demands for the return of the property or for the payment of its price, PNR failed to comply. It prayed that PNR be ordered to vacate the property and to cause the eviction of all shanties and squatters that PNR had taken in as lessees, and that it be restored to the peaceful occupation and enjoyment thereof. It likewise asked that Forfom be ordered to pay (a) P1,000.00 per month per hectare from occupation of the property until the same is vacated as rentals plus interest at 24% per annum; (b) P1,600,000.00 as unrealized income from occupation of the property up to the present plus 12% interest per annum until fully paid; (c) P150,000.00 for actual damages on account of the destruction of crops and improvements on the property when the occupation of the property commenced plus 12% interest per annum until fully paid; (d) at least P100,000.00 as exemplary damages; (e) P100,000.00 plus 15% of the amount and properties to be recovered as attorney's fees; and (f) costs of the suit.3 In its Amended Answer,4 PNR alleged that, per authority granted by law (Presidential Decree No. 741), it acquired parcels of land used in the construction of the railway track to Carmona, Cavite. It, however, denied that the property acquired from Forfom was leased to tenants. It likewise denied that the acquisition of Forfom's property was made without the consent of Dr. Felix Limcaoco, the former owner of the property. It stressed that the acquisition of the properties used in the project was done through negotiations with the respective owners. It asserted that no crop was damaged when it acquired the property subject of the case. Further, it denied liability for unrealized income, exemplary damages and attorney's fees.

PNR explained that former President Ferdinand E. Marcos approved what was known to be the Carmona Project -- a 5.1 kilometer railroad extension line from San Pedro, Laguna to San Jose, Carmona, Cavite to serve the squatters' resettlement area in said localities. It claimed that it negotiated with the respective owners of the affected properties and that they were paid just compensation. Dr. Felix Limcaoco, it said, was not paid because he failed to present the corresponding titles to his properties. It claimed that the right to and just compensation for the subject property was the declared fair market value at the time of the taking which was P0.60 per square meter. It disclosed that in a meeting with the representatives of Dr. Limcaoco, the price agreed upon was P1.25 per square meter, the amount the adjoining owners was paid. It prayed that the instant complaint be dismissed, and that the owner of the properties involved be compelled to accept the amount of P1.25 per square meter as price for the properties. In an Order dated 29 October 1990, the pre-trial conference on the case was set.5 On 13 March 1991, for failure of the parties to reach any agreement, pre-trial was terminated and trial of the case scheduled.6 Thereafter, trial on the merits ensued. The following witnesses testified for Forfom: (1) Leon Capati; (2) Marites Dimaculangan; (3) Marilene L. de Guzman; (4) Gavino Rosas de Claro; and (5) Jose Elazegui. Mr. Leon Capati,7 employee of Forfom, testified that he knew Dr. Felix Limcaoco, Sr. because he worked for him since 1951 until his death. He knew Forfom Development Corporation to be a corporation formed by the children of Dr. Limcaoco and owner of the properties left behind by said doctor. He said he worked as overseer in Hacienda Limcaoco in San Pedro, Laguna owned by Dr. Limcaoco. Said hacienda was converted to the Olympia Complex Subdivision now owned by Forfom. Being a worker of Forfom, he disclosed that in 1972, the PNR forcibly took portions of the property of Forfom. Armed men installed railroads and even used bulldozers which caused the destruction of around eleven hectares of sugar land. Since 1972, he said PNR used the property for its benefit and even leased part of it to people living near the railroad. At that time, he claimed that the value of sugarcane was P200.00 per piko and that the plantation harvested sixty (60) tons annually worth P224,000.00. In all, from 1972 to 1985, he claimed Forfom lost P2,917,200.00 in ruined sugar, unrealized harvest, excluding unrealized harvest for nine mango trees which yielded 60 kaings per tree per harvest. Ms. Marites Dimaculangan,8 an officer of Forfom, corroborated the testimony of Mr. Leon Capati. She presented documents9 showing that Hacienda Limcaoco was previously owned by Dr. Felix Limcaoco, then the ownership was transferred to Forfom. As proof that Hacienda Limcaoco was converted into a low-cost housing subdivision known as the Olympia Complex Subdivision, she presented permits from the Human Settlements Regulatory Commission and from the Municipality of San Pedro.10 She also adduced in evidence several letters11 allegedly showing that PNR occupied the property owned by the Limcaocos. As a result, around eleven hectares of the sugar cane plantation were destroyed.12 From 1972 to 1985, she claimed that part of the property taken by PNR was leased to squatters beside the railroad tracks. She added that Forfom incurred a loss totaling P2,917,200.00. She claimed that the current price of land contiguous to the parcels taken by PNR was P1,000.00 per square meter. Ms. Marilene L. De Guzman,13 Executive Vice-President of Forfom and daughter of the Late Dr. Felix Limcaoco, corroborated the testimonies of Mr. Capati and Ms. Dimaculangan. She disclosed that his father died on 25 March 1973. She learned from her father and from Mr. Leon Capati that when the armed men took a portion of their property, the armed men did not show any court order or authority from any agency of the government. The armed men used bulldozers destroying 11 hectares of sugarcane and some mango trees. She said those taken over were used as railroad tracks and a portion beside the tracks were being leased to squatters. She revealed that the present fair market value of land at Olympia Complex is P1,400.00 per square meter.14 If the land is not developed, same can be sold for P800.00 per square meter. She said from the time their property was taken over by PNR, her family has been writing to PNR regarding compensation for their land.15 Ms. De Guzman said the property was still in the name of Dr. Felix Limcaoco, Sr. and Mrs. Olympia Limcaoco when the PNR took over a portion of their properties. She said she was not informed by Mr. Capati that the PNR took the said property over pursuant to a Presidential Mandate in order to provide transportation for relocated squatters. She explained that her father and Mr. Capati were not advised to harvest their crops and were surprised by the taking over of the land. Mr. Gavino Rosas de Claro,16 Land Register Examiner of the Register of Deeds of Calamba, Laguna, testified as representative

of the Register of Deeds. He brought in Court the originals of TCT Nos. T-3438417 and T-34386,18both in the name of Forfom Development Corporation and OCT Nos. (O-326) O-38419 and (O-328) O-386, both in the name of Dr. Felix Limcaoco, Sr.20 Thereafter, photocopies thereof were compared with the originals which were found to be faithful reproductions of the same. Jose Elazegui,21 Supervisor, Southern Tagalog Facoma, Inc. was presented to show the production of sugar and molasses on the property of Forfom. He presented duplicate original copies of Tuos ng inaning Tubo for the years 1984-1985, 1985-1986, 1986-1987 and 1987-1988.22 The documents showed the production (average yield per area per picul) in other properties owned by Forfom other than the properties subject matter of this case. For the defendant, Mrs. Edna Ramos, Department Manager of the Real Estate Department of the PNR, took the stand.23 She testified that she was familiar with the acquisition by the PNR of the right of way for the San Pedro-Carmona Commuter Line. It was acquired and established by Presidential Mandate and pursuant to the authority of the PNR to expropriate under its charter (Presidential Decree No. 741).24 She explained that President Ferdinand E. Marcos authorized the PNR to acquire said right of way in a Cabinet Meeting on 1 November 1972 as evidenced by an excerpt of the minutes of the meeting of the PNR Board of Directors on Resolution No. 751.25The right of way was acquired to provide a cheap, efficient and safe means of transportation to the squatters who were relocated in Cavite. The commuter line, she said, was primarily for service rather than profit. As shown by the letter26 dated 30 April 1974 of Nicanor T. Jimenez, former General Manager of the PNR, to Mrs. Olympia Hemedes Vda. de Limcaoco, the acquisition of the right of way was with the knowledge and consent of Dr. Felix Limcaoco, Sr. Mrs. Ramos disclosed that the total area acquired by the PNR for the San Pedro-Carmona Commuter Line was 15.7446 hectares or sixteen (16) lots in all owned by seven (7) private landowners and three (3) corporations. Among the private landowners were Isabel Oliver, Leoncia Blanco, Catalina Sanchez, Tomas Oliver, Alejandro Oliver and Antonio Sibulo. Per record of PNR, they were paid P1.25 per square meter for their lands. They executed Absolute Deeds of Sale in favor of the PNR, as a result of which, titles to the lands were transferred to PNR.27 The remaining 9 lots belonging to the three private corporations - Forfom Development Corporation, Alviar Development Manufacturing & Trading Supply Corp. and Life Realty Development Corporation were not paid for because these corporations were not able to present their respective titles, which had been used as loan collaterals in the Philippine National Bank and the Government Service Insurance System.28 The unit price per square meter, which the negotiating panel of the PNR and the representatives of the three corporations was considering then, was P1.25. In a letter dated 3 October 1975, Mr. Felix Limcaoco, Jr. of Forfom was asking for P12.00 per square meter for their land and P150,000.00 for damaged sugar crops and mango trees.29 She likewise said she had the minutes of the conference between Mr. Limcaoco and the PNR Chief Construction Engineer held at the PNR General Manager's Office on 24 July 1979.30 Mrs. Ramos clarified that as a matter of policy, PNR employees and other persons were not allowed to settle on the PNR's right of way. Squatting along the right of way had never been encouraged. To prevent its proliferation, special contracts were entered into with selected parties under strict conditions to vacate the property leased upon notice. She explained that the leasing of PNR's right of way was an incidental power and was in response to the government's social housing project. In its decision dated 29 October 1992, the trial court ruled generally in favor of plaintiff, the dispositive portion reading: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter to pay the former the following: 1. Just compensation of the subject real properties consisting of 100,128 square meters and covered by TCT Nos. T-34387, T-34384 and T-34386 at P10.00 per square meter, with legal interest from the time of actual taking of plaintiff's real properties until payment is made by the defendant; 2. The amount of P4,480,000.00 as unearned income of plaintiff from 1972 up to the current year, and thereafter, the amount of P224,000 yearly, with legal interest until payment is made; 3. Actual damages in the amount of P150,000 corresponding to sugarcane crops and mango trees destroyed or damaged as a result of the unlawful taking of plaintiff's real properties, with legal interest until payment is made;

4. The amount of P100,000 as and for attorney's fees; 5. The amount of P150,000 for litigation expenses plus the costs of this suit. Plaintiff's claim for recovery of possession and the other prayers in the complaint are hereby dismissed for want of merit.31 The trial court found that the properties of Forfom were taken by PNR without due process of law and without just compensation. Although the power of eminent domain was not exercised in accordance with law, and PNR occupied petitioner's properties without previous condemnation proceedings and payment of just compensation, the RTC ruled that, by its acquiescence, Forfom was estopped from recovering the properties subject of this case. As to its right to compensation and damages, it said that the same could not be denied. The trial court declared that P10.00 per square meter was the fair and equitable market value of the real properties at the time of the taking thereof. Not contented with the decision, both parties appealed to the Court of Appeals by filing their respective Notices of Appeal.32 PNR questioned the trial court's ruling fixing the just compensation at P10.00 per square meter and not the declared value of P0.60 per square meter or the fair market value of P1.25 paid to an adjacent owner. It likewise questioned the award of actual damages and unearned income to Forfom. On 24 April 1996, the appellate court disposed of the case as follows: WHEEFORE, the decision appealed from is hereby AFFIRMED insofar as (1) it denies plaintiff's claim for recovery of possession and (2) it awards just compensation at the rate of P10.00 per square meter which defendant must pay to plaintiff, but with legal rate of interest thereon hereby specifically fixed at six (6) percent per annum starting from January of 1973 until full payment is made. However, the appealed decision is MODIFIED in the sense that plaintiff's claim for damages is DENIED for lack of merit. No pronouncement as to costs.33 Except for the deletion of the award of damages, attorney's fees and litigation expenses, the appellate court agreed the with trial court. We quote: There is no dispute that defendant neither commenced an expropriation proceedings nor paid just compensation prior to its occupation and construction of railroad lines on the subject property. Nevertheless, plaintiff's prayer to recover the property cannot be granted. Immediately after the occupation, or within a reasonable time thereafter, there is no showing that the same was opposed or questioned by plaintiff or its representatives on the ground that defendant never filed an expropriation proceedings and that no just compensation was ever paid. Neither is there a showing that plaintiff sought to recover the property because the taking was done forcibly with the aid of armed men. Instead, and this is borne out by certain communications between the parties through their respective officers or representatives, what plaintiff actually did was to negotiate with defendant for the purpose of fixing the amount which the latter should pay as just compensation and, if there be any, damages. x x x. xxxx Clearly, a continuing negotiation between the parties took place for the purpose only of fixing the amount of just compensation and not because plaintiff wanted to recover the subject property. Thus, the failure of defendant to first file an expropriation proceedings and pay just compensation is now beside the point. And even if the contention of plaintiff that defendant used force is true, the former can no longer complain at this time. What controls now is the fact that by its own act of negotiating with defendant for the payment of just compensation, plaintiff had in effect made representations that it acquiesced to the taking of its property by defendant. We therefore agree with the lower court that plaintiff, by its acquiescence, waived its right, and is thus estopped, from

recovering the subject property or from challenging any supposed irregularity in its acquisition. xxxx Plaintiff's right to recover just compensation, however, remains. On this matter, we agree with the P10.00 per square meter valuation fixed by the trial court x x x. xxxx With the long delay in the payment of just compensation however, defendant should pay interest thereon at the legal rate of six (6) percent per annum from the time of occupation until payment is made. x x x.34 Still unsatisfied with the decision, Forfom filed the instant petition for review on certiorari raising the following issues: A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER CANNOT RECOVER POSSESSION OF ITS LAND DESPITE THE ADMISSION THAT IT WAS FORCIBLY TAKEN (DURING THE MARTIAL LAW ERA) WITHOUT ANY EXPROPRIATION PROCEEDING OR PAYMENT OF COMPENSATION SIMPLY BECAUSE PETITIONER DID NOT OPPOSE THE ARMED AND FORCIBLE TAKING THEREOF: B. THE HONORABLE COURT OF APPEALS EMPLOYED DOUBLE STANDARD OF JUSTICE IN ADMITTING HEARSAY EVIDENCE OF PNR YET REJECTING THAT OF PETITIONER WHICH IS PROPERLY IDENTIFIED WITH ABUNDANT CROSS EXAMINATION CONDUCTED ON THE BASIS OF PETITIONER'S REJECTED EVIDENCE: C. THE HONORABLE COURT OF APPEALS ERRED GRIEVOUSLY IN HOLDING THAT IN THIS ACTION "THE FAILURE OF DEFENDANT TO FIRST FILE AN EXPROPRIATION PROCEEDINGS AND PAY JUST COMPENSATION (FOR THE PROPERTY OF PETITIONER FORCIBLY TAKEN BY PRIVATE RESPONDENT) IS (NOW) BESIDE THE POINT." D. THE HONORABLE COURT OF APPEALS ERRED IN AGREEING WITH THE RTC IN FIXING THE COMPENSATION FOR THE LAND FORCIBLY TAKEN BY PNR AT A RIDICULOUS, OUTRAGEOUS, AND ABSURD PRICE OF P10.00 PER SQUARE METER DESPITE THE EVIDENCE SHOWING THAT THE PRICE OF LAND IN THE ADJACENT AND SURROUNDING AREAS IS MORE THAN P1,500.00 PER SQUARE METER: E. THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE EVIDENCE ESTABLISHING THE RIGHT OF THE PETITIONER TO BE AWARDED ACTUAL OR COMPENSATORY DAMAGES, ATTORNEY'S FEES, AND UNREALIZED INCOME: F. THE HONORABLE COURT OF APPEALS ERRED IN AND ABUSED ITS DISCRETION IN ADOPTING DOUBLE STANDARD IN ITS EVALUATION OF THE EVIDENCE AND IN ADMITTING PNR's PATENTLY HEARSAY EVIDENCE WHILE REJECTING PETITIONER'S RELEVANT - MATERIAL AND ADMISSIBLE EVIDENCE: G. THE HONORABLE COURT OF APPEALS DEVIATED FROM ESTABLISHED JURISPRUDENCE IN UNJUSTIFIABLY IGNORING AND SETTING ASIDE THE FINDINGS OF FACTS OF THE TRIAL COURT THAT ARE IN FACT SUPPORTED BY ABUNDANT EVIDENCE: H. THE HONORABLE COURT OF APPEALS APPARENTLY SUPPRESSED THE EVIDENCE THAT PRIVATE RESPONDENT PNR APART FROM FORCIBLY TAKING THE LAND OF PETITIONER WITH THE EMPLOYMENT OF ARMED MEN, RENTED OUT PORTIONS OF SAID LAND TO ITS TENANTS WHO PAID

HEFTY RENTALS FOR THE USE OF THE SAME AS RESIDENTIAL LOTS (AND NOT FOR PUBLIC PURPOSES).35 On the other hand, PNR accepted the decision of the Court of Appeals and no longer appealed. The primary question to be resolved is: Can petitioner Forfom recover possession of its property because respondent PNR failed to file any expropriation case and to pay just compensation? The power of eminent domain is an inherent and indispensable power of the State. Being inherent, the power need not be specifically conferred on the government by the Constitution.36 Section 9, Article III states that private property shall not be taken for public use without just compensation. The constitutional restraints are public use and just compensation.37 The fundamental power of eminent domain is exercised by the Legislature. It may be delegated by Congress to the local governments, other public entities and public utilities.38 In the case at bar, PNR, under its charter,39 has the power of expropriation. A number of circumstances must be present in the taking of property for purposes of eminent domain: (1) the expropriator must enter a private property; (2) the entrance into private property must be for more than a momentary period; (3) the entry into the property should be under warrant or color of legal authority; (4) the property must be devoted to a public purpose or otherwise informally, appropriately or injuriously affected; and (5) the utilization of the property for public use must be in such a way as to oust the owner and deprive him of all beneficial enjoyment of the property.40 In the case at bar, the expropriator (PNR) entered the property of Forfom, a private land. The entrance into Forfom's property was permanent, not for a fleeting or brief period. PNR has been in control, possession and enjoyment of the subject land since December 1972 or January 1973. PNR's entry into the property of Forfom was with the approval of then President Marcos and with the authorization of the PNR's Board of Directors. The property of Forfom measuring around eleven hectares was devoted to public use - railroad tracks, facilities and appurtenances for use of the Carmona Commuter Service. With the entrance of PNR into the property, Forfom was deprived of material and beneficial use and enjoyment of the property. It is clear from the foregoing that there was a taking of property within the constitutional sense. Forfom argues that the property taken from it should be returned because there was neither expropriation case filed by PNR nor just compensation paid for the same. It can be gathered from the records that Forfom accepted the fact of the taking of its land when it negotiated with PNR for just compensation, knowing fully well that there was no expropriation case filed at all. Forfom's inaction for almost eighteen (18) years to question the absence of expropriation proceedings and its discussions with PNR as to how much petitioner shall be paid for its land preclude it from questioning the PNR's power to expropriate or the public purpose for which the power was exercised. In other words, it has waived its right and is estopped from assailing the takeover of its land on the ground that there was no case for expropriation that was commenced by PNR. In Manila Railroad Co. v. Paredes,41 the first case in this jurisdiction in which there was an attempt to compel a public service corporation, endowed with the power of eminent domain, to vacate the property it had occupied without first acquiring title thereto by amicable purchase or expropriation proceedings, we said: x x x whether the railroad company has the capacity to acquire the land in dispute by virtue of its delegated power of eminent domain, and, if so, whether the company occupied the land with the express or implied consent or acquiescence of the owner. If these questions of fact be decided in the affirmative, it is uniformly held that an action of ejectment or trespass or injunction will not lie against the railroad company, but only an action for damages, that is, recovery of the value of the land taken, and the consequential damages, if any. The primary reason for thus denying to the owner the remedies usually afforded to him against usurpers is the irremedial injury which would result to the railroad company and to the public in general. It will readily be seen that the interruption of the transportation service at any point on the right of way impedes the entire service of the

company and causes loss and inconvenience to all passengers and shippers using the line. Under these circumstances, public policy, if not public necessity, demands that the owner of the land be denied the ordinarily remedies of ejectment and injunction. The fact that the railroad company has the capacity to eventually acquire the land by expropriation proceedings undoubtedly assists in coming to the conclusion that the property owner has no right to the remedies of ejectment or injunction. There is also something akin to equitable estoppel in the conduct of one who stands idly by and watches the construction of the railroad without protest. x x x. But the real strength of the rule lies in the fact that it is against public policy to permit a property owner, under such circumstances, to interfere with the service rendered to the public by the railroad company. x x x. (I)f a landowner, knowing that a railroad company has entered upon his land and is engaged in constructing its road without having complied with a statute requiring either payment by agreement or proceedings to condemn, remains inactive and permits it to go on and expend large sums in the work, he is estopped from maintaining either trespass or ejectment for the entry, and will be regarded as having acquiesced therein, and will be restricted to a suit for damages. Further, in De Ynchausti v. Manila Electric Railroad & Light Co.,42 we ruled: The owner of land, who stands by, without objection, and sees a public railroad constructed over it, can not, after the road is completed, or large expenditures have been made thereon upon the faith of his apparent acquiescence, reclaim the land, or enjoin its use by the railroad company. In such a case there can only remain to the owner a right of compensation. xxxx One who permits a railroad company to occupy and use his land and construct its roads thereon without remonstrance or complaint, cannot afterwards reclaim it free from the servitude he has permitted to be imposed upon it. His acquiescence in the company's taking possession and constructing its works under circumstances which made imperative his resistance, if he ever intended to set up illegality, will be considered a waiver. But while this presumed waiver is a bar to his action to dispossess the company, he is not deprived of his action for damages for the value of the land, of for injuries done him by the construction or operation of the road. xxxx We conclude that x x x the complaint in this action praying for possession and for damages for the alleged unlawful detention of the land in question, should be dismissed x x x but that such dismissal x x x should be without prejudice to the right of the plaintiff to institute the appropriate proceedings to recover the value of the lands actually taken, or to compel the railroad corporation to take the necessary steps to secure the condemnation of the land and to pay the amount of the compensation and damages assessed in the condemnation proceedings. In Ansaldo v. Tantuico, Jr.,43 a case involving the takeover by the Government of two private lots to be used for the widening of a road without the benefit of an action for expropriation or agreement with its owners, we held that the owners therein, having been silent for more than two decades, were deemed to have consented to such taking -- although they knew that there had been no expropriation case commenced -- and therefore had no reason to impugn the existence of the power to expropriate or the public purpose for which that power had been exercised. In said case, we directed the expropriator to forthwith institute the appropriate expropriation action over the land, so that just compensation due the owners may be determined in accordance with the Rules of Court. From the afore-cited cases, it is clear that recovery of possession of the property by the landowner can no longer be allowed on the grounds of estoppel and, more importantly, of public policy which imposes upon the public utility the obligation to continue its services to the public. The non-filing of the case for expropriation will not necessarily lead to the return of the property to the landowner. What is left to the landowner is the right of compensation.

Forfom argues that the recovery of its property is justified because PNR failed to pay just compensation from the time its property was taken. We do not agree. It is settled that non-payment of just compensation does not entitle the private landowners to recover possession of their expropriated lot.44 Forfom contends that since there is enormous proof that portions of the property taken by PNR were being leased to third parties there was enough justification for the Court of Appeals to order the return to petitioner of the leased portions as well as the rents received therefrom. We find such contention to be untenable. As ruled above, Forfom's inaction on and acquiescence to the taking of its land without any expropriation case being filed, and its continued negotiation with PNR on just compensation for the land, prevent him from raising any issues regarding the power and right of the PNR to expropriate and the public purpose for which the right was exercised. The only issue that remains is just compensation. Having no right to further question PNR's act of taking over and the corresponding public purpose of the condemnation, Forfom cannot now object to PNR's lease of portions of the land to third parties. The leasing out of portions of the property is already a matter between PNR and third persons in which Forfom can no longer participate. The same no longer has any bearing on the issue of just compensation. Forfom further avers that the leasing out of portions of the property to third persons is beyond the scope of public use and thus should be returned to it. We do not agree. The public-use requisite for the valid exercise of the power of eminent domain is a flexible and evolving concept influenced by changing conditions. At present, it may not be amiss to state that whatever is beneficially employed for the general welfare satisfies the requirement of public use.45 The term "public use" has now been held to be synonymous with "public interest," "public benefit," "public welfare," and "public convenience."46 It includes the broader notion of indirect public benefit or advantage.47 Whatever may be beneficially employed for the general welfare satisfies the requirement of public use.48 In the instant case, Mrs. Ramos of the PNR explains that the leasing of PNR's right of way is an incidental power and is in response to the government's social housing project. She said that to prevent the proliferation of squatting along the right of way, special contracts were entered into with selected parties under strict conditions to vacate the property leased upon notice. To the court, such purpose is indeed public, for it addresses the shortage in housing, which is a matter of concern for the state, as it directly affects public health, safety, environment and the general welfare. Forfom claims it was denied due process when its property was forcibly taken without due compensation for it. Forfom is not being denied due process. It has been given its day in court. The fact that its cause is being heard by this Court is evidence that it is not being denied due process. We now go to the issue of just compensation. Under Section 5 of the 1997 Rules of Civil Procedure, the court shall appoint not more than three competent and disinterested persons as commissioners to ascertain and report to the court the just compensation for the property. Though the ascertainment of just compensation is a judicial prerogative,49 the appointment of commissioners to ascertain just compensation for the property sought to be taken is a mandatory requirement in expropriation cases. While it is true that the findings of commissioners may be disregarded and the trial court may substitute its own estimate of the value, it may only do so for valid reasons; that is, where the commissioners have applied illegal principles to the evidence submitted to them, where they have disregarded a clear preponderance of evidence, or where the amount allowed is either grossly inadequate or excessive. Thus, "trial with the aid of the commissioners is a substantial right that may not be done away with capriciously or for no reason at all."50 In the case before us, the trial court determined just compensation, but not in an expropriation case. Moreover, there was no appointment of commissioners as mandated by the rules. The appointment of commissioners is one of the steps involved in expropriation proceedings. What the judge did in this case was contrary to what the rules prescribe. The judge should not have made a determination of just compensation without first having appointed the required commissioners who would initially ascertain and report the just compensation for the property involved. This being the case, we find the valuation made by the trial court to be ineffectual, not having been made in accordance with the procedure provided for by the rules.

The next issue to be resolved is the time when just compensation should be fixed. Is it at the time of the taking or, as Forfom maintains, at the time when the price is actually paid? Where actual taking was made without the benefit of expropriation proceedings, and the owner sought recovery of the possession of the property prior to the filing of expropriation proceedings, the Court has invariably ruled that it is the value of the property at the time of taking that is controlling for purposes of compensation.51 In the case at bar, the just compensation should be reckoned from the time of taking which is January 1973. The determination thereof shall be made in the expropriation case to be filed without delay by the PNR after the appointment of commissioners as required by the rules. Admittedly, the PNR's occupation of Forfom's property for almost eighteen (18) years entitles the latter to payment of interest at the legal rate of six (6%) percent on the value of the land at the time of taking until full payment is made by the PNR.52 For almost 18 years, the PNR has enjoyed possession of the land in question without the benefit of expropriation proceedings. It is apparent from its actuations that it has no intention of filing any expropriation case in order to formally place the subject land in its name. All these years, it has given Forfom the runaround, failing to pay the just compensation it rightly deserves. PNR's uncaring and indifferent posture must be corrected with the awarding of exemplary damages, attorney's fees and expenses of litigation. However, since Forfom no longer appealed the deletion by both lower courts of said prayer for exemplary damages, the same cannot be granted. As to attorney's fees and expenses of litigation, we find the award thereof to be just and equitable. The amounts of P100,000.00 as attorney's fees and P50,000.00 as litigation expenses are reasonable under the premises. As explained above, the prayer for the return of the leased portions, together with the rental received therefrom, is denied. Unearned income for years after the takeover of the land is likewise denied. Having turned over the property to PNR, Forfom has no more right to receive any income, if there be any, derived from the use of the property which is already under the control and possession of PNR. As to actual damages corresponding to the sugarcane and mango trees that were allegedly destroyed when PNR entered and took possession of the subject land, we find that the same, being a question of fact, is better left to be determined by the expropriation court where the PNR will be filing the expropriation case. Evidence for such claim may be introduced before the condemnation proceedings.53 WHEREFORE, the instant petition is PARTIALLY DENIED insofar as it denies Forfom Development Corporation's prayer for recovery of possession (in whole or in part) of the subject land, unearned income, and rentals. The petition is PARTIALLY GRANTED in that attorney's fees and litigation expenses in the amounts of P100,000.00 and P50,000.00, respectively, are awarded. The Philippine National Railways is DIRECTED to forthwith institute the appropriate expropriation action over the land in question, so that just compensation due to its owner may be determined in accordance with the Rules of Court, with interest at the legal rate of six (6%) percent per annum from the time of taking until full payment is made. As to the claim for the alleged damaged crops, evidence of the same, if any, may be presented before the expropriation court. No costs. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice

WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice

RUBEN T. REYES Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson - Third Division

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Penned by Associate Justice Romeo A. Brawner with Associate Justices Alfredo L. Benipayo and Buenaventura J. Guerrero, concurring; CA rollo, pp. 164-173.
2

Raffled to Branch 24. Records, pp. 1-6. Id. at 77-80. Id. at 38. Id. at 90. Id. at 507-510. Id. at 125-129.

Id. at 137-149. Id. at 204-207. Id. at 150-177. Id. at 178-203. Id. at 340-344. Id. at 599-612. Id. at 532-549. TSN, 2 October 1991, pp. 2-17. Records, pp. 513-514. Id. at 517-518. Id. at 515-516. Id. at 519-520. TSN, 2 October 1991, pp. 18-34. Records, pp. 591-594. Id. at 709-712. Id. at 681-691. Id. at 692-693. Id. at 696. Id. at 699-703. Id. at 704-705. Id. at 706-707. Id. at 708. Id. at 727. Id. at 728 and 730. CA rollo, p. 172.

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Id. at 167-170. Rollo, pp. 11-12. Manapat v. Court of Appeals, G.R. No. 110478, 15 October 2007, 536 SCRA 32, 47-48. Reyes v. National Housing Authority, 443 Phil. 603, 610 (2003). National Power Corporation v. Court of Appeals, 479 Phil. 850, 860 (2004). Republic Act No. 4156, as amended by Republic Act No. 6366 and Presidential Decree No. 741.

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Heirs of Mateo Pidacan and Romana Eigo v. Air Transportation Office, G.R. No. 162779, 15 June 2007, 524 SCRA 679, 686-687.
41

32 Phil. 534, 537-538 (1915). 36 Phil. 908, 911-912 (1917). G.R. No. 50147, 3 August 1990, 188 SCRA 300. Reyes v. National Housing Authority, supra note 37 at 613. Manapat v. Court of Appeals, G.R. No. 110478, 15 October 2007, 536 SCRA 32, 55. Reyes v. National Housing Authority, supra note 37 at 610.

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47

Didipio Earth-Savers' Multi-Purpose Association, Incorporated (DESAMA) v. Gozun, G.R. No. 157882, 30 March 2006, 485 SCRA 586, 613.
48

Heirs of Juancho Ardona v. Hon. Reyes, 210 Phil. 187, 203-204 (1983). Export Processing Zone Authority v. Dulay, G.R. No. L-59603, 29 April 1987, 149 SCRA 305, 311. National Power Corp. v. dela Cruz, G.R. No. 156093, 2 February 2007, 514 SCRA 56, 70. Manila International Airport Authority v. Rodriguez, G.R. No. 161836, 28 February 2006, 483 SCRA 619, 627.

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52

National Power Corporation v. Angas, G.R. Nos. 60225-26, 8 May 1992, 208 SCRA 542, 548-549; Urtula v. Republic, 130 Phil. 449, 454-455 (1968).
53

Philippine Oil Development Co., Inc. v. Go, 90 Phil. 692, 696 (1952).

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 170147 January 30, 2009

REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA),Petitioner, vs. SPOUSES AGUSTIN and IMELDA CANCIO, Respondents. DECISION CORONA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the October 17, 2005 decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 75092. Petitioner Philippine Economic Zone Authority is a government-owned and controlled corporation created and existing under and by virtue of RA 7916,2 as amended. It is vested with governmental functions,3 including the power of eminent domain, thus enabling it to acquire private land within or adjacent to the ecozone for consolidation with land for zone development purposes.4 On January 15, 1979, then President Ferdinand E. Marcos issued Proclamation No. 18115 which reserved certain parcels of land of the public domain in Lapu Lapu City in favor of petitioner (then Export Processing Zone Authority or EPZA) for the establishment of the Mactan Export Processing Zone. However, some of the parcels covered by the proclamation, including that

of respondent spouses Agustin and Imelda Cancio, were private land. Petitioner eventually laid out the development of the economic zone and subsequently leased out respondents 47,540 sq. m. lot to an investor in the economic zone, Maitland Smith Inc. (Maitland). On May 19, 2001, petitioner offered to purchase respondents lot at P1,100 per sq. m. or P52,294,000 for the whole property. The letter containing the offer further instructed respondents "to consider and accept, otherwise we will initiate expropriation proceedings in the proper court." Instead of accepting the offer, respondents filed an unlawful detainer case against Maitland in the Municipal Trial Court of Lapu Lapu City. Thereafter, petitioner commenced expropriation proceedings for respondents property with the Regional Trial Court (RTC) of Lapu Lapu City, Branch 54 on August 27, 2001.6 Accordingly, it sought a writ of possession for the property for which it was willing to deposit 10% of the offered amount or a total of P5,229,400 with the Land Bank of the Philippines in accordance with Administrative Order (A.O.) No. 50.7 Respondents, however, filed a motion to require petitioner to comply with RA 8974,8 specifically Section 4(a) thereof, which requires that, upon the filing of the complaint for expropriation, the implementing agency shall immediately pay the owner of the property an amount equivalent to 100% of the current zonal valuation thereof for purposes of the issuance of a writ of possession. In its January 14, 2002 order (first order), the trial court granted respondents motion. Petitioner moved for its reconsideration. It argued that RA 8974 was inapplicable as the payment required under the law applied only to instances where the property was still in the owners possession and had yet to be transferred to the government. It could not be validly invoked when the property was already in the governments possession, as in this case. It also averred that it should be made to pay only the price of the land at the time of its taking. Corollarily, if it was ordered to pay the amount required under RA 8974, it would be unjustly penalized for its own improvements to the property. This time, the RTC agreed with petitioners position. On February 26, 2002 (second order), the court a quogranted petitioners motion for reconsideration. Respondents filed a motion for reconsideration, contending that petitioner should make the required payment under the law because RA 8974, which took effect before the commencement of the expropriation case, applied to all actions of such nature regardless of whether the government agency was already in possession or not. The court a quo issued its September 5, 2002 order (third order) which reversed its second order and reinstated the first one. Thereafter, petitioner filed a petition for certiorari in the CA, assailing the first and third orders of the RTC. The appellate court sustained the RTCs ruling. Hence, this petition. The issue before us is whether or not RA 8974 is applicable to this case for purposes of the issuance of the writ of possession.9 It is petitioners stance that it is not. It cited A.O. No. 50 as its legal authority when it offered to purchase respondents property in an amount equivalent to ten percent (10%) higher than the zonal value thereof.10 Consequently, petitioner prayed in its complaint for expropriation11 that it be issued a writ of possession upon a showing that the amount equivalent to ten percent (10%) of the offered amount has been duly deposited. Respondents, on the other hand, agree that RA 8974 is the controlling law in this case as the complaint for expropriation was instituted when said law was already in effect. We deny the petition. RA 8974 governs this case, not A.O. No. 50 as petitioner insists.

A perusal of RA 8974 readily reveals that it applies to instances when the national government expropriates property for national government infrastructure projects.12 Undeniably, the economic zone is a national government project a matter undisputed by both parties. Also, the complaint for expropriation was filed only on August 27, 2001 or almost one year after the law was approved on November 7, 2000. Thus, there is no doubt about its applicability to this case. We note that this expropriation case is still in its initial stages. The trial court had yet to approve a writ of possession in petitioners favor when the issue of payment of just compensation cropped up. Both parties seemed to have confused the requirement of paying 100% of the current zonal valuation of the property (as a prerequisite to the issuance of a writ of possession) with the payment of just compensation itself. In its complaint filed in the RTC,13 petitioner prayed that: a. A writ of possession be issued in favor of plaintiff respecting its possession, control and disposition of the land sought to be expropriated including the power or authority to demolish, if any, improvements thereon, upon showing that the amount equivalent to 10% of the offered amount has been duly deposited. In their motion to require petitioner to comply with RA 8974,14 respondents countered that they: x x x contest PEZAs proferred value as it is not a just compensation for the property sought to be expropriated. When petitioner moved for reconsideration15 after the RTC granted respondents aforementioned motion, it argued that: The inapplicability of R. A. No. 8974 is further highlighted by the fact that it requires a deposit based on the current zonal valuation of the property. To apply such valuation to the instant case would be to violate the cardinal principle in eminent domain proceedings that the just compensation for the property should be its fair market value at the time of taking. The nature and character of the land at the time of its taking is the principal criterion to determine just compensation to the landowner (National Power Corporation vs. Henson, 300 SCRA 751 [1998]). (Emphasis supplied) Clearly, there was a confusion regarding the nature of the amount to be paid for the issuance of a writ of possession. In Capitol Steel Corporation v. PHIVIDEC Industrial Authority,16 we clarified that the payment of the provisional value as a condition for the issuance of a writ of possession is different from the payment of just compensation for the expropriated property. While the provisional value is based on the current relevant zonal valuation, just compensation is based on the prevailing fair market value of the property.
1avv ph!1.zw+

In that case, we agreed with the CAs explanation17 that: The first refers to the preliminary or provisional determination of the value of the property. It serves a double-purpose of prepayment if the property is fully expropriated, and of an indemnity for damages if the proceedings are dismissed. It is not a final determination of just compensation and may not necessarily be equivalent to the prevailing fair market value of the property. Of course, it may be a factor to be considered in the determination of just compensation. Just compensation, on the other hand, is the final determination of the fair market value of the property. It has been described as "the just and complete equivalent of the loss which the owner of the thing expropriated has to suffer by reason of the expropriation." Market value[s,] has also been described in a variety of ways as the "price fixed by the buyer and seller in the open market in the usual and ordinary course of legal trade and competition; the price and value of the article established as shown by sale, public or private, in the ordinary way of business; the fair value of the property between one who desires to purchase and one who desires to sell; the current price; the general or ordinary price for which property may be sold in that locality." (Emphasis in the original) There is therefore no need yet to determine with reasonable certainty the final amount of just compensation in resolving the issue of a writ of possession.18 In fact, it is the ministerial duty of the trial court to issue the writ upon compliance with the requirements

of Section 419 of the law. No hearing is required and the court cannot exercise its discretion in order to arrive at the amount of the provisional value of the property to be expropriated as the legislature has already fixed the amount under the aforementioned provision of the law.20 It is only after the trial court ascertains the provisional amount to be paid that just compensation will be determined. In establishing the amount of just compensation, the parties may present evidence relative to the propertys fair market value, as provided under Section 5 of RA 8974.21 Thus: Sec. 5. Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale. In order to facilitate the determination of just compensation, the court may consider, among other well-established factors, the following relevant standards: (a) The classification and use for which the property is suited; (b) The developmental costs for improving the land; (c) The value declared by the owners; (d) The current selling price of similar lands in the vicinity; (e) The reasonable disturbance compensation for the removal and/or demolition of certain improvements on the land and for the value of improvements thereon; (f) The size, shape or location, tax declaration and zonal valuation of the land; (g) The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and (h) Such facts and events as to enable the affected property owners to have sufficient funds to acquire similarlysituated lands of approximate areas as those required from them by the government, and thereby rehabilitate themselves as early as possible. This must be so as just compensation should take into account the consequential benefits and damages which may arise from the expropriation.22 Furthermore, it is well to remember that the concept of just compensation does not mean fairness to the property owner alone. It must also be just to the public which ultimately bears the cost of expropriation.23 Lastly, RA 8974 provides that "the court shall determine the just compensation to be paid the owner within sixty (60) days from the date of filing of the expropriation case."24 In this case, almost eight years have passed since petitioner commenced the expropriation proceedings on August 27, 2001. We, however, hold that it is still feasible to comply with the spirit of the law by requiring the trial court to make such determination within sixty (60) days fromfinality of this decision, in accordance with the guidelines laid down in RA 8974 and its implementing rules.25 WHEREFORE, the petition is hereby DENIED. No costs. SO ORDERED. RENATO C. CORONA

Associate Justice WE CONCUR: ANTONIO T. CARPIO* Acting Chairperson MA. ALICIA AUSTRIA-MARTINEZ** Associate Justice CONCHITA CARPIO MORALES Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Acting Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Acting Division Chairpersons Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. LEONARDO A. QUISUMBING Acting Chief Justice

Footnotes
*

Per Special Order No. 552-A dated January 15, 2009. Per Special Order No. 553 dated January 15, 2009.

**

Penned by Associate Justice Enrico A. Lanzanas (retired) and concurred in by Associate Justices Pampio A. Abarintos and Vicente L. Yap (retired) of the Special Eighteenth Division of the Court of Appeals. Rollo,pp. 44-52.
2

Otherwise known as the Special Economic Zone Act of 1995. It supersedes Presidential Decree 66 (The EPZA Law), which was promulgated in 1972.
3

As provided for in Section 2 of PD 66, which reads: Section 2. Creation of an Export Processing Zone Authority. To carry out the above policy, there is hereby created a body corporate to be known as the Export Processing Zone Authority, hereinafter referred to as Authority, which shall be under the direct supervision of the Office of the President. The functions of the Authority are hereby declared governmental.

Section 29 of RA 7916 reads:

Section 29. Eminent Domain. The areas comprising an ECOZONE may be expanded or reduced when necessary. For this purpose, the government shall have the power to acquire, either by purchase, negotiation or condemnation proceedings, any private lands within or adjacent to the ECOZONE for: (a) Consolidation of lands for zone development purposes; (b) Acquisition of right of way to the ECOZONE; and (c) The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE.

"Preserving for Purposes of the Export Processing Zone Authority a Certain Parcel of Land of the Public Domain Situated in the City of Lapu lapu, Island of Mactan, Province of Cebu."
6

Docketed as Civil Case No. 5578-L.

Otherwise known as "Guidelines for the Acquisition of Certain Parcels of Private Land Intended for Public Use Including the Right-of-Way Easement of Several Public Infrastructure Projects." Dated 17 February 1999.
8

"An Act to Facilitate the Acquisition of Right-of-Way, Site or Location for National Government Infrastructure Projects and for Other Purposes." Dated 7 November 2000.
9

The main error actually assigned to this Court was the applicability of RA 8974 to this case for purposes of determining the amount of just compensation due respondents. However, after painstakingly sifting through the records of the case, the Court found that the parties, and even the lower courts, have mistaken the payment of the provisional amount (as a prerequisite to the issuance of a writ of possession) and the payment of just compensation to be one and the same. Thus, the parties insistence on the resolution of the aforementioned issue as shown in their pleadings filed in the RTC, CA and this Court. Regrettably, both lower courts failed to differentiate between the two concepts and ruled on the matter by agreeing with respondents contentions.
10

Annex D-3, rollo, p. 75. See Section 1 of A.O. No. 50. Rollo, pp. 60-66. See Section 2 of A.O. No. 50. See Section 1, RA 8974 and Republic v. Gingoyon, G.R. No. 152335, 19 December 2005, 478 SCRA 462, 515. Supra note 11. Rollo, pp. 80-83. Id., pp. 88-95. G.R. No. 169453, 6 December 2006, 510 SCRA 590, 602.

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Id., pp. 602-603. Id., p. 603. Section 4 of RA 8974 provides: Sec. 4. Guidelines for Expropriation Proceedings. Whenever it is necessary to acquire real property for the right-of-way, site or location for any national government infrastructure project through expropriation, the appropriate implementing agency shall initiate the expropriation proceedings before the proper court under the following guidelines: (a) Upon the filing of the complaint, and after due notice to the defendant, the implementing agency shall immediately pay the owner of the property the amount equivalent to the sum of (1) one hundred percent (100%) of the value of the property based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or structures as determined under Section 7 hereof; xxx Upon compliance with the guidelines abovementioned, the court shall immediately issue to the implementing agency an order to take possession of the property and start the implementation of the project. Before the court can issue a Writ of Possession, the implementing agency shall present to the court a certificate of availability of funds from the proper official concerned. In the event that the owner of the property contests the implementing agencys proffered value, the court shall determine the just compensation to be paid the owner within sixty (60) days from the date of the filing of the expropriation case. When the decision of the court becomes final and executory, the implementing agency shall pay the owner the difference between the amount already paid and the just compensation as determined by the court. (Emphasis supplied)

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Capitol Steel Corporation v. PHIVIDEC Industrial Authority, supra note 16, p. 602. Id., p. 617.

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National Power Corp. v. Spouses dela Cruz. G.R. No. 156093, 2 February 2007, 514 SCRA 56, 72-73, citing B.H. Berkenkotter & Co. v. CA, G.R. No. 89980, 14 December 1992, 216 SCRA 584, 586-587.
23

Republic v. CA, G.R. No. 147245, 31 March 2005, 454 SCRA 516, 536. See Section 4 of RA 8974. Republic v. Gingoyon, supra note 12.

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The Lawphil Project - Arellano Law Foundation

EN BANC [G.R. No. 169008, July 31, 2008] LAND BANK OF THE PHILIPPINES PETITIONER, VS. RAYMUNDA MARTINEZ, RESPONDENT. RESOLUTION
NACHURA, J.: Before the Court are petitioner's September 20, 2007 Motion for Reconsideration[1]and November 8, 2007 Supplemental Motion for Reconsideration,[2] which seek the reversal of the August 14, 2007 Decision[3] in the instant case. To recall, the Court in the challenged decision denied the petition for review on certiorari and affirmed the ruling of the Court of Appeals (CA) in CA-G.R. SP No. 83276. Lifted from the said assailed decision are the following antecedent facts and proceedings: After compulsory acquisition by the Department of Agrarian Reform (DAR), on November 16, 1993, of respondent Martinez's 62.5369-hectare land in Barangay Agpudlos, San Andres, Romblon, pursuant to Republic Act No. 6657 or the Comprehensive Agrarian Reform Law of 1988 (CARL), petitioner Land Bank of the Philippines (LBP) offered P1,955,485.60 as just compensation. Convinced that the proffered amount was unjust and confiscatory, respondent rejected it. Thus, the Department of Agrarian Reform Adjudication Board (DARAB), through its Provincial Agrarian Reform Adjudicator (PARAD) conducted summary administrative proceedings for the preliminary determination of just compensation in accordance with Section 16 (d) of the CARL. On September 4, 2002, PARAD Virgilio M. Sorita, finding some marked inconsistencies in the figures and factors made as bases by LBP in its computation, rendered judgment as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: Ordering the Land Bank of the Philippines to pay landowner-protestant RAYMUNDA MARTINEZ for her property covered and embraced by TCT No. T-712 with an area of 62.5369 hectares, more or less, which the Department of Agrarian Reform intends to acquire, the total amount of TWELVE MILLION ONE HUNDRED SEVENTY NINE THOUSAND FOUR HUNDRED NINETY TWO and 50/100 Pesos (Php12,179,492.50), in the manner provided for by law. SO ORDERED. A petition for the fixing of just compensation docketed as Agrarian Case No. 696 was then filed by LBP's counsel before the Special Agrarian Court (SAC), the Regional Trial Court of Odiongan, Romblon, Branch 82. After filing her answer to the said petition, respondent, contending that the orders, rulings and decisions of the DARAB become final after the lapse of 15 days from their receipt, moved for the dismissal of the petition for being filed out of time. Petitioner opposed the motion. Meanwhile, respondent, still asserting the finality of PARAD Sorita's decision, filed before the Office of the PARAD a motion for the issuance of a writ of execution, which was eventually granted on November 11, 2003. Ascertaining that the petition before the SAC was filed by LBP 26 days after it received a copy of PARAD Sorita's decision, the Office of the PARAD denied LBP's motion for reconsideration and ordered the issuance of a writ of execution on February 23, 2004. Aggrieved of these developments, LBP, on March 12, 2004, moved to quash the said February 23, 2004 PARAD resolution. On April 6, 2004, even as the motion to quash was yet unresolved, LBP instituted a petition for certiorari before the CA, which was docketed as CA-G.R. SP No. 83276, assailing both the November 11, 2003 and the February 23, 2004 PARAD resolutions. LBP primarily contended that the Office of the PARAD gravely abused its discretion when it issued the writ of execution despite the pendency with the SAC of a

petition for the fixing of just compensation. The CA, finding LBP guilty of forum-shopping for not disclosing the pendency of the Motion to Quash dated March 12, 2004, dismissed the petition on September 28, 2004, thus: ACCORDINGLY, the present petition for certiorari is DISMISSED outright. Consequently, in view of the dismissal of the above-entitled case, we are no longer in a position to act on the private respondent's motion for execution pending appeal. Further, this Court, mindful that under Sec. 5, Rule 7, of the 1997 Rules of Civil Procedure, willful and deliberate forum-shopping constitutes direct contempt of court and cause for administrative sanctions, which may both be resolved and imposed in the same case where the forum shopping is found, WARNS the counsel of record of the petitioner that a repetition of a similar act of submitting a false certification shall be dealt with most severely. SO ORDERED. Not persuaded by LBP's motion for reconsideration, the appellate court denied the same on July 15, 2005. Necessarily, LBP, through its legal department, elevated the case before this Court on September 9, 2005 via a petition for review on certiorari under Rule 45, contending, among others, that it did not commit deliberate forum shopping for what it filed with the Office of the PARAD was a motion to quash, which is not an initiatory pleading; and the decision of the PARAD cannot be executed due to the pending petition for fixing of just compensation with the SAC. On September 14, 2005, we issued a temporary restraining order (TRO) restraining the appellate court and the DAR adjudicators from implementing the November 11, 2003 and the February 23, 2004 resolutions. For her part, respondent contends that petitioner has committed forum-shopping when it filed a certiorari petition without first awaiting the resolution by the Office of the PARAD of the motion to quash; and that petitioner has lost its standing to sue considering that it is being represented by its lawyers and not the Office of the Government Corporate Counsel (OGCC). [Citations omitted.][4] Three primordial issues were then resolved by the Court in the said decision--(1) whether or not petitioner could file its appeal solely through its legal department; (2) whether or not petitioner committed forum shopping; and (3) whether or not the Provincial Agrarian Reform Adjudicator (PARAD) gravely abused his discretion when he issued a writ of execution despite the pendency of LBP's petition for fixing of just compensation with the Special Agrarian Court (SAC). The Court went on to rule that the petition for review on certiorari could not be filed without the Office of the Government Corporate Counsel (OGCC) entering its appearance as the principal legal counsel of the bank or without the OGCC giving its conformity to the LBP Legal Department's filing of the petition. The Court also found petitioner to have forum-shopped when it moved to quash the PARAD resolutions and at the same time petitioned for their annulment via certiorari under Rule 65. Most importantly, the Court ruled that petitioner was not entitled to the issuance of a writ ofcertiorari by the appellate court because the Office of the PARAD did not gravely abuse its discretion when it undertook to execute the September 4, 2002 decision on land valuation. The said adjudicator's decision attained finality after the lapse of the 15-day period stated in Rule XIII, Section 11 of the Department of Agrarian Reform Adjudication Board (DARAB) Rules of Procedure. Dissatisfied with our ruling, petitioner successively filed, as aforesaid, the September 20, 2007 Motion for Reconsideration[5] and the November 8, 2007 Supplemental Motion for Reconsideration.[6] In both motions, petitioner contends that its lawyers are authorized to appear in the instant case for they have been issued a letter of authority by the OGCC on April 17, 2006; that it did not commit deliberate forum shopping; that the Provincial Agrarian Reform Adjudicator (PARAD) gravely abused his discretion in issuing the writ of execution to implement his decision; that respondent's defense ofres judicata or the alleged finality of the PARAD's decision was never pleaded in her answer, hence, was already deemed waived; that the PARAD had no

jurisdiction to issue the writ of execution due to the pending petition for determination of just compensation with the SAC; and that the Court's August 14, 2007 Decision in this case is contrary to its October 11, 2007 Decision in Land Bank of the Philippines v. Suntay, G.R. No. 157903 on the issue of whether the petition for determination of just compensation was filed out of time. Respondent, in her January 24, 2008 Comment,[7] counters, among others, that the filing of the said motions is only dilatory considering that the arguments raised therein have already been answered by the Court in the decision sought to be reconsidered. The Court agrees with respondent's contention and denies petitioner's motions. Indeed, except for the alleged conflict of the August 14, 2007 Decision with that promulgated on October 11, 2007 in G.R. No. 157903 [LBP v. Suntay], the grounds raised by petitioner in the motions are identical to those stated in its previous pleadings. And these have already been considered and sufficiently passed upon by the Court in the August 14, 2007 Decision. On the supposedly conflicting pronouncements in the cited decisions, the Court reiterates its ruling in this case that the agrarian reform adjudicator's decision on land valuation attains finality after the lapse of the 15-day period stated in the DARAB Rules. The petition for the fixing of just compensation should therefore, following the law and settled jurisprudence, be filed with the SAC within the said period. This conclusion, as already explained in the assailed decision, is based on the doctrines laid down in Philippine Veterans Bank v. Court of Appeals[8] and Department of Agrarian Reform Adjudication Board v. Lubrica.[9] In Philippine Veterans Bank, decided in 2000 through the pen of Justice Vicente V. Mendoza, the Court ruled that the trial court correctly dismissed the petition for the fixing of just compensation because it was filed beyond the 15-day period provided in the DARAB Rules. In Lubrica, decided in 2005 through the pen of Justice Dante O. Tinga, the Court, citing Philippine Veterans Bank, ruled that the adjudicator's decision had already attained finality because LBP filed the petition for just compensation beyond the 15-day reglementary period. Incidentally, Josefina Lubrica is the assignee of Federico Suntay whose property is the subject of the aforementioned October 11, 2007 Decision in LBP v. Suntay. Following settled doctrine, we ruled in this case that the PARAD's decision had already attained finality because of LBP's failure to file the petition for the fixing of just compensation within the 15-day period. This ruling, however, as correctly pointed out by petitioner, runs counter to the Court's recent decision in Suntay [the motions for reconsideration in Suntay were denied with finality in the January 30, 2008 Resolution of the Court[10]], in which the Court ruled that the trial court erred in dismissing the petition for determination of just compensation on the ground that it was filed out of time. The Court in that case stressed that the petition was not an appeal from the adjudicator's final decision but an original action for the determination of just compensation. We, however, promulgated our decision in this case ahead of Suntay. To reiterate, this case was decided on August 14, 2007, while Suntay was decided two months later, or on October 11, 2007. Suntay should have then remained consistent with our ruling, and with the doctrines enunciated in Philippine Veterans Bank and in Lubrica, especially considering that Lubrica was the representative of Suntay in the Suntaycase. The Court notes that the Suntay ruling is based on Republic of the Philippines v. Court of Appeals,[11] decided in 1996 also through the pen of Justice Vicente V. Mendoza. In that case, the Court emphasized that the jurisdiction of the SAC is original and exclusive, not appellate. Republic, however, was decided at a time when Rule XIII, Section 11 was not yet present in the DARAB Rules. Further, Republic did not discuss whether the petition filed therein for the fixing of just compensation was filed out of time or not. The Court merely decided the issue of whether cases involving just compensation should first be appealed to

the DARAB before the landowner can resort to the SAC under Section 57 of R.A. No. 6657. To resolve the conflict in the rulings of the Court, we now declare herein, for the guidance of the bench and the bar, that the better rule is that stated in Philippine Veterans Bank, reiterated in Lubrica and in the August 14, 2007 Decision in this case. Thus, while a petition for the fixing of just compensation with the SAC is not an appeal from the agrarian reform adjudicator's decision but an original action, the same has to be filed within the 15-day period stated in the DARAB Rules; otherwise, the adjudicator's decision will attain finality. This rule is not only in accord with law and settled jurisprudence but also with the principles of justice and equity. Verily, a belated petition before the SAC, e.g., one filed a month, or a year, or even a decade after the land valuation of the DAR adjudicator, must not leave the dispossessed landowner in a state of uncertainty as to the true value of his property. IN THE LIGHT OF THE FOREGOING DISQUISITIONS, the Court DENIES WITH FINALITY petitioner's September 20, 2007 Motion for Reconsideration and the November 8, 2007 Supplemental Motion for Reconsideration. SO ORDERED. Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio Morales, Chico-Nazario, Velasco, Jr., Leonardo-De Castro, and Brion, JJ., concur. Azcuna, J., on official leave. Tinga, J., i certify that J. Tinga voted in favor of the ponencia. J. Puno. Reyes, J., on leave.

EN BANC MACTANCEBU INTERNATIONAL AIRPORT AUTHORITY and AIR TRANSPORTATION OFFICE, Petitioners, G.R. No. 176625 Present: PUNO, C.J., CARPIO, CORONA, CARPIO MORALES, NACHURA, DE CASTRO, BRION, PERALTA,* BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, and MENDOZA, JJ.

VELASCO, JR., LEONARDO-

versus -

BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO MERCADO, namely,

VICENTE LOZADA, Promulgated: MARIO M. LOZADA, MARCIA L. GODINEZ, February 25, 2010 VIRGINIA L. FLORES, BERNARDO LOZADA, JR., DOLORES GACASAN, SOCORRO CAFARO and ROSARIO LOZADA, represented by MARCIA LOZADA GODINEZ, Respondents. x------------------------------------------------------------------------------------x DECISION NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse, annul, and set aside the Decision[1] dated February 28, 2006 and the Resolution[2] dated February 7, 2007 of the Court of Appeals (CA) (Cebu City), Twentieth Division, in CA-G.R. CV No. 65796. The antecedent facts and proceedings are as follows: Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters, more or less, located in Lahug, Cebu City. Its original owner was Anastacio Deiparine when the same was subject to expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented by the then Civil Aeronautics Administration (CAA), for the expansion and improvement of the Lahug Airport. The case was filed with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil Case No. R-1881. As early as 1947, the lots were already occupied by the U.S. Army. They were turned over to the Surplus Property Commission, the Bureau of Aeronautics, the National Airport Corporation and then to the CAA.

During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr. acquired Lot No. 88 from Deiparine. Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued in Lozadas name. On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the latter to pay Lozada the fair market value of Lot No. 88, adjudged atP3.00 per square meter, with consequential damages by way of legal interest computed from November 16, 1947the time when the lot was first occupied by the airport. Lozada received the amount of P3,018.00 by way of payment. The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO), formerly CAA, proposed a compromise settlement whereby the owners of the lots affected by the expropriation proceedings would either not appeal or withdraw their respective appeals in consideration of a commitment that the expropriated lots would be resold at the price they were expropriated in the event that the ATO would abandon the Lahug Airport, pursuant to an established policy involving similar cases. Because of this promise, Lozada did not pursue his appeal. Thereafter, Lot No. 88 was transferred and registered in the name of the Republic under TCT No. 25057. The projected improvement and expansion plan of the old Lahug Airport, however, was not pursued. Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to repurchase the lots, as per previous agreement. The CAA replied that there might still be a need for the Lahug Airport to be used as an emergency DC-3 airport. It reiterated, however, the assurance that should this Office dispose and resell the properties which may be found to be no longer necessary as an airport, then the policy of this Office is to give priority to the former owners subject to the approval of the President. On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the Department of Transportation, directing the transfer of general aviation operations of the Lahug Airport to

the Mactan International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug Airport. Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled An Act Creating the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan International Airport and the Lahug Airport to the Authority, Vesting the Authority with Power to Administer and Operate the Mactan International Airport and the Lahug Airport, and For Other Purposes. From the date of the institution of the expropriation proceedings up to the present, the public purpose of the said expropriation (expansion of the airport) was never actually initiated, realized, or implemented. Instead, the old airport was converted into a commercial complex. Lot No. 88 became the site of a jail known as Bagong Buhay Rehabilitation Complex, while a portion thereof was occupied by squatters.[3] The old airport was converted into what is now known as the Ayala I.T. Park, a commercial area. Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and reconveyance of ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-18823 and was raffled to the Regional Trial Court (RTC), Branch 57, Cebu City. The complaint substantially alleged as follows:
(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot No. 88 covered by TCT No. 9045; In the early 1960s, the Republic sought to acquire by expropriation Lot No. 88, among others, in connection with its program for the improvement and expansion of the Lahug Airport; A decision was rendered by the Court of First Instance in favor of the Government and against the land owners, among whom was Bernardo Lozada, Sr. appealed therefrom;

(b)

(c)

(d) During the pendency of the appeal, the parties entered into a compromise settlement to the effect that the subject property would be resold to the original owner at the same price when it was expropriated in the event that the Government abandons the Lahug Airport;

(e)

Title to Lot No. 88 was subsequently transferred to the Republic of the Philippines (TCT No. 25057); The projected expansion and improvement of the Lahug Airport did not materialize; Plaintiffs sought to repurchase their property from then CAA Director Vicente Rivera. The latter replied by giving as assurance that priority would be given to the previous owners, subject to the approval of the President, should CAA decide to dispose of the properties;

(f)

(g)

(h) On November 29, 1989, then President Corazon C. Aquino, through a Memorandum to the Department of Transportation and Communications (DOTC), directed the transfer of general aviation operations at the Lahug Airport to the Mactan-Cebu International Airport Authority; (i) Since the public purpose for the expropriation no longer exists, the property must be returned to the plaintiffs.[4]

In their Answer, petitioners asked for the immediate dismissal of the complaint. They specifically denied that the Government had made assurances to reconvey Lot No. 88 to respondents in the event that the property would no longer be needed for airport operations. Petitioners instead asserted that the judgment of condemnation was unconditional, and respondents were, therefore, not entitled to recover the expropriated property notwithstanding non-use or abandonment thereof. After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated in the City of Cebu, containing an area of One Thousand Seventeen (1,017) square meters, more or less; The property was expropriated among several other properties in Lahug in favor of the Republic of the Philippines by virtue of a Decision dated December 29, 1961 of the CFI of Cebu in Civil Case No. R-1881; The public purpose for which the property was expropriated was for the purpose of the Lahug Airport;

(2)

(3)

(4)

After the expansion, the property was transferred in the name of MCIAA; [and] On November 29, 1989, then President Corazon C. Aquino directed the Department of Transportation and Communication to transfer general aviation operations of the Lahug Airport to the Mactan-Cebu International Airport Authority and to close the Lahug Airport after such transfer[.][5]

(5)

During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners presented their own witness, Mactan-Cebu International Airport Authority legal assistant Michael Bacarisas. On October 22, 1999, the RTC rendered its Decision, disposing as follows:
WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the plaintiffs, Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada, represented by their attorney-in-fact Marcia Lozada Godinez, and against defendants Cebu-Mactan International Airport Authority (MCIAA) and Air Transportation Office (ATO): 1. ordering MCIAA and ATO to restore to plaintiffs the possession and ownership of their land, Lot No. 88 Psd-821 (SWO-23803), upon payment of the expropriation price to plaintiffs; and 2. ordering the Register of Deeds to effect the transfer of the Certificate of Title from defendant[s] to plaintiffs on Lot No. [88], cancelling TCT No. 20357 in the name of defendant MCIAA and to issue a new title on the same lot in the name of Bernardo L. Lozada, Sr. and the heirs of Rosario Mercado, namely: Vicente M. Lozada, Mario M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada. No pronouncement as to costs. SO ORDERED.[6]

Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary appellate briefs, the CA rendered its assailed Decision dated February 28, 2006, denying petitioners appeal and affirming in toto the Decision of the

RTC, Branch 57, Cebu City. Petitioners motion for reconsideration was, likewise, denied in the questioned CA Resolution dated February 7, 2007. Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a repurchase agreement or compromise settlement between them and the Government; (2) the judgment in Civil Case No. R-1881 was absolute and unconditional, giving title in fee simple to the Republic; and (3) the respondents claim of verbal assurances from government officials violates the Statute of Frauds. The petition should be denied. Petitioners anchor their claim to the controverted property on the supposition that the Decision in the pertinent expropriation proceedings did not provide for the condition that should the intended use of Lot No. 88 for the expansion of the Lahug Airport be aborted or abandoned, the property would revert to respondents, being its former owners. Petitioners cite, in support of this position, Fery v. Municipality of Cabanatuan,[7] which declared that the Government acquires only such rights in expropriated parcels of land as may be allowed by the character of its title over the properties
If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then, of course, when the purpose is terminated or abandoned the former owner reacquires the property so expropriated. If x x x land is expropriated for a public street and the expropriation is granted upon condition that the city can only use it for a public street, then, of course, when the city abandons its use as a public street, it returns to the former owner, unless there is some statutory provision to the contrary. x x x. If, upon the contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land becomes the absolute property of the expropriator, whether it be the State, a province, or municipality, and in that case the non-user does not have the effect of defeating the title acquired by the expropriation proceedings. x x x. When land has been acquired for public use in fee simple, unconditionally, either by the exercise of eminent domain or by purchase, the former owner retains no right in the land, and the public use may be abandoned, or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any reversion to the former owner. x x x.[8]

Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport Authority,[9] thus
Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors of respondent was ordered under the running impression that Lahug Airport would continue in operation As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is up to the other departments of the Government to determine said matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation (emphasis supplied). While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in its Decision chose not to do so but instead prefixed its finding of public purpose upon its understanding that Lahug Airport will continue to be in operation. Verily, these meaningful statements in the body of the Decision warrant the conclusion that the expropriated properties would remain to be so until it was confirmed that Lahug Airport was no longer in operation. This inference further implies two (2) things: (a) after the Lahug Airport ceased its undertaking as such and the expropriated lots were not being used for any airport expansion project, the rights vis--vis the expropriated Lots Nos. 916 and 920 as between the State and their former owners, petitioners herein, must be equitably adjusted; and (b) the foregoing unmistakable declarations in the body of the Decision should merge with and become an intrinsic part of the fallo thereof which under the premises is clearly inadequate since the dispositive portion is not in accord with the findings as contained in the body thereof.[10]

Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent that the acquisition by the Republic of the expropriated lots

was subject to the condition that the Lahug Airport would continue its operation. The condition not having materialized because the airport had been abandoned, the former owner should then be allowed to reacquire the expropriated property.[11] On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation suit commenced upon parcels of land to be used as a site for a public market. Instead of putting up a public market, respondent Cabanatuan constructed residential houses for lease on the area. Claiming that the municipality lost its right to the property taken since it did not pursue its public purpose, petitioner Juan Fery, the former owner of the lots expropriated, sought to recover his properties. However, as he had admitted that, in 1915, respondent Cabanatuan acquired a fee simple title to the lands in question, judgment was rendered in favor of the municipality, following American jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co.,[12] McConihay v. Theodore Wright,[13] and Reichling v. Covington Lumber Co.,[14] all uniformly holding that the transfer to a third party of the expropriated real property, which necessarily resulted in the abandonment of the particular public purpose for which the property was taken, is not a ground for the recovery of the same by its previous owner, the title of the expropriating agency being one of fee simple. Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private property shall not be taken for public use without just compensation.[15] It is well settled that the taking of private property by the Governments power of eminent domain is subject to two mandatory requirements: (1) that it is for a particular public purpose; and (2) that just compensation be paid to the property owner. These requirements partake of the nature of implied conditions that should be complied with to enable the condemnor to keep the property expropriated.[16] More particularly, with respect to the element of public use, the expropriator should commit to use the property pursuant to the purpose stated in the petition for expropriation filed, failing which, it should file another petition for the new purpose. If not, it is then incumbent upon the expropriator to return the said property to its private owner, if the latter desires to reacquire the

same. Otherwise, the judgment of expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the proper exercise of the power of eminent domain, namely, the particular public purpose for which the property will be devoted. Accordingly, the private property owner would be denied due process of law, and the judgment would violate the property owners right to justice, fairness, and equity. In light of these premises, we now expressly hold that the taking of private property, consequent to the Governments exercise of its power of eminent domain, is always subject to the condition that the property be devoted to the specific public purpose for which it was taken. Corollarily, if this particular purpose or intent is not initiated or not at all pursued, and is peremptorily abandoned, then the former owners, if they so desire, may seek the reversion of the property, subject to the return of the amount of just compensation received. In such a case, the exercise of the power of eminent domain has become improper for lack of the required factual justification.[17] Even without the foregoing declaration, in the instant case, on the question of whether respondents were able to establish the existence of an oral compromise agreement that entitled them to repurchase Lot No. 88 should the operations of the Lahug Airport be abandoned, we rule in the affirmative. It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual issue and have declared, in no uncertain terms, that a compromise agreement was, in fact, entered into between the Government and respondents, with the former undertaking to resell Lot No. 88 to the latter if the improvement and expansion of the Lahug Airport would not be pursued. In affirming the factual finding of the RTC to this effect, the CA declared
Lozadas testimony is cogent. An octogenarian widower-retiree and a resident of Moon Park, California since 1974, he testified that government representatives verbally promised him and his late wife while the expropriation proceedings were on-going that the government shall return the property if the purpose for the expropriation no longer exists. This promise was made at the premises of the airport. As far as he could remember, there were no expropriation proceedings against his property in 1952 because the first notice of expropriation he received was in 1962. Based on the promise, he did not hire a lawyer. Lozada was firm that he was promised that the lot would be reverted to him once the

public use of the lot ceases. He made it clear that the verbal promise was made in Lahug with other lot owners before the 1961 decision was handed down, though he could not name the government representatives who made the promise. It was just a verbal promise; nevertheless, it is binding. The fact that he could not supply the necessary details for the establishment of his assertions during crossexamination, but that When it will not be used as intended, it will be returned back, we just believed in the government, does not dismantle the credibility and truthfulness of his allegation. This Court notes that he was 89 years old when he testified in November 1997 for an incident which happened decades ago. Still, he is a competent witness capable of perceiving and making his perception known. The minor lapses are immaterial. The decision of the competency of a witness rests primarily with the trial judge and must not be disturbed on appeal unless it is clear that it was erroneous. The objection to his competency must be made before he has given any testimony or as soon as the incompetency becomes apparent. Though Lozada is not part of the compromise agreement,[18] he nevertheless adduced sufficient evidence to support his claim.[19]

As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of Appeals,[20] cited by petitioners, where respondent therein offered testimonies which were hearsay in nature, the testimony of Lozada was based on personal knowledge as the assurance from the government was personally made to him. His testimony on cross-examination destroyed neither his credibility as a witness nor the truthfulness of his words. Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and conclusive on this Court and may not be reviewed. A petition for certiorariunder Rule 45 of the Rules of Court contemplates only questions of law and not of fact.[21] Not one of the exceptions to this rule is present in this case to warrant a reversal of such findings. As regards the position of petitioners that respondents testimonial evidence violates the Statute of Frauds, suffice it to state that the Statute of Frauds operates only with respect to executory contracts, and does not apply to contracts which have been completely or partially performed, the rationale thereof being as follows:
In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties. The statute has precisely been enacted to prevent fraud. However, if a contract has been totally or partially performed, the exclusion of parol evidence

would promote fraud or bad faith, for it would enable the defendant to keep the benefits already delivered by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.[22]

In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the reacquisition of Lot No. 88, cannot apply, the oral compromise settlement having been partially performed. By reason of such assurance made in their favor, respondents relied on the same by not pursuing their appeal before the CA. Moreover, contrary to the claim of petitioners, the fact of Lozadas eventual conformity to the appraisal of Lot No. 88 and his seeking the correction of a clerical error in the judgment as to the true area of Lot No. 88 do not conclusively establish that respondents absolutely parted with their property. To our mind, these acts were simply meant to cooperate with the government, particularly because of the oral promise made to them. The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust constituted on the property held by the government in favor of the former. On this note, our ruling in Heirs of Timoteo Moreno is instructive, viz.:
Mactan-Cebu International Airport Authority is correct in stating that one would not find an express statement in the Decision in Civil Case No. R-1881 to the effect that the [condemned] lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport. This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial courts underlying presumption that Lahug Airport will continue to be in operation when it granted the complaint for eminent domain and the airport discontinued its activities. The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. In the case at bar, petitioners conveyed Lots No. 916 and 920 to the government with the

latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was authorized. Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: The only problem of great importance in the field of constructive trust is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant. Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of legal title may not in good conscience retain the beneficial interest. In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty is to transfer the title and possession over the property to the plaintiff-beneficiary. Of course, thewronged party seeking the aid of a court of equity in establishing a constructive trust must himself do equity. Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission. In the good judgment of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements thereon, and the monetary value of his services in managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts. The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil Code, When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x x.[23]

On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to respondents, the latter must return to the former what they received as just compensation for the expropriation of the property, plus legal

interest to be computed from default, which in this case runs from the time petitioners comply with their obligation to respondents. Respondents must likewise pay petitioners the necessary expenses they may have incurred in maintaining Lot No. 88, as well as the monetary value of their services in managing it to the extent that respondents were benefited thereby. Following Article 1187[24] of the Civil Code, petitioners may keep whatever income or fruits they may have obtained from Lot No. 88, and respondents need not account for the interests that the amounts they received as just compensation may have earned in the meantime. In accordance with Article 1190[25] of the Civil Code vis--vis Article 1189, which provides that (i)f a thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x, respondents, as creditors, do not have to pay, as part of the process of restitution, the appreciation in value of Lot No. 88, which is a natural consequence of nature and time. [26] WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of Appeals, affirming the October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February 7, 2007 Resolution are AFFIRMED with MODIFICATION as follows: 1. Respondents are ORDERED to return to petitioners the just compensation they received for the expropriation of Lot No. 88, plus legal interest, in the case of default, to be computed from the time petitioners comply with their obligation to reconvey Lot No. 88 to them; 2. Respondents are ORDERED to pay petitioners the necessary expenses the latter incurred in maintaining Lot No. 88, plus the monetary value of their services to the extent that respondents were benefited thereby; 3. Petitioners are ENTITLED to keep whatever fruits and income they may have obtained from Lot No. 88; and

4. Respondents are also ENTITLED to keep whatever interests the amounts they received as just compensation may have earned in the meantime, as well as the appreciation in value of Lot No. 88, which is a natural consequence of nature and time; In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch 57, Cebu City, only for the purpose of receiving evidence on the amounts that respondents will have to pay petitioners in accordance with this Courts decision. No costs. SO ORDERED.

ANTONIO EDUARDO B. NACHURA Associate Justice

WE CONCUR:

REYNATO S. PUNO Chief Justice

ANTONIO T. CARPIO Associate Justice

RENATO C. CORONA Associate Justice

CONCHITA CARPIO MORALES Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

ARTURO D. BRION Associate Justice

(on official leave) DIOSDADO M. PERALTA Associate Justice

LUCAS P. BERSAMIN Associate Justice

MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice

MARTIN S. VILLARAMA, JR. Associate Justice

JOSE PORTUGAL PEREZ Associate Justice

JOSE CATRAL MENDOZA Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I hereby certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO Chief Justice

On official leave. Penned by Associate Justice Enrico A. Lanzanas, with Associate Justices Pampio A. Abarintos and Apolinario D. Bruselas, Jr., concurring; rollo, pp. 46-65. [2] Rollo, pp. 67-68. [3] TSN, June 25, 1998, p. 7. [4] Rollo, pp. 20-21. [5] Id. at 22-23. [6] Records, p. 178. [7] 42 Phil. 28 (1921). [8] Id. at 29-30. [9] G.R. No. 156273, October 15, 2003, 413 SCRA 502. [10] Id. at 509-510. [11] Ruling on the Motion for Reconsideration affirming the Decision; Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport Authority, G.R. No. 156273, August 9, 2005, 466 SCRA 288, 305.
[1] [12] [13] [14] [15] [16]

132 Ind. 558, November 5, 1892. 121 U.S. 932, April 11, 1887. 57 Wash. 225, February 4, 1910. CONSTITUTION, Art. III, Sec. 9. Supra note 11, at 302; Vide Republic v. Lim, G.R. No. 161656, June 29, 2005, 462 SCRA 265.

[17] [18]

Vide the Separate Concurring Opinion of Associate Justice Presbitero J. Velasco, Jr. Petitioners witness Michael Bacarisas testified that three other lot owners entered into a written compromise agreement with the government but Lozada was not part of it. [19] Rollo, pp. 58-59. [20] G.R. No. 121506, October 30, 1996, 263 SCRA 736. [21] Caluag v. People, G.R. No. 171511, March 4, 2009, 580 SCRA 575, 583; Gregorio Araneta University Foundation v. Regional Trial Court of Kalookan City, Br. 120, G.R. No. 139672, March 4, 2009, 580 SCRA 532, 544; Heirs of Jose T. Calo v. Calo, G.R. No. 156101, February 10, 2009, 578 SCRA 226, 232. [22] Mactan-Cebu International Airport Authority v. Tudtud, G.R. No. 174012, November 14, 2008, 571 SCRA 165, 175. [23] Supra note 9, at 512-514. [24] Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. x x x. [25] Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article (Article 1189) shall be applied to the party who is bound to return.

[26]

Mactan-Cebu International Airport Authority v . Tudtud, supra note 22, at 177.