Republic of the PhilippinesSUPREME COURTBaguio CityFIRST DIVISIONG.R. No. 113412 April 17, 1996Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA,petitioner,vs.THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK,respondents.KAPUNAN,J.:pOn various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21%per annum. To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land, together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying the terms and conditions of the loan was executed between the parties. Pertinent portions of the said agreement are quoted below:SPECIAL CONDITIONSxxx xxx xxxThe loan shall be subject to interest at the rate of twenty one per cent (21%)per annum, payable semi-annually in arrears, the first interest payment to become due and payable six (6) months from date of initial release of the loan. The loan shall likewise be subject to the appropriate service charge and a penalty charge of three per cent (30%)per annumto be imposed on any amount remaining unpaid or not rendered when due.xxx xxx xxxIII. OTHER CONDITIONS(c) Interest and Charges(1) The Bank reserves the right to increase the interest ratewithin the limits allowed by lawat any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in theinterestrateagreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate.1Between 1981 and 1984, petitioners made several partial payments on the loan totaling. P7,735,004.66,2a substantial portion of which was applied to accrued interest.3On March 31, 1984, respondent bank, over petitioners' protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of 1984 to September, 1986.4Petitioner protested the increase in interest rates, to no avail. Before the loan was to mature in March, 1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer for a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of Makati, docketed as Civil Case No. 18872. In said petition, which was raffled to Branch 134 presided by Judge Ignacio Capulong, the spouses sought clarification as to whether or not the PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreement's escalation clause, and in relation to Central Bank Circular No. 905. As a preliminary measure, the lower court, on March 3, 1988, issued a writ of preliminary injunction enjoining the Philippine National Bank from enforcing an interest rate above the 21% stipulated in the credit agreement. By this time the spouses were already in default of their loan obligations.Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB countered by ordering the extrajudicial foreclosure of petitioner's mortgaged properties and scheduled an auction sale for March 14, 1989. Upon motion by petitioners, however, the lower court, on April 5, 1989, granted a supplemental writ of preliminary injunction, staying the public auction of the mortgaged property.On January 15, 1990, upon the posting of a counterbond by the PNB, the trial court dissolved the supplemental writ of preliminary injunction. Petitioners filed a motion for reconsideration. In the interim, respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to the scheduled date, however, petitioners tendered to respondent bank the amount of P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued interest calculated at the originally stipulated rate of 21%. The PNB refused to accept the payment.5As a result of PNB's refusal of the tender of payment, petitioners, on March 8, 1990, formally consigned the amount of P40,142,518.00 with the Regional Trial Court in Civil Case No. 90-663. They prayed therein for a writ of preliminary injunction with a temporary restraining order. The case was raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990, respondent bank sought the dismissal of the case.On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order granting the writ of preliminary injunction enjoining the foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990. On April 17, 1990 respondent bank filed a motion for reconsideration of the said order.On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66 presided by Judge Eriberto Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio Capulong.For Judge Ignacio's refusal to lift the writ of preliminary injunction issued March 30, 1990, respondent bank filed a petition forCertiorari, Prohibition andMandamuswith respondent Court of Appeals, assailing the following orders of the Regional Trial Court:1. Order dated March 30, 1990 of Judge Guadiz granting the writ of preliminary injunction restraining the foreclosure sale of Mavin Plaza set on March 12, 1990;2. Order of Judge Ignacio Capulong dated January 10, 1992 denying respondent bank's motion to lift the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No. 90-663;3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's subsequent motion to lift the writ of preliminary injunction; and4. Order of Judge Capulong dated October 20, 1992 denying respondent bank's motion for reconsideration.On August 27, 1993, respondent court rendered its decision setting aside the assailed orders and upholding respondent bank's right to foreclose the mortgaged property pursuant to Act 3135, as amended and P.D. 385. Petitioners' Motion for Reconsideration and Supplemental Motion for Reconsideration, dated September 15, 1993 and October 28, 1993, respectively, were denied by respondent court in its resolution dated January 10, 1994.Hence the instant petition.This appeal bycertiorarifrom the respondent court's decision dated August 27, 1993 raises two principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement; and 2) Whether or not respondent bank is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of P.D. 385.In its comment dated April 19, 1994, respondent bank vigorously denied that the increases in the interest rates were illegal, unilateral, excessive and arbitrary, it argues that the escalated rates of interest it imposed was based on the agreement of the parties. Respondent bank further contends that it had a right to foreclose the mortgaged property pursuant to P.D. 385, after petitioners were unable to pay their loan obligations to the bank based on the increased rates upon maturity in 1984.The instant petition is impressed with merit.The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality.6Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement.Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement because the same plainly uses the phrase "interest rateagreed upon," in reference to the original 21% interest rate. The interest provision states:(c) interest and Charges(1) The Bank reserves the right to increase the interest ratewithin the limits allowed by lawat any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in theinterest rate agreed uponshall take effect on the effectivity date of the increase or decrease of the maximum interest rate.InPhilippine National Bank v.Court of Appeals,7this Court disauthorized respondent bank from unilaterally raising the interest rate in the borrower's loan from 18% to 32%, 41% and 48% partly because the aforestated increases violated the principle of mutuality of contracts expressed in Article 1308 of the Civil Code. The Court held:CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates . . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law.but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months.Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code:Art. 308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.In order that obligations arising from contracts may have the force of law between the parties, there must bemutualitybetween the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or lease it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.PNB's successive increases of the interest rate on the private respondent's loan, over the latter's protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly stipulated in writing."The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%per annum, hence, he is not bound to pay a higher rate than that.That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the Court of Appeals, is indisputable.Clearly, the galloping increases in interest rate imposed by respondent bank on petitioners' loan, over the latter's vehement protests, were arbitrary.Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of 1982 did not authorize the bank, or any lending institution for that matter, to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. True, escalation clauses in credit agreements are perfectly valid and do not contravene public policy. Such clauses, however, (as are stipulations in other contracts) are nonetheless still subject to laws and provisions governing agreements between parties, which agreements while they may be the law between the contracting parties implicitly incorporate provisions of existing law. Consequently, while the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting respondent bankcarte blancheauthority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. This would not, obviously, be the effect of PNB's unilateral and lopsided policy regarding the interest rates of petitioners' borrowings in the instant case.Apart from violating the principle of mutuality of contracts, there is authority for disallowing the interest rates imposed by respondent bank, for the credit agreement specifically requires that the increase be "within the limits allowed by law". In the case ofPNB v.Court of Appeals, cited above, this Court clearly emphasized that C.B. Circular No. 905 could not be properly invoked to justify the escalation clauses of such contracts, not being a grant of specific authority.Furthermore, the escalation clause of the credit agreement requires that the same be made "within the limits allowed by law," obviously referring specifically to legislative enactments not administrative circulars. Note that the phrase "limits imposed by law," refers only to the escalation clause. However, the same agreement allows reduction on the basis of law or the Monetary Board. Had the parties intended the word "law" to refer to both legislative enactments and administrative circulars and issuances, the agreement would not have gone as far as making a distinction between "law or the Monetary Board Circulars" in referring to mutually agreed upon reductions in interest rates. This distinction was the subject of the Court's disquisition in the case ofBanco Filipino Savings and Mortgage Bank v.Navarro8where the Court held that:What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17%per annumunder the Escalation Clause. It is our considered opinion that it may not.The Escalation Clause reads as follows:I/We hereby authorize Banco Filipino tocorrespondingly increase.the interest rate stipulated in this contract without advance notice to me/us in the event.a lawincreasingthe lawful rates of interest that may be chargedon this particularkind of loan. (Paragraphing and emphasis supplied)It is clear from the stipulation between the parties that the interest rate may be increased "in the event alawshould be enacted increasing the lawful rate of interest that may be chargedon this particular kind of loan." The Escalation Clause was dependent on an increase of rate made by "law" alone.CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issuedis not strictly a statute or a law, it has, however, the force and effect of law." (Emphasis supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." "That administrative rules and regulations have the force of law can no longer be questioned."The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the latter to the BORROWER of Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event thatany law or Central Bank regulationis promulgated increasing the maximum rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law."The distinction is again recognized by P.D. No. 1684, promulgated on March 17, 1980, adding section 7-a to the Usury Law, providing that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board." To quote:Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interestis increased by law or by the Monetary Board:Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board;Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.' (Paragraphing and emphasis supplied).It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board."Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount equivalent to virtually half of the entire principal (P7,735,004.66)which was applied to interest alone. By the time the spouses tendered the amount of P40,142,518.00 in settlement of their obligations; respondent bank was demanding P58,377,487.00 over and above those amounts already previously paid by the spouses.Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds.9Here, as clearly demonstrated above, not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored.We go now to respondent bank's claim that the principal issue in the case at bench involves its right to foreclose petitioners' properties under P.D. 385. We find respondent's pretense untenable.Presidential Decree No. 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government's development projects all over the country by large borrowers who resort to litigation to prevent or delay the government's collection of their debts or loans.10In facilitating collection of debts through its automatic foreclosure provisions, the government is however, not exempted from observing basic principles of law, and ordinary fairness and decency under the due process clause of the Constitution.11In the first place, because of the dispute regarding the interest rate increases, an issue which was never settled on merit in the courts below, the exact amount of petitioner's obligations could not be determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination. InFilipinas Marble Corporation v.Intermediate Appellate Court,12involving P.D. 385's provisions on mandatory foreclosure, we held that:We cannot, at this point, conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. This matter should rightfully be litigated below in the main action. Pending the outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its employees and their families.Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits.InRepublic Planters Bank v.Court of Appeals13the Court reiterating thedictumin Filipinas Marble Corporation, held:The enforcement of P.D. 385 will sweep under the rug' this iceberg of a scandal in the sugar industry during the Marcos Martial Law years. This we can not allow to happen. For the benefit of future generations, all the dirty linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so that the same may NEVER be repeated.It is of paramount national interest, that we allow the trial court to proceed with dispatch to allow the parties below to present their evidence.Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance with the letter of the Credit Agreement, honestly believed to be the real amount of their remaining obligations with the respondent bank. The latter could not therefore claim that there was no honest-to-goodness attempt on the part of the spouse to settle their obligations. Respondent's rush to inequitably invoke the foreclosure provisions of P.D. 385 through its legal machinations in the courts below, in spite of the unsettled differences in interpretation of the credit agreement was obviously made in bad faith, to gain the upper hand over petitioners.In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing, we hold that the unilateral and progressive increases imposed by respondent PNB were null and void. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the borrowers. That these increases, occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be disputed.WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals dated August 27, 1993, as well as the resolution dated February 10, 1994 is hereby REVERSED AND SET ASIDE. The case is remanded to the Regional Trial Court of Makati for further proceedings.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. 133250 July 9, 2002FRANCISCO I. CHAVEZ,petitioner,vs.PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION,respondents.CARPIO,J.:This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin PEA from signing a new agreement with AMARI involving such reclamation.The FactsOn November 20, 1973, the government, through the Commissioner of Public Highways, signed a contract with the Construction and Development Corporation of the Philippines ("CDCP" for brevity) to reclaim certain foreshore and offshore areas of Manila Bay. The contract also included the construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works in consideration of fifty percent of the total reclaimed land.On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged areas," and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands."1On the same date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA the "lands reclaimed in the foreshore and offshore of the Manila Bay"2under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP).On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned by PEA." Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December 29, 1981, which stated:"(i) CDCP shall undertake all reclamation, construction, and such other works in the MCCRRP as may be agreed upon by the parties, to be paid according to progress of works on a unit price/lump sum basis for items of work to be agreed upon, subject to price escalation, retention and other terms and conditions provided for in Presidential Decree No. 1594. All the financing required for such works shall be provided by PEA.x x x(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and to all the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981 which have not yet been sold, transferred or otherwise disposed of by CDCP as of said date, which areas consist of approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square meters in the Financial Center Area covered by land pledge No. 5 and approximately Three Million Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at varying elevations above Mean Low Water Level located outside the Financial Center Area and the First Neighborhood Unit."3On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517, granting and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) containing a total area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square meters." Subsequently, on April 9, 1988, the Register of Deeds of the Municipality of Paraaque issued Transfer Certificates of Title Nos. 7309, 7311, and 7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom Islands" located at the southern portion of the Manila-Cavite Coastal Road, Paraaque City. The Freedom Islands have a total land area of One Million Five Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square meters or 157.841 hectares.On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI, a private corporation, to develop the Freedom Islands. The JVA also required the reclamation of an additional 250 hectares of submerged areas surrounding these islands to complete the configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA through negotiation without public bidding.4On April 28, 1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5On June 8, 1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres, approved the JVA.6On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in the Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate Committee on Government Corporations and Public Enterprises, and the Committee on Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate Committees reported the results of their investigation in Senate Committee Report No. 560 dated September 16, 1997.7Among the conclusions of their report are: (1) the reclaimed lands PEA seeks to transfer to AMARI under the JVA are lands of the public domain which the government has not classified as alienable lands and therefore PEA cannot alienate these lands; (2) the certificates of title covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order No. 365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of Senate Committee Report No. 560. The members of the Legal Task Force were the Secretary of Justice,8the Chief Presidential Legal Counsel,9and the Government Corporate Counsel.10The Legal Task Force upheld the legality of the JVA, contrary to the conclusions reached by the Senate Committees.11On April 4 and 5, 1998, thePhilippine Daily InquirerandTodaypublished reports that there were on-going renegotiations between PEA and AMARI under an order issued by then President Fidel V. Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the negotiating panel of PEA.On April 13, 1998, Antonio M. Zulueta filed before the Court aPetition for Prohibition with Application for the Issuance of a Temporary Restraining Order and Preliminary Injunctiondocketed as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the petition "for unwarranted disregard of judicial hierarchy, without prejudice to the refiling of the case before the proper court."12On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the instantPetition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction and Temporary Restraining Order. Petitioner contends the government stands to lose billions of pesos in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 Constitution on the right of the people to information on matters of public concern. Petitioner assails the sale to AMARI of lands of the public domain as a blatant violation of Section 3, Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the public domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss of billions of pesos in properties of the State that are of public dominion.After several motions for extension of time,13PEA and AMARI filed their Comments on October 19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI contract; (b) for issuance of a temporary restraining order; and (c) to set the case for hearing on oral argument. Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court denied in a Resolution dated June 22, 1999.In a Resolution dated March 23, 1999, the Court gave due course to the petition and required the parties to file their respective memoranda.On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the administration of then President Joseph E. Estrada approved the Amended JVA.Due to the approval of the Amended JVA by the Office of the President, petitioner now prays that on "constitutional and statutory grounds the renegotiated contract be declared null and void."14The IssuesThe issues raised by petitioner, PEA15and AMARI16are as follows:I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES;IV. WHETHER PETITIONER HASLOCUS STANDITO BRING THIS SUIT;V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL AGREEMENT;VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; ANDVII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT.The Court's RulingFirst issue: whether the principal reliefs prayed for in the petition are moot and academic because of subsequent events.The petition prays that PEA publicly disclose the "terms and conditions of the on-going negotiations for a new agreement." The petition also prays that the Court enjoin PEA from "privately entering into, perfecting and/or executing any new agreement with AMARI."PEA and AMARI claim the petition is now moot and academic because AMARI furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing the terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a public disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the signing of the Amended JVA is now moot because PEA and AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the Office of the President has approved the Amended JVA on May 28, 1999.Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-tracking the signing and approval of the Amended JVA before the Court could act on the issue. Presidential approval does not resolve the constitutional issue or remove it from the ambit of judicial review.We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the Amended JVA on constitutional grounds necessarily includes preventing its implementation if in the meantime PEA and AMARI have signed one in violation of the Constitution. Petitioner's principal basis in assailing the renegotiation of the JVA is its violation of Section 3, Article XII of the Constitution, which prohibits the government from alienating lands of the public domain to private corporations. If the Amended JVA indeed violates the Constitution, it is the duty of the Court to enjoin its implementation, and if already implemented, to annul the effects of such unconstitutional contract.The Amended JVA is not an ordinary commercial contract but one which seeks totransfer title and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay to a single private corporation. It now becomes more compelling for the Court to resolve the issue to insure the government itself does not violate a provision of the Constitution intended to safeguard the national patrimony. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution. In the instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent the transfer of title and ownership of alienable lands of the public domain in the name of AMARI. Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar, and the public.17Also, the instant petition is a case of first impression. All previous decisions of the Court involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973 Constitution,18coveredagricultural landssold to private corporations which acquired the lands from private parties. The transferors of the private corporations claimed or could claim the right tojudicial confirmation of their imperfect titles19underTitle IIof Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed lands and submerged areas fornon-agriculturalpurposes bypurchaseunder PD No. 1084 (charter of PEA) andTitle IIIof CA No. 141. Certain undertakings by AMARI under the Amended JVA constitute the consideration for the purchase. Neither AMARI nor PEA can claim judicial confirmation of their titles because the lands covered by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of imperfect title requires open, continuous, exclusive and notorious occupation of agricultural lands of the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the deadline for filing applications for judicial confirmation of imperfect title expired on December 31, 1987.20Lastly, there is a need to resolve immediately the constitutional issue raised in this petition because of the possible transfer at any time by PEA to AMARI of title and ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the latter's seventy percent proportionate share in the reclaimed areas as the reclamation progresses. The Amended JVA even allows AMARI to mortgage at any time theentirereclaimed area to raise financing for the reclamation project.21Second issue: whether the petition merits dismissal for failing to observe the principle governing the hierarchy of courts.PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the Court. The principle of hierarchy of courts applies generally to cases involving factual questions. As it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant case, however, raises constitutional issues of transcendental importance to the public.22The Court can resolve this case without determining any factual issue related to the case. Also, the instant case is a petition for mandamus which falls under the original jurisdiction of the Court under Section 5, Article VIII of the Constitution. We resolve to exercise primary jurisdiction over the instant case.Third issue: whether the petition merits dismissal for non-exhaustion of administrative remedies.PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly certain information without first asking PEA the needed information. PEA claims petitioner's direct resort to the Court violates the principle of exhaustion of administrative remedies. It also violates the rule that mandamus may issue only if there is no other plain, speedy and adequate remedy in the ordinary course of law.PEA distinguishes the instant case from Taada v. Tuvera23where the Court granted the petition for mandamus even if the petitioners there did not initially demand from the Office of the President the publication of the presidential decrees. PEA points out that in Taada, the Executive Department had anaffirmative statutoryduty under Article 2 of the Civil Code24and Section 1 of Commonwealth Act No. 63825to publish the presidential decrees. There was, therefore, no need for the petitioners in Taada to make an initial demand from the Office of the President. In the instant case, PEA claims it has no affirmative statutory duty to disclose publicly information about its renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of exhaustion of administrative remedies to the instant case in view of the failure of petitioner here to demand initially from PEA the needed information.The original JVA sought to dispose to AMARI public lands held by PEA, a government corporation. Under Section 79 of the Government Auditing Code,26the disposition of government lands to private parties requires public bidding.PEA was under a positive legal duty to disclose to the public the terms and conditions for the sale of its lands. The law obligated PEA to make this public disclosure even without demand from petitioner or from anyone. PEA failed to make this public disclosure because the original JVA, like the Amended JVA, was the result of anegotiated contract, not of a public bidding. Considering that PEA had an affirmative statutory duty to make the public disclosure, and was even in breach of this legal duty, petitioner had the right to seek direct judicial intervention.Moreover, and this alone is determinative of this issue, the principle of exhaustion of administrative remedies does not apply when the issue involved is a purely legal or constitutional question.27The principal issue in the instant case is the capacity of AMARI to acquire lands held by PEA in view of the constitutional ban prohibiting the alienation of lands of the public domain to private corporations. We rule that the principle of exhaustion of administrative remedies does not apply in the instant case.Fourth issue: whether petitioner has locus standi to bring this suitPEA argues that petitioner has no standing to institutemandamusproceedings to enforce his constitutional right to information without a showing that PEA refused to perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he will suffer any concrete injury because of the signing or implementation of the Amended JVA. Thus, there is no actual controversy requiring the exercise of the power of judicial review.The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel PEA to comply with its constitutional duties. There are two constitutional issues involved here. First is the right of citizens to information on matters of public concern. Second is the application of a constitutional provision intended to insure the equitable distribution of alienable lands of the public domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose publicly information on the sale of government lands worth billions of pesos, information which the Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation.Moreover, the petition raises matters of transcendental importance to the public. InChavez v. PCGG,28the Court upheld the right of a citizen to bring a taxpayer's suit on matters of transcendental importance to the public, thus -"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the Marcoses is an issue of 'transcendental importance to the public.' He asserts that ordinary taxpayers have a right to initiate and prosecute actions questioning the validity of acts or orders of government agencies or instrumentalities, if the issues raised are of 'paramount public interest,' and if they 'immediately affect the social, economic and moral well being of the people.'Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding involves the assertion of a public right, such as in this case. He invokes several decisions of this Court which have set aside the procedural matter oflocus standi, when the subject of the case involved public interest.x x xInTaada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the Court declared that the right they sought to be enforced 'is a public right recognized by no less than the fundamental law of the land.'Legaspi v. Civil Service Commission, while reiterating Taada, further declared that 'when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the right.'Further, inAlbano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and operation of the Manila International Container Terminal, 'public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved.' We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner's standing.Similarly, the instant petition is anchored on the right of the people to information and access to official records, documents and papers a right guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that the petition at bar should be allowed."We rule that since the instant petition, brought by a citizen, involves the enforcement of constitutional rights - to information and to the equitable diffusion of natural resources - matters of transcendental public importance, the petitioner has the requisitelocus standi.Fifth issue: whether the constitutional right to information includes official information on on-going negotiations before a final agreement.Section 7, Article III of the Constitution explains the people's right to information on matters of public concern in this manner:"Sec. 7. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law." (Emphasis supplied)The State policy of full transparency in all transactions involving public interest reinforces the people's right to information on matters of public concern. This State policy is expressed in Section 28, Article II of the Constitution, thus:"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and implements apolicy of full public disclosure of all its transactions involving public interest." (Emphasis supplied)These twin provisions of the Constitution seek to promote transparency in policy-making and in the operations of the government, as well as provide the people sufficient information to exercise effectively other constitutional rights. These twin provisions are essential to the exercise of freedom of expression. If the government does not disclose its official acts, transactions and decisions to citizens, whatever citizens say, even if expressed without any restraint, will be speculative and amount to nothing. These twin provisions are also essential to hold public officials "at all times x x x accountable to the people,"29for unless citizens have the proper information, they cannot hold public officials accountable for anything. Armed with the right information, citizens can participate in public discussions leading to the formulation of government policies and their effective implementation. An informed citizenry is essential to the existence and proper functioning of any democracy. As explained by the Court inValmonte v. Belmonte, Jr.30"An essential element of these freedoms is to keep open a continuing dialogue or process of communication between the government and the people. It is in the interest of the State that the channels for free political discussion be maintained to the end that the government may perceive and be responsive to the people's will. Yet, this open dialogue can be effective only to the extent that the citizenry is informed and thus able to formulate its will intelligently. Only when the participants in the discussion are aware of the issues and have access to information relating thereto can such bear fruit."PEA asserts, citingChavez v. PCGG,31that in cases of on-going negotiations the right to information is limited to "definite propositions of the government." PEA maintains the right does not include access to "intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the 'exploratory stage'."Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or before the closing of the transaction. To support its contention, AMARI cites the following discussion in the 1986 Constitutional Commission:"Mr. Suarez. And when we say 'transactions' which should be distinguished from contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does he refer to the contract itself?Mr. Ople:The 'transactions' used here, I suppose is generic and therefore, it can cover both steps leading to a contract and already a consummated contract, Mr. Presiding Officer.Mr. Suarez: This contemplates inclusion of negotiations leading to the consummation of the transaction.Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.Mr. Suarez:Thank you."32(Emphasis supplied)AMARI argues there must first be a consummated contract before petitioner can invoke the right. Requiring government officials to reveal their deliberations at the pre-decisional stage will degrade the quality of decision-making in government agencies. Government officials will hesitate to express their real sentiments during deliberations if there is immediate public dissemination of their discussions, putting them under all kinds of pressure before they decide.We must first distinguish between information the law on public bidding requires PEA to disclose publicly, and information the constitutional right to information requires PEA to release to the public. Before the consummation of the contract, PEA must, on its own and without demand from anyone, disclose to the public matters relating to the disposition of its property. These include the size, location, technical description and nature of the property being disposed of, the terms and conditions of the disposition, the parties qualified to bid, the minimum price and similar information. PEA must prepare all these data and disclose them to the public at the start of the disposition process, long before the consummation of the contract, because the Government Auditing Code requirespublic bidding. If PEA fails to make this disclosure, any citizen can demand from PEA this information at any time during the bidding process.Information, however, onon-going evaluation or reviewof bids or proposals being undertaken by the bidding or review committee is not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts, transactions, or decisions" on the bids or proposals. However, once the committee makes itsofficial recommendation, there arises a"definite proposition"on the part of the government. From this moment, the public's right to information attaches, and any citizen can access all the non-proprietary information leading to such definite proposition. InChavez v. PCGG,33the Court ruled as follows:"Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain todefinite propositions of the government, not necessarily to intra-agency or inter-agency recommendations or communications during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information." (Emphasis supplied)Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission understood that the right to information"contemplates inclusion of negotiations leading to the consummation of the transaction."Certainly, a consummated contract is not a requirement for the exercise of the right to information. Otherwise, the people can never exercise the right if no contract is consummated, and if one is consummated, it may be too late for the public to expose its defects.1wphi1.ntRequiring a consummated contract will keep the public in the dark until the contract, which may be grossly disadvantageous to the government or even illegal, becomes afait accompli. This negates the State policy of full transparency on matters of public concern, a situation which the framers of the Constitution could not have intended. Such a requirement will prevent the citizenry from participating in the public discussion of anyproposedcontract, effectively truncating a basic right enshrined in the Bill of Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by the State of its avowed "policy of full disclosure of all its transactions involving public interest."The right covers three categories of information which are "matters of public concern," namely: (1) official records; (2) documents and papers pertaining to official acts, transactions and decisions; and (3) government research data used in formulating policies. The first category refers to any document that is part of the public records in the custody of government agencies or officials. The second category refers to documents and papers recording, evidencing, establishing, confirming, supporting, justifying or explaining official acts, transactions or decisions of government agencies or officials. The third category refers to research data, whether raw, collated or processed, owned by the government and used in formulating government policies.The information that petitioner may access on the renegotiation of the JVA includes evaluation reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference and other documents attached to such reports or minutes, all relating to the JVA. However, the right to information does not compel PEA to prepare lists, abstracts, summaries and the like relating to the renegotiation of the JVA.34The right only affords access to records, documents and papers, which means the opportunity to inspect and copy them. One who exercises the right must copy the records, documents and papers at his expense. The exercise of the right is also subject to reasonable regulations to protect the integrity of the public records and to minimize disruption to government operations, like rules specifying when and how to conduct the inspection and copying.35The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.36The right does not also apply to information on military and diplomatic secrets, information affecting national security, and information on investigations of crimes by law enforcement agencies before the prosecution of the accused, which courts have long recognized as confidential.37The right may also be subject to other limitations that Congress may impose by law.There is no claim by PEA that the information demanded by petitioner is privileged information rooted in the separation of powers. The information does not cover Presidential conversations, correspondences, or discussions during closed-door Cabinet meetings which, like internal deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house of Congress,38are recognized as confidential. This kind of information cannot be pried open by a co-equal branch of government. A frank exchange of exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties, is essential to protect the independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial power.39This is not the situation in the instant case.We rule, therefore, that the constitutional right to information includes official information onon-going negotiationsbefore a final contract. The information, however, must constitute definite propositions by the government and should not cover recognized exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public order.40Congress has also prescribed other limitations on the right to information in several legislations.41Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands, reclaimed or to be reclaimed, violate the Constitution.The Regalian DoctrineThe ownership of lands reclaimed from foreshore and submerged areas is rooted in the Regalian doctrine which holds that the State owns all lands and waters of the public domain. Upon the Spanish conquest of the Philippines, ownership of all "lands, territories and possessions" in the Philippines passed to the Spanish Crown.42The King, as the sovereign ruler and representative of the people, acquired and owned all lands and territories in the Philippines except those he disposed of by grant or sale to private individuals.The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian doctrine is the foundation of the time-honored principle of land ownership that "all lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain."43Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian doctrine.Ownership and Disposition of Reclaimed LandsThe Spanish Law of Waters of 1866 was the first statutory law governing the ownership and disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission enacted Act No. 1654 which providedfor the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. Later, on November 29, 1919, the Philippine Legislature approved Act No. 2874, the Public Land Act, which authorizedthe lease, but not the sale, of reclaimed lands of the government to corporations and individuals. On November 7, 1936, the National Assembly passed Commonwealth Act No. 141, also known as the Public Land Act, whichauthorized the lease, but not the sale, of reclaimed lands of the government to corporations and individuals. CA No. 141 continues to this day as the general law governing the classification and disposition of lands of the public domain.The Spanish Law of Waters of 1866 and the Civil Code of 1889Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within the maritime zone of the Spanish territory belonged to the public domain for public use.44The Spanish Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which provided as follows:"Article 5. Lands reclaimed from the sea in consequence of works constructed by the State, or by the provinces, pueblos or private persons, with proper permission, shall become the property of the party constructing such works, unless otherwise provided by the terms of the grant of authority."Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party undertaking the reclamation, provided the government issued the necessary permit and did not reserve ownership of the reclaimed land to the State.Article 339 of the Civil Code of 1889 defined property of public dominion as follows:"Art. 339. Property of public dominion is 1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;2. That belonging exclusively to the State which, without being of general public use, is employed in some public service, or in the development of the national wealth, such as walls, fortresses, and other works for the defense of the territory, and mines, until granted to private individuals."Property devoted to public use referred to property open for use by the public. In contrast, property devoted to public service referred to property used for some specific public service and open only to those authorized to use the property.Property of public dominion referred not only to property devoted to public use, but also to property not so used but employedto develop the national wealth. This class of property constituted property of public dominion although employed for some economic or commercial activity to increase the national wealth.Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion into private property, to wit:"Art. 341. Property of public dominion, when no longer devoted to public use or to the defense of the territory, shall become a part of the private property of the State."This provision, however, was not self-executing. The legislature, or the executive department pursuant to law, must declare the property no longer needed for public use or territorial defense before the government could lease or alienate the property to private parties.45Act No. 1654 of the Philippine CommissionOn May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of reclaimed and foreshore lands. The salient provisions of this law were as follows:"Section 1. Thecontrol and disposition of the foreshoreas defined in existing law, and thetitle to all Government or public lands made or reclaimed by the Government by dredging or fillingor otherwise throughout the Philippine Islands,shall be retained by the Governmentwithout prejudice to vested rights and without prejudice to rights conceded to the City of Manila in the Luneta Extension.Section 2. (a) The Secretary of the Interior shall cause all Government or public lands made or reclaimed by the Government by dredging or filling or otherwise to be divided into lots or blocks, with the necessary streets and alleyways located thereon, and shall cause plats and plans of such surveys to be prepared and filed with the Bureau of Lands.(b) Upon completion of such plats and plans theGovernor-General shall give notice to the public that such parts of the lands so made or reclaimed as are not needed for public purposes will be leased for commercial and business purposes, x x x.x x x(e)The leases above provided for shall be disposed of to the highest and best biddertherefore, subject to such regulations and safeguards as the Governor-General may by executive order prescribe." (Emphasis supplied)Act No. 1654 mandated that thegovernment should retain title to all lands reclaimed by the government. The Act also vested in the government control and disposition of foreshore lands. Private parties could lease lands reclaimed by the government only if these lands were no longer needed for public purpose. Act No. 1654 mandatedpublic biddingin the lease of government reclaimed lands. Act No. 1654 made government reclaimed landssui generisin that unlike other public lands which the government could sell to private parties, these reclaimed lands were available only for lease to private parties.Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No. 1654 did not prohibit private parties from reclaiming parts of the sea under Section 5 of the Spanish Law of Waters. Lands reclaimed from the sea by private parties with government permission remained private lands.Act No. 2874 of the Philippine LegislatureOn November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land Act.46The salient provisions of Act No. 2874, on reclaimed lands, were as follows:"Sec. 6.The Governor-General, upon the recommendation of the Secretary of Agriculture and Natural Resources, shall from time to time classify the lands of the public domain into(a)Alienable or disposable,(b) Timber, and(c) Mineral lands, x x x.Sec. 7. For the purposes of the government and disposition of alienable or disposable public lands,the Governor-General, upon recommendation by the Secretary of Agriculture and Natural Resources, shall from time to time declare what lands are open to disposition or concession under this Act."Sec. 8.Only those lands shall be declared open to disposition or concession which have been officially delimited or classifiedx x x.x x xSec. 55. Any tract of land of the public domain which, being neither timber nor mineral land, shall be classified assuitable for residential purposes or for commercial, industrial, or other productive purposes other than agricultural purposes, and shall be open to disposition or concession, shall be disposed of under the provisions of this chapter, and not otherwise.Sec. 56.The lands disposable under this title shall be classified as follows:(a) Lands reclaimed by the Government by dredging, filling, or other means;(b) Foreshore;(c) Marshy landsor lands covered with water bordering upon the shores or banks of navigable lakes or rivers;(d) Lands not included in any of the foregoing classes.x x x.Sec. 58.The lands comprised in classes (a), (b), and (c) of section fifty-six shall be disposed of to private parties by lease only and not otherwise, as soon asthe Governor-General, upon recommendation by the Secretary of Agriculture and Natural Resources, shall declare that the same are not necessary for the public service and are open to dispositionunder this chapter.The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied)Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public domain into x x x alienable or disposable"47lands. Section 7 of the Act empowered the Governor-General to "declare what lands are open to disposition or concession." Section 8 of the Act limited alienable or disposable lands only to those lands which have been "officially delimited and classified."Section 56 of Act No. 2874 stated that lands "disposable under this title48shall be classified" as government reclaimed, foreshore and marshy lands, as well as other lands. All these lands, however, must be suitable for residential, commercial, industrial or other productivenon-agriculturalpurposes. These provisions vested upon the Governor-General the power to classify inalienable lands of the public domain into disposable lands of the public domain. These provisions also empowered the Governor-General to classify further such disposable lands of the public domain into government reclaimed, foreshore or marshy lands of the public domain, as well as other non-agricultural lands.Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain classified as government reclaimed, foreshore and marshy lands"shall be disposed of to private parties by lease only and not otherwise."The Governor-General, before allowing the lease of these lands to private parties, must formally declare that the lands were "not necessary for the public service." Act No. 2874 reiterated the State policy to lease and not to sell government reclaimed, foreshore and marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands remainedsui generis, as the only alienable or disposable lands of the public domain that the government could not sell to private parties.The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy public lands for non-agricultural purposes retain their inherent potential as areas for public service. This is the reason the government prohibited the sale, and only allowed the lease, of these lands to private parties. The State always reserved these lands for some future public service.Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and marshy lands into other non-agricultural lands under Section 56 (d). Lands falling under Section 56 (d) were the only lands for non-agricultural purposes the government could sell to private parties. Thus, under Act No. 2874, the government could not sell government reclaimed, foreshore and marshy lands to private parties, unless the legislature passed a law allowing their sale.49Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with government permission remained private lands.Dispositions under the 1935 ConstitutionOn May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people. The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that "Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution.Natural resources, with the exception of public agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and limit of the grant." (Emphasis supplied)The 1935 Constitution barred the alienation of all natural resources except public agricultural lands, which were the only natural resources the State could alienate. Thus, foreshore lands, considered part of the State's natural resources, became inalienable by constitutional fiat, available only for lease for 25 years, renewable for another 25 years. The government could alienate foreshore lands only after these lands were reclaimed and classified as alienable agricultural lands of the public domain. Government reclaimed and marshy lands of the public domain, being neither timber nor mineral lands, fell under the classification of public agricultural lands.50However, government reclaimed and marshy lands, although subject to classification as disposable public agricultural lands, could only be leased and not sold to private parties because of Act No. 2874.The prohibition on private parties from acquiring ownership of government reclaimed and marshy lands of the public domain was only a statutory prohibition and the legislature could therefore remove such prohibition. The 1935 Constitution did not prohibit individuals and corporations from acquiring government reclaimed and marshy lands of the public domain that were classified as agricultural lands under existing public land laws. Section 2, Article XIII of the 1935 Constitution provided as follows:"Section 2.No private corporation or association may acquire, lease, or hold public agricultural lands in excess of one thousand and twenty four hectares, nor may any individual acquire such lands by purchase in excess of one hundred and forty hectares, or by lease in excess of one thousand and twenty-four hectares, or by homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding two thousand hectares, may be leased to an individual, private corporation, or association." (Emphasis supplied)Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act No. 2874 to open for sale to private parties government reclaimed and marshy lands of the public domain. On the contrary, the legislature continued the long established State policy of retaining for the government title and ownership of government reclaimed and marshy lands of the public domain.Commonwealth Act No. 141 of the Philippine National AssemblyOn November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also known as the Public Land Act, which compiled the then existing laws on lands of the public domain. CA No. 141, as amended, remains to this day theexisting general lawgoverning the classification and disposition of lands of the public domain other than timber and mineral lands.51Section 6 of CA No. 141 empowers the President to classify lands of the public domain into "alienable or disposable"52lands of the public domain, which prior to such classification are inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President to "declare what lands are open to disposition or concession." Section 8 of CA No. 141 states that the government can declare open for disposition or concession only lands that are "officially delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as follows:"Sec. 6.The President, upon the recommendation of the Secretary of Agriculture and Commerce, shall from time to time classify the lands of the public domain into(a) Alienable or disposable,(b) Timber, and(c) Mineral lands,and may at any time and in like manner transfer such lands from one class to another,53for the purpose of their administration and disposition.Sec. 7. For the purposes of the administration and disposition of alienable or disposable public lands,the President, upon recommendation by the Secretary of Agriculture and Commerce, shall from time to time declare what lands are open to disposition or concessionunder this Act.Sec. 8.Only those lands shall be declared open to disposition or concession which have been officially delimited and classifiedand, when practicable, surveyed,and which have not been reserved for public or quasi-public uses, nor appropriated by the Government, nor in any manner become private property, nor those on which a private right authorized and recognized by this Act or any other valid law may be claimed, or which, having been reserved or appropriated, have ceased to be so. x x x."Thus, before the government could alienate or dispose of lands of the public domain, the President must first officially classify these lands as alienable or disposable, and then declare them open to disposition or concession. There must be no law reserving these lands for public or quasi-public uses.The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public domain, are as follows:"Sec. 58.Any tract of land of the public domain which, being neither timber nor mineral land, is intended to be used for residential purposes or for commercial, industrial, or other productive purposes other than agricultural, and is open to disposition or concession, shall be disposed of under the provisions of this chapter and not otherwise.Sec. 59.The lands disposable under this title shall be classified as follows:(a) Lands reclaimed by the Government by dredging, filling, or other means;(b) Foreshore;(c) Marshy landsor lands covered with water bordering upon the shores or banks of navigable lakes or rivers;(d) Lands not included in any of the foregoing classes.Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case may be, to any person, corporation, or association authorized to purchase or lease public lands for agricultural purposes. x x x.Sec. 61.The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be disposed of to private parties by lease only and not otherwise, as soon asthe President, upon recommendation by the Secretary of Agriculture,shall declare that the same are not necessary for the public serviceand are open to disposition under this chapter.The lands included in class (d) may be disposed of by sale or lease under the provisions of this Act." (Emphasis supplied)Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable lands of the public domain. All these lands are intended for residential, commercial, industrial or other non-agricultural purposes. As before, Section 61 allowed only the lease of such lands to private parties. The government could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or those lands for non-agricultural purposes not classified as government reclaimed, foreshore and marshy disposable lands of the public domain. Foreshore lands, however, became inalienable under the 1935 Constitution which only allowed the lease of these lands to qualified private parties.Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended for residential, commercial, industrial or other productive purposes other than agricultural "shall be disposed of under the provisions of this chapter and not otherwise." Under Section 10 of CA No. 141, the term "disposition" includes lease of the land. Any disposition of government reclaimed, foreshore and marshy disposable lands for non-agricultural purposes must comply with Chapter IX, Title III of CA No. 141,54unless a subsequent law amended or repealed these provisions.In his concurring opinion in the landmark case ofRepublic Real Estate Corporation v. Court of Appeals,55Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:"Foreshore lands are lands of public dominion intended for public use. So too are lands reclaimed by the government by dredging, filling, or other means. Act 1654 mandated that the control and disposition of the foreshore and lands under water remained in the national government. Said law allowed only the 'leasing' of reclaimed land. The Public Land Acts of 1919 and 1936 also declared that the foreshore and lands reclaimed by the government were to be "disposed of to private parties by lease only and not otherwise." Before leasing, however, the Governor-General, upon recommendation of the Secretary of Agriculture and Natural Resources, had first to determine that the land reclaimed was not necessary for the public service. This requisite must have been met before the land could be disposed of.But even then, the foreshore and lands under water were not to be alienated and sold to private parties. The disposition of the reclaimed land was only by lease. The land remained property of the State." (Emphasis supplied)As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has remained in effect at present."The State policy prohibiting the sale to private parties of government reclaimed, foreshore and marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore lands, however, became a constitutional edict under the 1935 Constitution. Foreshore lands became inalienable as natural resources of the State, unless reclaimed by the government and classified as agricultural lands of the public domain, in which case they would fall under the classification of government reclaimed lands.After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands of the public domain continued to be only leased and not sold to private parties.56These lands remainedsui generis, as the only alienable or disposable lands of the public domain the government could not sell to private parties.Since then and until now, the only way the government can sell to private parties government reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural purposes that the government could sell to private parties.Moreover, Section 60 of CA No. 141expresslyrequires congressional authority before lands under Section 59 that the government previously transferred to government units or entities could be sold to private parties. Section 60 of CA No. 141 declares that "Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the Secretary of Agriculture and Natural Resources, be reasonably necessary for the purposes for which such sale or lease is requested, and shall not exceed one hundred and forty-four hectares: Provided, however, That this limitation shall not apply to grants, donations, or transfers made to a province, municipality or branch or subdivision of the Government for the purposes deemed by said entities conducive to the public interest;but the land so granted, donated, or transferred to a province, municipality or branch or subdivision of the Government shall not be alienated, encumbered, or otherwise disposed of in a manner affecting its title, except when authorized by Congress: x x x." (Emphasis supplied)The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority required in Section 56 of Act No. 2874.One reason for the congressional authority is that Section 60 of CA No. 141 exempted government units and entities from the maximum area of public lands that could be acquired from the State. These government units and entities should not just turn around and sell these lands to private parties in violation of constitutional or statutory limitations. Otherwise, the transfer of lands for non-agricultural purposes to government units and entities could be used to circumvent constitutional limitations on ownership of alienable or disposable lands of the public domain. In the same manner, such transfers could also be used to evade the statutory prohibition in CA No. 141 on the sale of government reclaimed and marshy lands of the public domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a lien on these lands.57In case ofsale or leaseof disposable lands of the public domain falling under Section 59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide as follows:"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for public purposes, the Director of Lands shall ask the Secretary of Agriculture and Commerce (now the Secretary of Natural Resources) for authority to dispose of the same. Upon receipt of such authority, the Director of Lands shall give notice by public advertisement in the same manner as in the case of leases or sales of agricultural public land, x x x.Sec. 67.The lease or sale shall be made by oral bidding; and adjudication shall be made to the highest bidder. x x x." (Emphasis supplied)Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of alienable or disposable lands of the public domain.58Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the sea with government permission. However, thereclaimed land could become private land only if classified as alienable agricultural land of the public domainopen to disposition under CA No. 141. The 1935 Constitution prohibited the alienation of all natural resources except public agricultural lands.The Civil Code of 1950The Civil Code of 1950 readopted substantially the definition of property of public dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that "Art. 420. The following things are property of public dominion:(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.x x x.Art. 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State."Again, the government must formally declare that the property of public dominion is no longer needed for public use or public service, before the same could be classified as patrimonial property of the State.59In the case of government reclaimed and marshy lands of the public domain, the declaration of their being disposable, as well as the manner of their disposition, is governed by the applicable provisions of CA No. 141.Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those properties of the State which, without being for public use, are intended for public service or the "development of the national wealth." Thus, government reclaimed and marshy lands of the State, even if not employed for public use or public service, if developed to enhance the national wealth, are classified as property of public dominion.Dispositions under the 1973 ConstitutionThe 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that "Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to the State.With the exception of agricultural, industrial or commercial, residential, and resettlement lands of the public domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, development, exploitation, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for not more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases, beneficial use may be the measure and the limit of the grant." (Emphasis supplied)The 1973 Constitution prohibited the alienation of all natural resources with the exception of "agricultural, industrial or commercial, residential, and resettlement lands of the public domain." In contrast, the 1935 Constitution barred the alienation of all natural resources except "public agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution encompassed industrial, commercial, residential and resettlement lands of the publi