For July 31 Proj Dev Lecture

8/9/2019 For July 31 Proj Dev Lecture

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General Concept of Project FinanceAn OverviewA.I. Background

Project Financing Defined1.

Read: Nevitt, Peter K., Project Financing (7th ed), pp. 1-27 (Handout No.1)

Typical Structures and Trends2.

Read: The Guide to Financing Power Projects, Baker & Mckenzie, pp.1-20

B. Philippine Laws Governing Project Deve lopment and Finance in Gene ral

1987 Philippine Constitution1.

Read: Article I I, secs. 19-20[1]

Presidential Decree No. 715

Read: Commonwealth Act No. 108

2. Anti-Dummy Law Issues

PBC v. Lui She, 21 SCRA 52 (1967).

Soriano v. Ong Hoo, et al., 103 Phil. 829 (1958).

Halili v. CA, 287 SCRA 465 (1998).

Read: Palacios vs. Ramirez, L-27952, Feb. 15, 1982

Read: Article XII, secs. 2, 3, 5, 7, 10, 16

Manila Prince Hotel vs. GSIS, et al., G.R. 122156, February 3,1997.

Chavez vs. NHA, G.R. No. 164527, August 15, 2007.

La Bugal Blaan Tribal Association, et al. vs. Ramos, WMC, et al.,G.R. 127882, (final decision after motion for reconsideration),December 2004.

Read: Chavez vs. Public Estates Authority and Amari Coastal BayDevelopment Authority, G.R. 133250, July 9, 2002.

Corporation Code of the Philippines3.

Read: Sections 2-6, 10-15, 17(2), 23, 24, 25, 140

Republic Act No. 6957 (An Act Authorizing the Financing, Construction,Operation and Maintenance of Infrastructure Projects by the PrivateSector, and for Other Purposes) and Implementing Rules and Regulations(IRR) of R.A. 6957, as amended.

4.

MMDA vs. Jancom, G.R. No. 147465, Jan. 30, 2002. (OriginalDecision)

Chavez vs. NHA, G.R. No. 164527, August 15, 2007.

MMDA vs. Jancom, supra (Resolution on Motion forReconsideration)

Read: Tatad vs. Garcia, Jr., 243 SCRA 436-493 (1995).

Proj Dev Notes for July 31Thursday, July 01, 2004

12:04 AM

For July 31 Lecture Page 1
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Republic Act No. 7718, amending R.A. No. 69575.

Comparative Analysis (Handout No. 3)

Read: Sec. 2 (Defini tions) and corresponding provisions of IRR

6. Forei gn Investments Act of 1991

a. What is a Philippine national?

b. Doing Business in the Phili ppines

B. Van Zuiden Bros. vs. GTVL Manufacturing, G.R. No.147905. May 28, 2007.

Agilent Technologies Singapore vs. Integrated TechnologyPhil. Corp., G.R. No. 154618. April 14, 2004.

Hahn vs. Court of Appeals, G.R. No. 113074. January 22,1997.

[1] These sections are flagship provisions for the Philippine economy recognizing the role of private initiative andenterprise in a self-reliant and independent national economy effectively controlled by Filipinos .

http://onenote/#Republic%20Act%20No.%207718,%20amending%20R.A&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={F6341D5A-E548-4885-8962-2167695BAC3B}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#B.%20Van%20Zuiden%20Bros.%20vs.%20GTVL%20Manufacturing&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={1EC5FDC4-6A03-433A-AEAA-65E592314455}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#B.%20Van%20Zuiden%20Bros.%20vs.%20GTVL%20Manufacturing&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={1EC5FDC4-6A03-433A-AEAA-65E592314455}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Agilent%20Technologies%20Singapore%20vs.%20Integrated%20Technology%20Phil&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={C518BAA2-2E9E-49F5-ACC3-D94555DD8DA4}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Agilent%20Technologies%20Singapore%20vs.%20Integrated%20Technology%20Phil&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={C518BAA2-2E9E-49F5-ACC3-D94555DD8DA4}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Hahn%20vs.%20Court%20of%20Appeals,%20G.R&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={219319E3-F0C0-4973-9FED-99C48869D38A}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Hahn%20vs.%20Court%20of%20Appeals,%20G.R&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={219319E3-F0C0-4973-9FED-99C48869D38A}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://c/Documents%20and%20Settings/Charisse%20Mae%20Mendoza/My%20Documents/5y,%201s/ProjDev/ProjDEVCourse%20Outline.doc#_ftnref1http://c/Documents%20and%20Settings/Charisse%20Mae%20Mendoza/My%20Documents/5y,%201s/ProjDev/ProjDEVCourse%20Outline.doc#_ftnref1http://onenote/#Hahn%20vs.%20Court%20of%20Appeals,%20G.R&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={219319E3-F0C0-4973-9FED-99C48869D38A}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Hahn%20vs.%20Court%20of%20Appeals,%20G.R&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={219319E3-F0C0-4973-9FED-99C48869D38A}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Agilent%20Technologies%20Singapore%20vs.%20Integrated%20Technology%20Phil&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={C518BAA2-2E9E-49F5-ACC3-D94555DD8DA4}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Agilent%20Technologies%20Singapore%20vs.%20Integrated%20Technology%20Phil&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={C518BAA2-2E9E-49F5-ACC3-D94555DD8DA4}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#B.%20Van%20Zuiden%20Bros.%20vs.%20GTVL%20Manufacturing&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={1EC5FDC4-6A03-433A-AEAA-65E592314455}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#B.%20Van%20Zuiden%20Bros.%20vs.%20GTVL%20Manufacturing&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={1EC5FDC4-6A03-433A-AEAA-65E592314455}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.onehttp://onenote/#Republic%20Act%20No.%207718,%20amending%20R.A&section-id={FEE21E51-2D57-4F8C-ABB6-9BF3FBAD114C}&page-id={F6341D5A-E548-4885-8962-2167695BAC3B}&end&base-path=FRANKIE\5y1s%20for%20real\ProjDev%20Notes.one


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State PoliciesSection 19. The State shall develop a self-reliant and independent national economy effectivelycontrolled by Filipinos.

Section 20. The State recognizes the indispensable role of the private sector, encourages privateenterprise, and provides incentives to needed investments.

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COMMONWEALTH ACT No. 108AN ACT TO PUNISH ACTS OF EVASION OF THE LAWS ON THE NATIONALIZATION OFCERTAIN RIGHTS, FRANCHISES OR PRIVILEGES

Be it enacted by the National Assembly of the PhilippinesSection 1. Penalty In all cases in which any constitutional or legal provisions requires Philippineor any other specific citizenship as a requisite for the exercise or enjoyment of a right, franchise orprivilege, any citizen of the Philippines or of any other specific country who allows his name orcitizenship to be used for the purpose of evading such provision, and any alien or foreigner profitingthereby, shall be punished by imprisonment for not less than five nor more than fifteen years, and bya fine of not less than the value of the right franchise or privilege, which is enjoyed or acquired inviolation of the provisions hereof but in no case less than five thousand pesos.The fact that the citizen of the Philippines or of any specific country charged with a violation of thisAct had, at the time of the acquisition of his holdings in the corporations or associations referred to insection two of this Act, no real or personal property, credit or other assets the value of which shall atleast be equivalent to said holdings, shall be evidence of a violation of this Act.1

Section 2. Simulation of minimum capital stock In all cases in which a constitutional or legalprovision requires that, in order that a corporation or association may exercise or enjoy a right,franchise or privilege, not less than a certain per centum of its capital must be owned by citizens ofthe Philippines or of any other specific country, it shall be unlawful to falsely simulate the existenceof such minimum stock or capital as owned by such citizens, for the purpose of evading saidprovision. The president or managers and directors or trustees of corporations or associationsconvicted of a violation of this section shall be punished by imprisonment of not less than five normore than fifteen years, and by a fine not less than the value of the right, franchise or privilege,enjoyed or acquired in violation of the provisions hereof but in no case less than five thousandpesos.2

Section 2-A. Unlawful use, Exploitation or enjoyment Any person, corporation, or associationwhich, having in its name or under its control, a right, franchise, privilege, property or business, theexercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens ofthe Philippines or of any other specific country, or to corporations or associations at least sixty percentum of the capital of which is owned by such citizens, permits or allows the use, exploitation or

enjoyment thereof by a person, corporation or association not possessing the requisites prescribedby a the Constitution or the laws of the Philippines; or leases, or in any other way, transfers orconveys said right, franchise, privilege, property or business to a person, corporation or associationnot otherwise qualified under the Constitution, or the provisions of the existing laws; or in anymanner permits or allows any person, not possessing the qualifications required by the Constitution,or existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business, theexercise and enjoyment of which are expressly reserved by the Constitution or existing laws tocitizens of the Philippines or of any other specific country, to intervene in the management,operation, administration or control thereof, whether as an officer, employee or laborer therein withor without remuneration except technical personnel whose employment may be specificallyauthorized by the Secretary of Justice, and any person who knowingly aids, assists or abets in theplanning consummation or perpetration of any of the acts herein above enumerated shall bepunished by imprisonment for not less than five nor more than fifteen years and by a fine of not less

than the value of the right, franchise or privilege enjoyed or acquired in violation of the provisionshereof but in no case less than five thousand pesos: Provided, however, That the president,managers or persons in charge of corporations, associations or partnerships violating the provisionsof this section shall be criminally liable in lieu thereof: Provided, further, That any person, corporationor association shall, in addition to the penalty imposed herein, forfeit such right, franchise, privilege,and the property or business enjoyed or acquired in violation of the provisions of this Act: Andprovided, finally, That the election of aliens as members of the board of directors or governing bodyof corporations or associations engaging in partially nationalized activities shall be allowed inproportion to their allowable participation or share in the capital of such entities.3

Section 2-B. Any violation of the provisions of this Act by the spouse of any public official, if both livetogether, shall be cause for the dismissal of such public official. 4itc@l awphilSection 2-C. The exercise, possession or control by a Filipino citizen having a common-lawrelationship with an alien of a right, privilege, property or business, the exercise or enjoyment of

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which is expressly reserved by the Constitution or the laws to citizens of the Philippines, shallconstitute a prima facie evidence of violation of the provisions of Section 2-A hereof.5

Section 3. Any corporation or association violating any of the provisions of this Act shall, uponproper court proceedings, be dissolved.Section 3-A. Reward to informer. In case of conviction under the provisions of this Act, twenty-five per centum of any fine imposed shall accrue to the benefit of the informer who furnishes to theGovernment original information leading to said conviction and who shall be ascertained and namedin the judgment of the court. If the informer is a dummy, who shall voluntarily take the initiative ofreporting to the proper authorities any violation of the provisions of this Act and assist in theprosecution, resulting in the conviction of any person or corporation profiting thereby or involvedtherein, he shall be entitled to the reward hereof in the sum equivalent to twenty-five per centum ofthe fine actually paid to or received by the Government, and shall be exempted from the penalliabilities provided for in this Act. 6Section 4. This Act shall take effect upon its approval.i tc -alf

Approved, October 30, 1936.

Footnotes*As amended by RA 421, RA 134, RA 6084, and PD 715.1Words in bold in the text above are amendments introduced by RA 134, section 1, approved June14, 1947.Statutory History of section 1:

Original text SEC. 1. In all cases in which any constitutional or legal provision requires Philippine or [UnitedStates] citizenship as requisite for the exercise or enjoyment of a right, franchise or privilege, anycitizen of the Philippines or [the United States] who allows his name or citizenship to be used for thepurpose of evading such provision, and any alien or foreigner profiting thereby, shall be punished byimprisonment for not less than [two] nor more than [ten] years, and by, fine of not less than [twothousand nor more than ten thousand pesos.]The fact that the citizen of the Philippines or of [the United States] charged with, violation of this Acthad, at the time of acquisition of his holdings in the corporations or association referred to in sectiontwo of this Act, no real or personal property, credit or other assets the value of which shall at least beequivalent to said holdings, shall be admissible as circumstantial evidence of, violation of this act.(Ed. Note: Words in brackets were deleted in RA 134, supra)2Words in bold in the text above are amendments introduced by RA 134, section 1, approved June14, 1947.Statutory History of section2:Original textSEC. 2. In all cases in which a constitutional or legal provisions requires that, in order that acorporation or association may exercise or enjoy a right, franchise or privilege, not less than acertain per centum of its capital must be owned by citizens of the Philippines or [the United States,or both.] It shall be unlawful to falsely simulate the existence of such minimum of stock or capital asowned by such citizens of the Philippines [or the United States or both,] for the purpose of evadingsaid provision. The president or managers and directors or trustees of corporations or associationsconvicted of a violation of this section shall be punished by imprisonment [for] not less than [two] normore than [ten] years, and by a fine of not less than [two thousand nor more than ten thousandpesos.] (Ed. Note: Words in brackets were deleted in RA 134, supra.)3Words in bold in the text above are amendments introduced by PD 715, section 1, promulgated May28, 1975.

Statutory History of section2-A:a) Original text (inserted by CA 421)SEC. 2-A. Any person, corporation or association which, having in its name or under its control, aright, franchise, privilege, property or business, the exercise or enjoyment of which is expresslyreserved by the constitution or the laws [of the Philippines] to citizens of the Philippines or of [theUnited States,] or to corporations or associations at least sixty per centum of the capital of which isowned by such citizens, permits or allows the use, exploitation or enjoyment thereof by a person,corporation or association not possessing the requisites prescribed by the Constitution or the laws ofthe Philippines; or leases, or in any other way transfers or conveys said right, franchise, privilege,property or business to a person, corporation or association not otherwise qualified under theConstitution, or the provisions of the existing [Acts,] any person who knowingly aids, assists, orabets in the planning, consummation or perpetuation of any of the acts herein above enumerated,



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shall be punished by imprisonment for not less than [two] nor more than [ten] years, and by a fine ofnot less than [two thousand nor more than ten thousand pesos:] Provided, however, That presidents,managers, or persons in charge of corporations, associations or partnerships violating the provisionsof this section shall be criminally liable in lieu thereof. (Ed, Note: Words in brackets were deleted inRA 134, infra.)b) Words in bold in the next immediately following are amendments introduced by RA 134, section 2,approved June 14, 1947.SEC. 2-A. Any person, corporation, or association which, having in its name or under its control, aright franchise, privilege, property or business, the exercise or enjoyment of which is expresslyreserved by the Constitution or the laws to citizens of the Philippines or of any other specific country,or to corporations or associations at least sixty per centum of the capital of which is owned by suchcitizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporation orassociation not possessing the requisites prescribed by the Constitution or the laws of thePhilippines; or leases, or in any other way transfers or conveys said right, franchise, privilege,property or business to a person, corporation or association not otherwise qualified under theconstitution, or the provisions of the existing laws; or in any manner permits or allows any person,not possessing the qualifications required by the Constitution or existing laws to acquire, use, exploitor enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which areexpressly reserved by the constitution or existing laws to citizens of the Philippines or of any otherspecific country, to intervene in the management, operation, administration or control thereof,whether as an officer, employee or laborer therein, with or without remuneration except technicalpersonnel whose employment may be specifically authorized by the [President of the Philippinesupon recommendation of the Department Head concerned, if any,] and any person who knowingly

aids, assists or abets in the planning, consummation or perpetration of any of the acts hereinaboveenumerated shall be punished by imprisonment for not less than five nor more than fifteen years andby a fine of not less than the value of the right, franchise, or privilege enjoyed or acquired in violationof the provisions hereof but in no case less than five thousand pesos: Provided, however, That thepresident, managers, or persons in charge of corporations, associations, or partnerships violatingthe provisions of this section shall be criminally liable in Lieu thereof: Provided further, That anyperson, corporation or association shall, in addition to the penalty imposed herein, forfeit such right,franchise, privilege, and the property or business enjoyed or acquired in violation of the provisions ofthis Act. (Ed. Note: Words in brackets were deleted in PD 715, supra.)4Inserted by CA 421, section 1, approved May 31, 1939.5Inserted by RA 6084, section 1, approved August 4, 1969.6. Inserted by RA 134, section 3, approved June 14, 1947.

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PRESIDENTIAL DECREE No. 715 May 28, 1975AMENDING COMMONWEALTH ACT NO. 108, AS AMENDED, OTHERWISE KNOWN AS "THEANTI-DUMM Y LAW"

WHEREAS, there have been conflicting interpretations as to whether Section 2-A of CommonwealthAct No. 108, as amended, otherwise known as the Anti-Dummy Law, allows aliens to becomemembers of the board of directors or governing body of corporations or associations engaging inpartially nationalized activities;WHEREAS, it is fair and equitable and in line with the constitutional policy expressed in Article XIV,Section 5 of the Constitution, that foreign investors be allowed limited representation in thegoverning board or body of corporations or associations in proportion to their allowable participationin the equity of the said entities;NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of thepowers vested in me by the Constitution, do hereby order and decree:Section 1. Section 2-A of Commonwealth Act No. 108, as amended, is hereby further amended toread as follows:"Section 2-A. Any person, corporation, or association, which, having in its name or under its control,a right, franchise, privilege, property or business, the exercise or enjoyment of which is expresslyreserved by the Constitution or the laws to citizens of the Philippines or of any other specific country,or to corporations or associations at least sixty per centum of the capital of which is owned by suchcitizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporation orassociation not possessing the requisites prescribed by the Constitution or the laws of thePhilippines; or leases, or in any other way, transfers or conveys said right, franchise, privilege,property or business to a person, corporation or association not otherwise qualified under theConstitution, or the provisions of the existing laws; or in any manner permits or allows any person,not possessing the qualifications required by the Constitution, or existing laws to acquire, use,exploit or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment ofwhich are expressly reserved by the Constitution or existing laws to citizens of the Philippines or ofany other specific country, to intervene in the management, operation, administration or controlthereof, whether as an officer, employee or laborer therein with or without remuneration excepttechnical personnel whose employment may be specifically authorized by the Secretary of Justice,

and any person who knowingly aids, assists, or abets in the planning, consummation or perpetrationof any of the acts herein above enumerated shall be punished by imprisonment for not less than fivenor more than fifteen years and by a fine of not less than the value of the right, franchise or privilegeenjoyed or acquired in violation of the provisions hereof but in no case less than five thousandpesos: Provided, however, that the president, managers or persons in violating the provisions of thissection shall be criminally liable in lieu thereof: Provided, further, That any person, corporation orassociation shall, in addition to the penalty imposed herein, forfeit such right, franchise, privilege andthe property provisions of this Act; and Provided, finally, That the election of aliens as members ofthe board of directors or governing body of corporations or associations engaging in partiallynationalized activities shall be allowed in proportion to their allowable participation or share in thecapital of such entities.Section 2. This Decree shall take effect immediately.DONE in the City of Manila, this 28th day of May, in the year of Our Lord, nineteen hundred and

seventy-five.

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RAMIREZ V VDA. DE RAMIREZABAD-SANTOS; February 15, 1982

FACTS

- APPEAL for the partitioning of testate es tate of Jos e Eugenio Ramirez (a Fi lipino national, died in Spain on December 11, 1964) among principal beneficiaries:Marcell e Demoron de Ramirez- widow- French who lives in Paris- receiv ed (as spouse) and usufructuary rights over 1/3 of the free portionRoberto and Jorge Ramirez- two grandnephews- lives in Malate- receiv ed the (free portion)Wanda de Wrobleski- companion- Austrian who liv es in Spain- receiv ed usufructuary rights of 2/3 of the free portion- v ulgar substitution in favor of Juan Pablo Jankowski and Horacio Ramirez- Maria Luisa Palacios - administratix- Jorge and Roberto Ramirez opposed becausea. v ulgar substitution in favor of Wanda wrt widows usufruct and in favor of Juan Pablo Jankowski and Horacio Ramirez, wrt to Wandas usufruc t is INVALID

because first heirs (Marcelle and Wanda) survived the testatorb. fideicommissary substitutions are INVALID because first heirs not related to the second heirs or substitutes within the first degree as provided in Art 863 CCc. grant of usufruct of real property in fav or of an alien, Wanda, v iolated Art XIII Sec 5d. proposed partition of the testators in terest in the Santa Cruz Building between widow and appellants violates testators express will to give this property tothem- LC: approved partition

ISSUEWON the partition is v alid insofar asa. w idows legitimeb. substitutionsc. usufruct of Wanda

HELD

a. YES, appellants do not question because Marcelle is the widow[1]

and over which he could impose no burden, encumbrance, condition or s ubstitution of

any kind whatsoever[2]

- the proposed creation by the adminins tratix in fav or of the testators w idow of a usufruct over 1/3 of the free portion of the testators estate cannot be madew here it w ill run counter to the testators ex press will. The Court erred for Marcelle who is entitled to of the estate enpleno dominio as her legitime and whichis more than what she is giv en under the will is not entitled to hav e any additional share in the estate. To give Marcelle more than her legitime wi ll run counter tothe testators intention for as s tated above his dispos ition even impaired her legitime and tended to fav or Wanda.b. Vulgar substitutions are v alid because dying before the testator is not the only case where a vulgar substitution can be made. Also, according to Art 859 CC,cases also include refusal or incapacity to accept inheritance therefore it is VALID.BUT fideicommissary substitutions are VOID because Juan Pablo Jankowski and Horace Ramirez are not related to Wande and according to Art 863 CC, itv alidates a fideicommissary substitution provided that such substitutiondoes not go beyond one degree from the heir originally instituted. Another is that thereis no absolute duty imposed on Wanda to transmit the usufructuary to the substitutes and in fact the apellee agrees that the testator contradicts the establishmentof the fideicommissary substitution when he permits the properties be subject to usufruct to be sold upon mutual agreement ofthe usufructuaries and nakedowners.c. YES, usufruct of Wanda is VALID

- Art XIII[3]

Sec 5 (1935): Sav e in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to indiv iduals, corporations,

or assoc iations qualified to acquire or hold land of the public domain in the Philippines.[4]

The low er court upheld the usufruct thinking that the Constitution covers not only succession by operation of law but also testamentary succession BUT SC is ofthe opinion that this prov ision does not apply to testamentary succession for otherwis e the prohibition will be for naught and meaningless. Any alien would

circumv ent the prohibition by paying money to a Philippine landowner in exchange for a dev ise of a piece of land BUT an alienmay be bestowedUSUFRUCTUARY RIGHTS over a parcel of land in the Philippines. Therefore, the usufruct in fav or of Wanda, although a real right, is upheld because it does notv est title to the land in the usufructuary (Wanda) and it is the vest ing of t itle to land in favor of aliens which is proscribed by the Constitution.Decision: Marcelle (as legitime), Jorge and Roberto Ramirez (free portion) in naked ownership and the usufruct to Wanda de Wrobleski with simplesubs titution in favor of Juan Pablo Jankowski and Horace Ramirez

[1]Art 900 CC: If the only survivor is the widow or widower, she or he shall be entitled to of the hereditary estate[2]Art 904 (2) CC[3]Art XIII (1935): Conservation and Utilization of Natural Resources[4]Art XII Sec 7 (1987): Save in cases of hereditary succession, no private [removed agricultural] lands shall be transferred or conveyed [1935: assigned] except t o individuals, co rporations, or associations qu alified toacquire or hold lands of the public domain [removed in the Philippines].

G.R. No. L-27952 February 15, 1982TESTATE ESTATE OF JOSE EUGENIO RAMIREZ, MARIA LUISA PALACIOS,

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Administratrix, petitioner-appellee,vs.MARCELLE D. VDA. DE RAMIREZ, ET AL., oppositors, JORGE and ROBERTORAMIREZ, legatees, oppositors- appellants.

ABAD SANTOS, J.:The main issue in this appeal is the manner of partitioning the testate estate of Jose EugenioRamirez among the principal beneficiaries, namely: his widow Marcelle Demoron de Ramirez; histwo grandnephews Roberto and Jorge Ramirez; and his companion Wanda de Wrobleski.The task is not trouble-free because the widow Marcelle is a French who lives in Paris, while thecompanion Wanda is an Austrian who lives in Spain. Moreover, the testator provided forsubstitutions.Jose Eugenio Ramirez, a Filipino national, died in Spain on December 11, 1964, with only his widowas compulsory heir. His will was admitted to probate by the Court of First Instance of Manila, BranchX, on July 27, 1965. Maria Luisa Palacios was appointed administratrix of the estate. In due time shesubmitted an inventory of the estate as follows:INVENTARIOUna sexta parte (1/6) proindiviso de un terreno, con sus mejoras y edificaciones, situadoenla Escolta, Manila............................................................. P500,000.00Una sexta parte (1/6) proindiviso de dosparcelas de terreno situadas en Antipolo, Rizal................... 658.34Cuatrocientos noventa y uno (491) acciones

de la 'Central Azucarera de la Carlota a P17.00por accion ................................................................................8,347.00Diez mil ochocientos seize (10,806) accionesde la 'Central Luzon Milling Co.', disuelta y enliquidacion a P0.15 por accion ..............................................1,620.90Cuenta de Ahorros en el Philippine TrustCo.............................................................................................. 2,350.73TOTAL.............................................................. P512,976.97MENOS:Deuda al Banco de las Islas Filipinas, garan-tizada con prenda de las acciones de La Carlota ......... P 5,000,00VALOR LIQUIDO........................................... P507,976.97The testamentary dispositions are as follows:

A.En nuda propiedad, a D. Roberto y D. Jorge Ramirez, ambas menores de edad, residentes enManila, I.F., calle 'Alright, No. 1818, Malate, hijos de su sobrino D. Jose Ma. Ramirez, consustitucion vulgar a favor de sus respectivos descendientes, y, en su defecto, con sustitucion vulgarreciprocal entre ambos.El precedente legado en nuda propiedad de la participacion indivisa de la finca Santa Cruz Building,lo ordena el testador a favor de los legatarios nombrados, en atencion a que dicha propiedad fuecreacion del querido padre del otorgante y por ser aquellos continuadores del apellido Ramirez,B.Y en usufructo a saber: a. En cuanto a una tercera parte, a favor de la esposa del testador, Da. Marcelle Ramirez,domiciliada en IE PECO, calle del General Gallieni No. 33, Seine Francia, con sustitucion vulgar ufideicomisaria a favor de Da. Wanda de Wrobleski, de Palma de Mallorca, Son Rapina Avenida delos Reyes 13,b.Y en cuanto a las dos terceras partes restantes, a favor de la nombrada Da. Wanda de

Nrobleski con sustitucion vulgar v fideicomisaria a saber:En cuanto a la mitad de dichas dos terceras partes, a favor de D. Juan Pablo Jankowski, de SonRapina Palma de Mallorca; y encuanto a la mitad restante, a favor de su sobrino, D. Horace V.Ramirez, San Luis Building, Florida St. Ermita, Manila, I.F.A pesar de las sustituciones fideiconiisarias precedentemente ordinadas, las usufiructuariasnombradas conjuntamente con los nudo propietar ios, podran en cualquier memento vender atercero los bienes objeto delegado, sin intervencion alguna de los titulares fideicomisaarios.On June 23, 1966, the administratrix submitted a project of partition as follows: the property of thedeceased is to be divided into two parts. One part shall go to the widow 'en pleno dominio" insatisfaction of her legitime; the other part or "free portion" shall go to Jorge and Roberto Ramirez "ennuda propriedad." Furthermore, one third (1/3) of the free portion is charged with the widow'susufruct and the remaining two-thirds (2/3) with a usufruct in favor of Wanda.Jorge and Roberto opposed the project of partition on the grounds: (a) that the provisions for vulgar



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substitution in favor of Wanda de Wrobleski with respect to the widow's usufruct and in favor of JuanPablo Jankowski and Horacio V. Ramirez, with respect to Wanda's usufruct are invalid because thefirst heirs Marcelle and Wanda) survived the testator; (b) that the provisions for fideicommissarysubstitutions are also invalid because the first heirs are not related to the second heirs or substituteswithin the first degree, as provided in Article 863 of the Civil Code; (c) that the grant of a usufructover real property in the Philippines in favor of Wanda Wrobleski, who is an alien, violates Section 5,Article III of the Philippine Constitution; and that (d) the proposed partition of the testator's interest inthe Santa Cruz (Escolta) Building between the widow Marcelle and the appellants, violates thetestator's express win to give this property to them Nonetheless, the lower court approved the projectof partition in its order dated May 3, 1967. It is this order which Jorge and Roberto have appealed tothis Court.1. The widow's legitime.The appellant's do not question the legality of giving Marcelle one-half of the estate in full ownership.They admit that the testator's dispositions impaired his widow's legitime. Indeed, under Art. 900 ofthe Civil Code "If the only survivor is the widow or widower, she or he shall be entitled to one-half ofthe hereditary estate." And since Marcelle alone survived the deceased, she is entitled to one-half ofhis estate over which he could impose no burden, encumbrance, condition or substitution of any kindwhatsoever. (Art. 904, par. 2, Civil Code.)It is the one-third usufruct over the free portion which the appellants question and justifiably so. Itappears that the court a quoapproved the usufruct in favor of Marcelle because the testamentprovides for a usufruct in her favor of one-third of the estate. The court a quoerred for Marcelle whois entitled to one-half of the estate "en pleno dominio" as her legitime and which is more than whatshe is given under the will is not entitled to have any additional share in the estate. To give Marcelle

more than her legitime will run counter to the testator's intention for as stated above his dispositionseven impaired her legitime and tended to favor Wanda.2. The substitutions.It may be useful to recall that "Substitution is the appoint- judgment of another heir so that he mayenter into the inheritance in default of the heir originally instituted." (Art. 857, Civil Code. And thatthere are several kinds of substitutions, namely: simple or common, brief or compendious,reciprocal, and fideicommissary (Art. 858, Civil Code.) According to Tolentino, "Although the Codeenumerates four classes, there are really only two principal classes of substitutions: the simpleandthe fideicommissary. The others are merely variations of these two." (111 Civil Code, p. 185 [1973].)The simple or vulgar is that provided in Art. 859 of the Civil Code which reads:ART. 859. The testator may designate one or more persons to substitute the heir or heirs institutedin case such heir or heirs should die before him, or should not wish, or should be incapacitated toaccept the inheritance.

A simple substitution, without a statement of the cases to which it refers, shall comprise the threementioned in the preceding paragraph, unless the testator has otherwise provided.The fideicommissary substitution is described in the Civil Code as follows:ART. 863. A fideicommissary substitution by virtue of which the fiduciary or first heir instituted isentrusted with the obligation to preserve and to transmit to a second heir the whole or part ofinheritance, shall be valid and shall take effect, provided such substitution does not go beyond onedegree from the heir originally instituted, and provided further that the fiduciary or first heir and thesecond heir are living at time of the death of the testator.It will be noted that the testator provided for a vulgar substitution in respect of the legacies ofRoberto and Jorge Ramirez, the appellants, thus: con sustitucion vulgar a favor de sus respectivosdescendientes, y, en su defecto, con substitution vulgar reciprocal entre ambos.The appellants do not question the legality of the substitution so provided. The appellants questionthe sustitucion vulgar y fideicomisaria a favor de Da. Wanda de Wrobleski" in connection with the

one-third usufruct over the estate given to the widow Marcelle However, this question has becomemoot because as We have ruled above, the widow is not entitled to any usufruct.The appellants also question the sustitucion vulgar y fideicomisaria in connection with Wanda'susufruct over two thirds of the estate in favor of Juan Pablo Jankowski and Horace v. Ramirez.They allege that the substitution in its vulgar aspect as void because Wanda survived the testator orstated differently because she did not predecease the testator. But dying before the testator is notthe only case for vulgar substitution for it also includes refusal or incapacity to accept the inheritanceas provided in Art. 859 of the Civil Code, supra. Hence, the vulgar substitution is valid.As regards the substitution in its fideicommissary aspect, the appellants are correct in their claim thatit is void for the following reasons:(a) The substitutes (Juan Pablo Jankowski and Horace V. Ramirez) are not related to Wanda, theheir originally instituted. Art. 863 of the Civil Code validates a fideicommissary substitution "providedsuch substitution does not go beyond one degree from the heir originally instituted."



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What is meant by "one degree" from the first heir is explained by Tolentino as follows:Scaevola Maura, and Traviesas construe "degree" as designation, substitution, or transmission. TheSupreme Court of Spain has decidedly adopted this construction. From this point of view, there canbe only one tranmission or substitution, and the substitute need not be related to the first heir.Manresa, Morell and Sanchez Roman, however, construe the word "degree" as generation, and thepresent Code has obviously followed this interpretation. by providing that the substitution shall not gobeyond one degree "from the heir originally instituted." The Code thus clearly indicates that thesecond heir must be related to and be one generation from the first heir.From this, it follows that the fideicommissary can only be either a child or a parent of the first heir.These are the only relatives who are one generation or degree from the fiduciary (Op. cit., pp.193-194.)(b) There is no absolute duty imposed on Wanda to transmit the usufruct to the substitutes asrequired by Arts. 865 and 867 of the Civil Code. In fact, the appellee admits "that the testatorcontradicts the establishment of a fideicommissary substitution when he permits the propertiessubject of the usufruct to be sold upon mutual agreement of the usufructuaries and the nakedowners." (Brief, p. 26.)3. The usufruct of Wanda.The appellants claim that the usufruct over real properties of the estate in favor of Wanda is voidbecause it violates the constitutional prohibition against the acquisition of lands by aliens.The 1935 Constitution which is controlling provides as follows:SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred orassigned except to individuals, corporations, or associations qualified to acquire or hold lands of thepublic domain in the Philippines. (Art. XIII.)

The court a quoupheld the validity of the usufruct given to Wanda on the ground that theConstitution covers not only succession by operation of law but also testamentary succession. Weare of the opinion that the Constitutional provision which enables aliens to acquire private lands doesnot extend to testamentary succession for otherwise the prohibition will be for naught andmeaningless. Any alien would be able to circumvent the prohibition by paying money to a Philippinelandowner in exchange for a devise of a piece of land.This opinion notwithstanding, We uphold the usufruct in favor of Wanda because a usufruct, albeit areal right, does not vest title to the land in the usufructuary and it is the vesting of title to land in favorof aliens which is proscr ibed by the Constitution.IN VIEW OF THE FOREGOING, the estate of Jose Eugenio Ramirez is hereby ordered distributedas follows:One-half (1/2) thereof to his widow as her legitime;One-half (1/2) thereof which is the free portion to Roberto and Jorge Ramirez in naked ownership

and the usufruct to Wanda de Wrobleski with a simple substitution in favor of Juan Pablo Jankowskiand Horace V. Ramirez.The distribution herein ordered supersedes that of the court a quo. No special pronouncement as tocosts.SO ORDERED.Barredo (Chairman), Concepcion, Jr., De Castro, Ericta and Escolin, JJ., concur.Aquino J., took no part.

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G.R. No. L-17587 December 18, 1967PHILIPPINE BANKING CORPORATION, repre senting the estate of JUSTINIA SANTOS YCANON FAUSTINO, deceased, plaintiff-appellant,

vs.LUI SHE, in her own behalf and as administratrix of the intestate estate of Wong Heng,deceased,defendant-appellant.Nicanor S. Sison for plaintiff-appellant.Ozaeta, Gibbs and Ozaeta for defendant-appellant.R E S O L U T I O NCASTRO, J.:This is the second motion that the defendant-appellant has filed relative to this Court's decision ofSeptember 12, 1967. The first was a motion for reconsideration. Accepting the nullity of the othercontracts (Plff Exhs. 4-7), the defendant-appellant nevertheless contended that the lease contract(Plff Exh. 3) is so separable from the rest of the contracts that it should be saved from invalidation. lawphilIn denying the motion, we pointed to the circumstances that on November 15, 1957, the parties entered into the lease contract for 50 years: that ten daysafter, that is on November 25, they amended the contract so as to make it cover the entire propertyof Justina Santos; that on December 21, less than a month after, they entered into another contractgiving Wong Heng the option to buy the leased premises should his pending petition fornaturalization be granted; that on November 18, 1958, after failing to secure naturalization and afterfinding that adoption does not confer the citizenship of the adopting parent on the adopted, theparties entered into two other contracts extending the lease to 99 years and fixing the period of theoption to buy at 50 years.which indubitably demonstrate that each of the contracts in question was designed to carry outJustina Santos' expressed wish to give the land to Wong and thereby in effect place its ownership inalien hands,1 about which we shall have something more to say toward the end of this resolution. Weconcluded that "as the lease contract was part of a scheme to violate the Constitution it suffers fromthe same infirmity that renders the other contracts void and can no more be saved from illegalitythan the rest of the contracts."The present motion is for a new trial and is based on three documents executed by Justina Santos

which, so it is claimed, constitute newly-discovered material evidence. These documents are acodicil dated November 11, 1957 and two wills executed on August 24 and August 29, 1959. In thecodicil Justina Santos not only named Tita Yaptinchay LaO the administratrix of her estate with theright to buy the properties of the estate, but also provided that if the said LaO was legally disqualifiedfrom buying (as she really was under article 1491 (3) of the Civil Code), she was to be her sole heir.In either case, the codicil imposed on the administratrix the obligation to have masses said for thesoul of the testatrix and those of the latter's sister and parent. On the other hand, in both her 1959wills Justina Santos enjoined her heirs to respect the lease contract made, and the conditional optiongiven, in favor of Wong.These documents form part of the records of civil case 59470 of the Court of First Instance of Manilain which the settlement of the estate of Justina Santos is pending, and so it is now claimed that theycould not have been produced at the trial of this case which was concluded on August 6, 1960because they were presented in the probate court only after the death of Justina Santos on

December 28, 1964.i tc -alf

This is a misrepresentation of the grossest sort. The documents were known to the defendant-appellant and her counsel even before the death of Justina Santos. As a matter of fact, the willsexecuted on August 24 and August 29, 1959 were presented in this case as Exhibits 285 and 279,respectively, for the defendant-appellant, and were considered and expressly referred to in thedecision of the lower court and in our decision. i tc -alf As for the codicil of November 11, 1957, thedefendant-appellant can hardly feign ignorance of its essence even when this case was being triedin the lower court considering that its provisions were substantially adverted to in the testimony ofone of her witnesses2 and were in fact recited in the decision a own a quo.3 By no means can thedocuments in question be considered newly-discovered evidence so as to warrant a reopening ofthis case.4

Nor is there anything in the documents that is likely to alter the result we have already reached inthis case. With respect to the 1957 codicil, it is claimed that Justina Santos could not have intended

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al. vs. The Court of Appeals,4 G.R. No. L-11024, Jan. 31, 1958.) This is evident from the provisionsof the law, such as the prohibition against sale of the homestead within a period of five years fromand after the date of the issuance of the patent or grant, and after five years and before 25 yearsafter issuance of title without the consent of the Secretary of Agriculture and Natural Resources (C.A. No. 141, section 118), and the permission granted the homesteader or his legal heirs torepurchase the land within five years from the date of the conveyance (Id., Sec. 119). In the case ofthe constitutional prohibition, the law is silent; it merely prohibits acquisition of land by foreigners.The prohibition stops there; as to the effects or results of a violation of the prohibition, both withrespect to the citizen selling his land and the alien purchasing or acquiring the same, theConstitution is silent. If the citizen voluntarily disposes of his property, it would seem too much toexpect that the law should order the return of the property to him. In the United States where aprohibition similar to our, constitutional prohibition exists, it has been held that the vendor has norecourse against the vendee despite the alien's disability to hold the property, and that it is only theState that is entitled by proceedings in the nature of office foundto have a forfeiture or escheatdeclared against the vendee who is incapable of holding title. (Vasquez vs. Li Seng Giap, etal.,5 G.R. No. L-3676, January 31, 1955.) As the Constitution is silent as to the effects orconsequences of a sale by a citizen of his land to an alien, and as both the citizen and the alien haveviolated the law, none of them should have a recourse against, the other, and it should only be theState that should be allowed to intervene and determine what is to be done with the property subjectof the violation. We have said that what the State should do or could do in such matters is a matterof public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, etal.,6 G.R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policyshould be followed in cages of violations against, the constitutional prohibition, courts of justice

cannot go beyond by declaring the disposition to be null and void as violative of the Constitution.We, therefore, feel We are not in a position to concede the remedy prayed for, for which reason thejudgment dismissing the action should be, as it hereby is, affirmed, with costs against the plaintiffs.Paras, Bengzon, Montemayor, Bautista Angelo, Endencia and Felix, JJ., concur.Separate OpinionsREYES, J.B.L., J., dissenting:While the opinion of Justice Labrador is fully supported by authority, I believe the time is ripe for arevision of the position of the Court in cases of alien land tenures.For thirteen years since liberation, the Legislature has failed to enact a statute for the escheat ofagricultural lands acquired by aliens in violation of the Constitution. Between this apparentreluctance of the legislative branch to implement the prohibition embodied in section 5 of Art. XIII ofour fundamental charter, and the strict application by the courts of the pari delictorule, the result hasbeen that aliens continue to hold and enjoy lands admittedly acquired contrary to constitutional

prohibitions, just as if the inhibition did not exist.In view of the prolonged legislative inaction, it is up to the courts to vindicate the Constitution bydeclaring the pari delictorule not applicable to these Transactions. After all, the rule is but aninstrument of the public policy, and its application is justified only in so far as it enforces that policy.Therefore, where its continued application to a given set of cases leads to results plainly contrary tothe wording and spirit of the Constitution, there is every reason to discard it. Otherwise, the expressrule against alien land tenures will speedily become the object of mockery and derision.It may be that Filipinos who parted with their lands in favor of aliens morally do not deserveprotection; but they are in no worse case than the alien purchasers, and moreover the Constitution isclearly in their favor.I submit that it is more important that the constitutional inhibition be enforced than to wait for anotherbranch of the government to take the initiative.Concepcion, J., concurs.

Footnotes1 97 Phil., 412 94 Phil., 405.3 95 Phil., 887.4 102 Phil., 1006.5 96 Phil., 447, 51 Off. Gaz., [2], 717.6 99 Phil., 427, 52 Off. Gaz, [7], 3566.

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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 113539 March 12, 1998CELSO R. HALILI and ARTHUR R. HALILI, petitioners,vs.COURT OF APPEALS, HELEN M EYERS GUZMAN, DAVID REY GUZMAN andEMILIANO CATANIAG,respondents.

PANGANIBAN, J.:The factual findings of a trial court, when affirmed by the Court of Appeals, may nolonger be reviewed and reversed by this Court in a petition for review under Rule 45 ofthe Rules of Court. The transfer of an interest in a piece of land to an alien may no longerbe assailed on constitutional grounds after the entire parcel has been sold to a qualified

citizen.The CaseThese familiar and long-settled doctrines are applied by this Court in denying this petitionunder Rule 45 to set aside the Decision 1 of the Court of Appeals 2 in CA-GR CV No.37829 promulgated on September 14, 1993, the dispositive portion of which states: 3

WHEREFORE, and upon all the foregoing, the Decision of the court below dated March10, 1992 dismissing the complaint for lack of merit is AFFIRMED without pronouncementas to costs.The FactsThe factual antecedents, as narrated by Respondent Court, are not disputed by theparties. We reproduce them in part, as follows:Simeon de Guzman, an American citizen, died sometime in 1968, leaving real propertiesin the Philippines. His forced heirs were his widow, defendant appellee [herein private

respondent] Helen Meyers Guzman, and his son, defendant appellee [also herein privaterespondent] David Rey Guzman, both of whom are also American citizens. On August 9,1989, Helen executed a deed of quitclaim (Annex A-Complaint), assigning [,] transferringand conveying to David Rey all her rights, titles and interests in and over six parcels ofland which the two of them inherited from Simeon.Among the said parcels of land is that now in litigation, . . . situated in Bagbaguin, Sta.Maria, Bulacan, containing an area of 6,695 square meters, covered by TransferCertificate of Title No. T-170514 of the Registry of Deeds of Bulacan. The quitclaimhaving been registered, TCT No. T-170514 was cancelled and TCT No. T-120259 wasissued in the name of appellee David Rey Guzman.On February 5, 1991, David Rey Guzman sold said parcel of land to defendant-appellee [alsoherein private respondent] Emiliano Cataniag, upon which TCT No. T-120259 was cancelledand TCT No. T-130721(M) was issued in the latter's name. 4

Petitioners, who are owners of the adjoining lot, filed a complaint before the RegionalTrial Court of Malolos, Bulacan, questioning the constitutionality and validity of the twoconveyances between Helen Guzman and David Rey Guzman, and between thelatter and Emiliano Cataniag and claiming ownership thereto based on their right oflegal redemption under Art. 1621 5 of the Civil Code.In its decision 6 dated March 10, 1992, 7 the trial court dismissed the complaint. It ruledthat Helen Guzman's waiver of her inheritance in favor of her son was not contrary to theconstitutional prohibition against the sale of land to an alien, since the purpose of thewaiver was simply authorize David Rey Guzman to dispose of their properties inaccordance with the Constitution and the laws of the Philippines, and not to subvertthem. On the second issue, it held that the subject land was urban; hence, petitionershad no reason to invoke their right of redemption under Art. 1621 of the Civil Code.The Halilis sought a reversal from the Court of Appeals which, however, denied their

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appeal. Respondent Court affirmed the factual finding of the trial court that the subjectland was urban. Citing Tejido vs. Zamacoma, 8 andYap vs. Grageda, 9 it further held that,although the transfer of the land to David Rey may have been invalid for being contraryto the Constitution, there was no more point in allowing herein petitioners to recover theproperty, since it has passed on to and was thus already owned by a qualified person.Hence, this petition. 10

IssuesThe petition submits the following assignment of errors:. . . the Honorable Court of Appeals 1. Erred in affirming the conclusion of the trial court that the land in question is urban, notrural2. Erred in denying petitioners' right of redemption under Art. 1621 of the Civil Code3. Having considered the conveyance from Helen Meyers Guzman to her son David ReyGuzman illegal, erred in not declaring the same null and void[.] 11

The Court's RulingThe petition has no merit.First Issue: The Land Is Urban;Thus, No Right of RedemptionThe first two errors assigned by petitioners being interrelated the determination of thefirst being a prerequisite to the resolution of the second shall be discussed togetherSubject Land Is UrbanWhether the land in dispute is rural or urban is a factual question which, as a rule, is notreviewable by this Court.12 Basic and long-settled is the doctrine that findings of fact of atrial judge, when affirmed by the Court of Appeals, are binding upon the Supreme Court.This admits of only a few exceptions, such as when the findings are grounded entirely onspeculation, surmises or conjectures; when an inference made by the appellate courtfrom its factual findings is manifestly mistaken, absurd or impossible; when there is graveabuse of discretion in the appreciation of facts; when the findings of the appellate courtgo beyond the issues of the case, run contrary to the admissions of the parties to thecase or fail to notice certain relevant facts which, if properly considered, will justify adifferent conclusion; when there is a misappreciation of facts; when the findings of factare conclusions without mention of the specific evidence on which they are based, arepremised on the absence of evidence or are contradicted by evidence on record. 13

The instant case does not fall within any of the aforecited exceptions. In fact, theconclusion of the trial court that the subject property is urban land is based on clearand convincing evidence, as shown in its decision which disposed thus:. . . As observed by the court, almost all the roadsides along the national ghighway [sic] ofBagbaguin, Sta. Maria, Bulacan, are lined up with residential, commercial or industrialestablishments. Lined up along the Bagbaguin Road are factories of feeds, woodcrafts [ sic]and garments, commercial stores for tires, upholstery materials, feeds supply and spareparts. Located therein likewise were the Pepsi-Cola Warehouse, the Cruz Hospital, threegasoline stations, apartment buildings for commercial purposes and construction firms. Thereis no doubt, therefore, that the community is a commercial area thriving in business activities.Only a short portion of said road [is] vacant. It is to be noted that in the Tax Declaration in thename of Helen Meyers Guzman[,] the subject land is termed agricultural[,] while in the letteraddressed to defendant Emiliano Cataniag, dated October 3, 1991, the Land RegulatoryBoard attested that the subject property is commercial and the trend of development alongthe road is commercial. The Board's classification is based on the present condition of theproperty and the community thereat. Said classification is far more later [ sic] than the tax

declaration.14

No Ground to InvokeRight of RedemptionIn view of the finding that the subject land is urban in character, petitioners have indeedno right to invoke Art. 1621 of the Civil Code, which presupposes that the land sought tobe redeemed is rural. The provision is clearly worded and admits of no ambiguity inconstruction:Art. 1621. The owners of adjoining lands shall also have the right of redemption when apiece of rural land, the area of which does not exceed one hectare, is alienated, unlessthe grantee does not own any rural land.xxx xxx xxxUnder this article, both lands that sought to be redeemed and the adjacent lotbelonging to the person exercising the right of redemption must be rural. If one or both



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are urban, the right cannot be invoked. 15 The purpose of this provision, which is limited inscope to rural lands not exceeding one hectare, is to favor agriculturaldevelopment. 16 The subject land not being rural and, therefore, not agricultural, thispurpose would not be served if petitioners are granted the right of redemption under Art.1621. Plainly, under the circumstances, they cannot invoke it.Second Issue: Sale to Cataniag ValidNeither do we find any reversible error in the appellate court's holding that the sale of thesubject land to Private Respondent Cataniag renders moot any question on theconstitutionally of the prior transfer made by Helen Guzman to her son David Rey.True, Helen Guzman's deed of quitclaim in which she assigned, transferred andconveyed to David Rey all her rights, titles and interests over the property she hadinherited from her husband collided with the Constitution, Article XII, Section 7 ofwhich provides:Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred orconveyed except to individuals, corporations, or associations qualified to acquire or holdlands of the public domain.The landmark case of Krivenko vs. Register of Deeds17 settled the issue as to who arequalified (and disqualified) to own public as well as private lands in the Philippines.Following a long discourse maintaining that the "public agricultural lands" mentioned inSection 1, Article XIII of the 1935 Constitution, include residential, commercial andindustrial lands, the Court then stated:Under section 1 of Article XIII [now Sec. 2, Art. XII] of the Constitution, "naturalresources, with the exception of public agricultural land, shall notbe alienated," and withrespect to public agricultural lands, their alienation is limited to Filipino citizens. But thisconstitutional purpose conserving agricultural resources in the hands of Filipino citizensmay easily be defeated by the Filipino citizens themselves who may alienate theiragricultural lands in favor of aliens. It is partly to prevent this result that section 5 isincluded in Article XIII, and it reads as follows:Sec. 5. Save in cases of hereditary succession, no private agricultural land will betransferred or assigned except to individuals, corporations or associations qualified toacquire or hold lands of the public domain in the Philippines.This constitutional provision closes the only remaining avenue through which agriculturalresources may leak into aliens' hands. It would certainly be futile to prohibit the alienation ofpublic agricultural lands to aliens if, after all, they may be freely so alienated upon theirbecoming private agricultural lands in the hands of Filipino citizens. Undoubtedly, as aboveindicated, section 5 [now Sec. 7] is intended to insure the policy of nationalization contained

in section 1 [now Sec. 2]. Both sect ions must, therefore, be read together for they have thesame purpose and the same subject matter. It must be noticed that the persons againstwhom the prohibition is directed in section 5 [now Sec. 7] are the very same persons whounder section 1 [now Sec. 2] are disqualified "to acquire or hold lands of the public domain inthe Philippines." And the subject matter of both sections is the same, namely, the nontransferability of "agricultural land" to aliens . . . . 18

The Krivenkorule was recently reiterated in Ong Ching Po vs. Court of Appeals, 19 whichinvolves a sale of land to a Chinese citizen. The Court sad:The capacity to acquire private land is made dependent upon the capacity to acquire orhold lands of the public domain. Private land may be transferred or conveyed only toindividuals or entities "qualified to acquire lands of the public domain" (II Bernas, TheConstitution of the Philippines 439-440 [1988 ed.]).The 1935 Constitution reserved the right to participate in the "disposit ion, exploitation,

development and utilization" of all "lands of the public domain and other natural resources ofthe Philippines" for Filipino cit izens or corporations at least sixty percent of the capital ofwhich was owned by Filipinos. Aliens, whether individuals or corporations, have beendisqualified from acquiring public lands; hence, they have also been disqualified fromacquiring private lands. 20

In fine, non-Filipinos cannot acquire or hold title to private lands or to lands of the publicdomain, except only by way of legal succession. 21

But what is the effect of a subsequent sale by the disqualified alien vendee to a qualifiedFilipino citizen? This is not a novel question. Jurisprudence is consistent that "if land isinvalidly transferred to an alien who subsequently becomes a citizen or transfers it to acitizen, the flaw in the original transaction is considered cured and the title of thetransferee is rendered valid." 22

Thus, in United Church Board of Word Ministries vs. Sebastian, 23 in which an alien



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resident who owned properties in the Philippines devised to an American non-stockcorporation part of his shares of stock in a Filipino corporation that owned a tract of landin Davao del Norte, the Court sustained the invalidity of such legacy. However, uponproof that ownership of the American corporation has passed on to a 100 percent Filipinocorporation, the Court ruled that the defect in the will was "rectified by the subsequenttransfer of the property."The present case is similar to De Castro vs. Tan. 24 In that case, a residential lot wassold to a Chinese. Upon his death, his widow and children executed an extrajudicialsettlement, whereby said lot was allotted to one of his sons who became a naturalized

Filipino. The Court did not allow the original vendor to have the sale annulled and torecover the property, for the reason that the land has since become the property of anaturalized Filipino citizen who is constitutionally qualified to own land.Likewise, in the cases of Sarsosa vs. Cuenco, 25 Godinez vs. Pak Luen, 26 Vasquez vs. LiSeng Giap27 andHerrera vs. Luy Kim Guan, 28 which similarly involved the sale of land toan alien who thereafter sold the same to a Filipino citizen, the Court again applied therule that the subsequent sale can no longer be impugned on the basis of the invalidity ofthe initial transfer.The rationale of this principle was explained in Vasquez vs. Li Seng Giapthus:. . . [I]f the ban on aliens from acquiring not only agricultural but also urban lands, asconstrued by this Court in the Krivenko case, is to preserve the nation's lands for futuregenerations of Filipinos, that aim or purpose would not be thwarted but achieved by makinglawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. 29

Accordingly, since the disputed land is now owned by Private Respondent Cataniag, aFilipino citizen, the prior invalid transfer can no longer be assailed. The objective of theconstitutional provision to keep our land in Filipino hands has been served.WHEREFORE, the petition is hereby DENIED. The challenged Decision is AFFIRMED.Costs against petitioner.SO ORDERED.Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.Footnotes1 Rollo, pp. 19-30.2 Ninth Division, composed of JJ. Cezar D. Francisco, ponente; Gloria C. Paras(chairman) and Buenaventura J. Guerrero, concurring.3 Assailed Decision, p. 12; rollo, p. 30.4 Assailed Decision, p. 2; rollo, p. 20.5 Art. 1621. The owners of adjoining lands shall also have the right of redemption when a

piece of rural land, the area of which does not exceed one hectare, is alienated, unlessthe grantee does not own any rural land.This right is not applicable to adjacent lands which are separated by brooks, drains,ravines, roads and other apparent servitudes for the benefit of other estates.If two or more adjoining owners desire to exercise the right of redemption at the sametime, the owner of the adjoining land of smaller area shall be preferred; and should bothlands have the same area, the one who first requested the redemption.6 CA Rollo, pp. 29-31.7 Penned by Judge Valentin R. Cruz.8 138 SCRA 78, August 7, 1985.9 121 SCRA 244, March 28, 1983.10 This case was considered submitted for resolution upon receipt by this Court ofpetitioners' memorandum on November 8, 1996.

11 Petition, p. 6; rollo, p. 12.12 First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, January 24,1996.13 Fuentes vs. Court of Appeals, 268 SCRA 703, February 26, 1997; Geronimo vs.Court of Appeals, 224 SCRA 494, July 5, 1993. See alsoLacanilao vs. Court of Appeals,262 SCRA 486, September 26, 1996; Verendia vs. Court of Appeals, 217 SCRA 417,January 22, 1993.14 RTC decision, p.3; CA rollo, p. 31.15 Tolentino, ibid.; Cortes vs. Flores, 47 Phil 1992, September 6, 1924.16 Tolentino, Civil Code of the Philippines , 1992 ed., Vol. V, p. 182; Del Pilar vs.Catindig, 35 Phil 263, November 4, 1916.17 79 Phil 461, November 15, 1947, per Moran, CJ.



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18 Ibid., pp. 473-474.19 239 SCRA 341, December 20, 1994, per Quiason, J.20 At p. 346.21 Cf. Ramirez vs. Vda. de Ramirez, 111 SCRA 704, February 15, 1982.22 United Church Board of World Ministries vs. Sebastian, 159 SCRA 446, 451-452,March 30, 1988; per Cruz, J. See alsoTejido vs. Zamacoma, 138 SCRA 78, August 7,1985; Sarsosa vda. de Barsobia vs. Cuenco, 113 SCRA 547, April 16, 1982; Godinez vsFong Pak Luen, 120 SCRA 223, January 27, 1983; Yap vs. Maravillas, 121 SCRA 244,March 28, 1983; De Castro vs. Tan, 129 SCRA 85, April 30, 1984.23 Ibid.24 Supra.25 Supra.26 Supra.27 96 Phil 447, January 31, 1955, per Padilla, J.28 1 SCRA 406, January 31, 1961, per Barrera, J.29 Supra, p. 453.

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Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural

resources are owned by the State. With the exception of agricultural lands, all other naturalresources shall not be alienated. The exploration, development, and utilization of natural resourcesshall be under the full control and supervision of the State. The State may directly undertake suchactivities, or it may enter into co-production, joint venture, or production-sharing agreements withFilipino citizens, or corporations or associations at least 60 per centum of whose capital is owned bysuch citizens. Such agreements may be for a period not exceeding twenty-five years, renewable fornot more than twenty-five years, and under such terms and conditions as may provided by law. Incases of water rights for irrigation, water supply, fisheries, or industrial uses other than thedevelopment of waterpower, beneficial use may be the measure and limit of the grant.The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, andexclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, aswell as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers,

lakes, bays, and lagoons.The President may enter into agreements with foreign-owned corporations involving either technicalor financial assistance for large-scale exploration, development, and utilization of minerals,petroleum, and other mineral oils according to the general terms and conditions provided by law,based on real contributions to the economic growth and general welfare of the country. In suchagreements, the State shall promote the development and use of local scientific and technicalresources.The President shall notify the Congress of every contract entered into in accordance with thisprovision, within thirty days from its execution.

Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral landsand national parks. Agricultural lands of the public domain may be further classified by law according

to the uses to which they may be devoted. Alienable lands of the public domain shall be limited toagricultural lands. Private corporations or associations may not hold such alienable lands of thepublic domain except by lease, for a period not exceeding twenty-five years, renewable for not morethan twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippinesmay lease not more than five hundred hectares,