The Supreme Court affirmed the Commission on Audit’s decision, which voided a compromise agreement seeking to transfer reclaimed land to a private corporation through an assignee. This ruling underscores the strict constitutional prohibition against private corporations owning alienable lands of the public domain, ensuring that such lands are reserved for public use and equitable distribution among Filipino citizens. The decision highlights the importance of adhering to constitutional mandates and preventing indirect circumvention of these fundamental principles.

Can Private Corporations Acquire Reclaimed Land Through Assignees? The Central Bay Case

Central Bay Reclamation and Development Corporation sought to recover costs incurred from a nullified joint venture agreement (JVA) with the Philippine Reclamation Authority (PRA). The original agreement aimed to develop reclaimed islands in Manila Bay, but the Supreme Court previously invalidated it due to constitutional violations prohibiting the alienation of natural resources and corporate ownership of public lands. To settle Central Bay’s monetary claims, PRA proposed a compromise agreement involving the transfer of reclaimed land to Central Bay’s assignee, a qualified Filipino citizen. However, the Commission on Audit (COA) rejected this compromise, leading to a legal battle that reached the Supreme Court.

The Supreme Court sided with the COA, emphasizing that the proposed land transfer to Central Bay’s assignee effectively circumvented the constitutional ban on corporate land ownership. Section 3, Article XII of the 1987 Constitution explicitly states that private corporations “may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area.” The Court reasoned that Central Bay, as a private corporation, could not legally own the reclaimed land directly; therefore, it could not assign ownership rights to another party, even if that party was a qualified individual.

The concept of **beneficial ownership** became central to the Court’s analysis. Beneficial ownership, or equitable title, refers to the right to have legal title transferred to oneself through a valid contract or relationship. The Court found that the arrangement in the compromise agreement effectively granted Central Bay beneficial ownership, which the constitutional prohibition seeks to prevent. “Indeed, the provision in the Compromise Agreement allowing conveyance to ‘Central Bay’s [q]ualified [a]ssignee‘ clearly means that Central Bay will hold the reclaimed land other than by lease which the constitutional ban seeks to avoid.” This is because, as the court reasoned, an assignee cannot acquire greater rights than those pertaining to the assignor.

The Court also invoked the legal maxim “nemo dat quod non habet,” meaning that one cannot give what one does not have. Since Central Bay, as a private corporation, could not legally own the land, it could not transfer ownership to another party. This principle prevented the circumvention of the constitutional prohibition through the assignment mechanism.

Furthermore, the Court highlighted the requirement for congressional approval of compromise agreements involving government agencies and substantial sums of money. Section 20 (1), Chapter IV, Subtitle B, Title I, Book V of Executive Order No. 292, known as the Administrative Code of 1987, states that “[i]n case the claim or liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with their recommendations, to the Congress.” Because the monetary claim exceeded this threshold, the compromise agreement needed congressional approval, which it lacked. This requirement ensures legislative oversight of significant financial settlements involving government funds.

The Court also cited Section 29 (1), Article VI of the 1987 Constitution, which provides that “[n]o money shall be paid out of the Treasury except in pursuance of an appropriation made by law.” Sections 84 and 85 of the Government Auditing Code reinforce this mandate, requiring an appropriation law before government funds can be spent. Without such an appropriation, PRA could not lawfully pay the money claims to Central Bay, rendering the compromise agreement void. Thus, any contract allowing such payment without an appropriation law is invalid. The importance of proper documentation for claims against government funds was also emphasized.

In the end, the Supreme Court upheld the COA’s decision, reaffirming the constitutional limitations on private corporations owning public land. The Central Bay case reinforces the principle that what cannot be done directly cannot be done indirectly, safeguarding the integrity of constitutional provisions and preventing their circumvention through creative legal arrangements.

FAQs

What was the key issue in this case?	The key issue was whether a compromise agreement, proposing the transfer of reclaimed land to a private corporation’s assignee, circumvented the constitutional prohibition against corporate ownership of alienable lands of the public domain.
What did the Supreme Court rule?	The Supreme Court ruled that the compromise agreement was void because it violated the constitutional prohibition against private corporations owning alienable lands of the public domain, even through an assignee.
Why was the compromise agreement considered a violation?	The agreement was considered a violation because it effectively granted Central Bay beneficial ownership of the land, which the Constitution prohibits. The Court reasoned that Central Bay could not assign rights it did not possess.
What is the legal principle of “nemo dat quod non habet”?	“Nemo dat quod non habet” means that one cannot give what one does not have. In this case, because Central Bay could not legally own the land, it could not transfer ownership to another party.
Why did the COA disapprove the compromise agreement?	The COA disapproved the agreement because it contravened the constitutional ban against corporate ownership of land and lacked congressional approval, which is required for settlements exceeding a certain amount.
What is the requirement for congressional approval of settlements?	The Administrative Code requires congressional approval for compromise agreements involving government agencies when the claim or liability exceeds P100,000.00 to ensure legislative oversight.
What is the constitutional basis for requiring an appropriation law before payment?	Section 29(1), Article VI of the Constitution states that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law, ensuring that public funds are properly authorized.
What amount of Central Bay’s money claims were allowed, and why?	The COA allowed P714,937,790.29, representing advance payments and project development costs, because these claims were supported by sufficient documentary evidence. Other claims were denied due to lack of proper documentation.
What is the practical implication of this ruling?	This ruling reinforces the strict interpretation of constitutional limitations on private corporate land ownership, preventing indirect attempts to circumvent these prohibitions. It also emphasizes the need for proper documentation for claims against government funds.

The Central Bay case serves as a reminder of the importance of upholding constitutional principles in land ownership and government transactions. It underscores the need for transparency, accountability, and adherence to legal requirements in all dealings involving public resources.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Central Bay Reclamation and Development Corporation v. Commission on Audit, G.R. No. 252940, April 05, 2022