Hi-Lon Manufacturing v. Commission on Audit
REITERATIONFacts
The Antecedents: In 1978, the government, through the Ministry of Public Works and Highways, converted a 29,690 sq. m. portion of an 89,070 sq. m. property in Calamba, Laguna, into a road right-of-way (RROW) for the Manila South Expressway Extension Project. The property was then registered under Commercial and Industrial Real Estate Corporation (CIREC), later acquired by Philippine Polymide Industrial Corporation (PPIC), and subsequently foreclosed by Development Bank of the Philippines (DBP). DBP transferred the property to the Asset Privatization Trust (APT) in 1987. APT sold the property through public bidding, with Fibertex Corporation being the highest bidder. Separate Deeds of Sale were executed: one between APT and TG Property, Inc. (TGPI) for the land (59,380 sq. m.) and another between APT and Fibertex for the improvements. TGPI later sold the entire 89,070 sq. m. property, including the RROW, to HI-LON Manufacturing, Inc. (HI-LON). HI-LON subsequently entered into a Deed of Sale with the Republic of the Philippines, represented by DPWH, for the 29,690 sq. m. RROW, receiving a partial payment of ₱10,461,338.00. Procedural History: The Supervising Auditor of DPWH issued an Audit Observation Memorandum questioning the basis of just compensation, recommending recovery of excess payments. This led to Notice of Disallowance (ND) No. 2004-032 by the Commission on Audit's Legal and Adjudication Office-National (LAO-N) for ₱9,937,596.20. The LAO-N affirmed the disallowance, stating that just compensation should be based on the value at the time of taking. HI-LON's subsequent appeals and motions for reconsideration were denied by the LAO-N and subsequently by the Commission on Audit (COA) in Decision No. 2011-003 and Decision No. 2013-212. The COA ruled that HI-LON was not entitled to just compensation because the RROW was already property of the Republic of the Philippines and that the sale to TGPI excluded the RROW. The COA also required HI-LON to refund the ₱10,461,338.00. The Petition: HI-LON filed a Petition for Certiorari before the Supreme Court, arguing that the COA committed grave abuse of discretion in holding that HI-LON did not own the property taken, that the RROW was property of the Republic, that HI-LON was not entitled to just compensation, and that the COA collaterally attacked HI-LON's ownership.
Issue(s)
Whether the Commission on Audit committed grave abuse of discretion in disallowing the payment of just compensation for the road right-of-way (RROW). Whether HI-LON Manufacturing, Inc. (HI-LON) is the lawful owner of the 29,690 sq. m. portion of the property used as a road right-of-way. Whether the RROW is a property of public dominion and thus outside the commerce of man. Whether the Deed of Sale between the Asset Privatization Trust (APT) and TG Property, Inc. (TGPI) included the 29,690 sq. m. RROW. Whether the government's failure to annotate its claim on the titles constitutes estoppel or laches, barring its claim over the RROW. Whether the COA's ruling constituted a collateral attack on HI-LON's title.
Ruling
The Supreme Court denied the Petition for Certiorari for lack of merit. It affirmed the decisions of the Commission on Audit, holding that HI-LON is not entitled to just compensation for the 29,690 sq. m. road right-of-way (RROW) and must refund the partial payment of ₱10,461,338.00 made by the Department of Public Works and Highways, with legal interest.
Ratio Decidendi
On the entitlement to just compensation and ownership of the RROW: The Court affirmed the COA's finding that HI-LON is not entitled to just compensation because it is not the owner of the 29,690 sq. m. RROW. The Deed of Sale between APT and TGPI, HI-LON's predecessor-in-interest, explicitly stated that the subject of the sale was the total usable area of 59,380 sq. m., expressly excluding the 29,690 sq. m. RROW. This exclusion was consistent with the Abstract of Bids and the APT Asset Specific Catalogue. The Court emphasized that the terms of the contract, being clear and unequivocal, must control. HI-LON, as a subsidiary of TGPI, could not acquire better rights than its parent corporation. The principle of piercing the veil of corporate fiction was applied, as TGPI owned 99.9% of HI-LON, meaning HI-LON could not claim ignorance of the exclusion. On the nature of the RROW as property of public dominion: The Court reiterated that a road right-of-way (RROW) is a property of public dominion, intended for public use, and therefore outside the commerce of man. Such property cannot be the subject of a contract of sale, donation, or lease. Even if erroneously included in a Torrens title, the land remains property of public dominion and cannot be registered in the name of private persons. The Court cited Article 420 of the New Civil Code, classifying roads for public use as property of public dominion. The RROW in question, used for the Manila South Expressway Extension Project since 1978, falls under this classification. On the effect of the Deed of Sale and lack of annotation: The Court found that the Deed of Sale dated October 29, 1987, between APT and TGPI, clearly conveyed only 59,380 sq. m., excluding the RROW. HI-LON's claim that it acquired more than what its predecessor acquired was contrary to the explicit terms of the deed. The Court also addressed HI-LON's argument regarding the lack of annotation of the government's claim on the titles of CIREC, PPIC, DBP, and TGPI. It held that Section 39 of Act No. 496 and Section 44 of Presidential Decree No. 1529 provide for statutory liens that subsist even without registration. The existence of a public highway on the RROW served as actual notice to prospective buyers, including HI-LON, and thus constituted a statutory lien binding on them, regardless of annotation on the Torrens titles. HI-LON could not feign ignorance or claim to be an innocent purchaser for value. On estoppel and laches: The Court rejected HI-LON's argument of estoppel by laches due to the government's failure to register its claim. It stated that actual notice is equivalent to registration, and the Torrens System cannot be used to shield fraud. The Court also held that the government is not estopped by the mistakes or errors of its officials, especially in actions of a sovereign nature. The fact that DPWH offered to buy the RROW did not bind the State or vest ownership in HI-LON. On collateral attack and jurisdiction: The Court clarified that while a certificate of title itself cannot be collaterally attacked, the claim of ownership it represents can be questioned. The COA, in disallowing expenditures, has the power to determine the legality and regularity of disbursements, which includes examining the validity of ownership claims over property involved in such transactions. The COA's action was not a collateral attack on HI-LON's title but a necessary determination of ownership to ascertain the propriety of the disbursement. The Court also noted that the inclusion of government property in a private title does not divest the government of ownership, and a judicial pronouncement may be necessary to correct such erroneous registration. On the refund and legal interest: The Court affirmed the COA's order for HI-LON to refund the ₱10,461,338.00 paid by DPWH. It further imposed legal interest at the rate of six percent (6%) per annum from the finality of the decision until full payment, considering the amount to be refunded as a judicial debt.
Main Doctrine
A road right-of-way (RROW), being property of public dominion, is outside the commerce of man and cannot be the subject of a contract of sale. Even if erroneously included in a Torrens title, the land remains property of public dominion and cannot be acquired by private parties. The government's failure to annotate its claim on the title does not divest it of ownership, especially when the RROW is visible and in public use, constituting a statutory lien.