National Power Corporation vs. Gatuangco, et al.

Lands disposed of by NAFCO under Republic Act No. 477 remain subject to the reservations and limitations of the Public Land Law, including Section 114 of Commonwealth Act No. 141; when the Government or its concessionaire takes possession of such land for the purposes specified in Section 114, the grantee is entitled only to indemnity equivalent to the amount paid to the Government for the land taken, not its current market value.

National Power Corporation is a public corporation created under Commonwealth Act No. 120, as amended, and vested with the power of eminent domain. The defendants-appellees are owners of parcels of land in Davao, several of whom acquired their lots by sales patents from the National Abaca and Other Fibers Corporation (NAFCO) pursuant to Republic Act No. 477. Section 9 of Republic Act No. 477 provides that, except when otherwise provided, the disposition of lands under that Act shall be governed by Commonwealth Act No. 141, as amended, and Act No. 3038, while Section 114 of Commonwealth Act No. 141 reserves to the Government and its concessionaires certain rights in lands granted under the Public Land Law and fixes the indemnity for lands taken under that section. These provisions frame the dispute over the compensation due for lands needed for a hydro-electric project.

National Power Corporation, a public corporation created under Commonwealth Act No. 120, as amended, and authorized to exercise the right of eminent domain, instituted an action in the Court of First Instance of Davao, Civil Case No. 2676, to expropriate several parcels of land belonging to different defendants. The parcels were needed for the construction of access roads, canals, forebay, and flumes in connection with the construction of the Talomo River No. 3 Hydro-Electric Project. Some of the defendants had acquired their respective lots by sales patents from the National Abaca and Other Fibers Corporation (NAFCO) pursuant to Republic Act No. 477.

On different dates, the defendants, singly or jointly with others, filed motions to dismiss, setting forth their objections and questioning NPC’s right to expropriate their properties for the sum stated in the complaint. Some defendants also incorporated counterclaims in their motions to dismiss, and NPC opposed all of the motions. While these motions were pending, NPC moved to amend its complaint to include bigger areas of the lots of Florencio Alontin, Sofio Galario, and Emeterio Lauron. Those three defendants opposed the motion, but the trial court granted it and admitted the amended complaint. Acting on the motions to dismiss, the trial court overruled them and considered them as answers to the proceeding.

With the agreement of the parties, the trial court appointed three Commissioners to appraise the value of the defendants’ lots and fix the just compensation to be paid. The Commissioners submitted a report recommending that just compensation be fixed at P1,000.00 per hectare. NPC objected, contending that for lots which some defendants bought from NAFCO under Republic Act No. 477, the indemnity should be equivalent to the amount those defendants paid NAFCO, citing Section 114 of the Public Land Law (Commonwealth Act No. 141, as amended) and Section 9 of Republic Act No. 477.

After hearing on the Commissioners’ Report, the trial court rendered judgment approving the report and rejecting NPC’s contention. NPC appealed and reiterated that defendants who acquired their lands from NAFCO under Republic Act No. 477 should be paid amounts equivalent to what they paid NAFCO. The defendants-appellees adopted the stand taken by the trial court.

The lands were formerly public lands transferred from the Bureau of Lands to NAFCO for disposition and later acquired by the defendants by sales patents from NAFCO under Republic Act No. 477. It was not disputed that the purposes for which the lands were sought to be expropriated were the construction of access roads, canals, forebay, and flumes in connection with the Talomo River No. 3 Hydro-Electric Project. The record showed that the following defendants bought their lands from NAFCO at the corresponding areas and purchase prices: Maximino Caluba, 2.7949 hectares, P195.64; Concepcion Andres, 1.0521 hectares, P43.13; Emeterio Lauron, 5837.14 hectares, P23.35; Florencio Alcontin, 1.2173.87 hectares, P51.57; Alipio Burdon, 7892 hectares, P38.36; Isaac Guario, 2.0504 hectares, P82.01; Felipe Gatuangco, .1833 hectare, P7.37; and Sofio Galario, 9715 hectares, P31.57. The listed defendants did not submit evidence that they introduced improvements on the lands they purchased from NAFCO.

• Governing Law for NAFCO Lands: NPC maintained that defendants who acquired lands from NAFCO under Republic Act No. 477 should be paid amounts equivalent to what they paid NAFCO, because Section 9 of Republic Act No. 477 provides that the disposition of lands under that Act shall be governed by Commonwealth Act No. 141, as amended, and Act No. 3038 and the rules and regulations promulgated thereunder.
• Section 114 Indemnity: NPC argued that under Section 114 of Commonwealth Act No. 141, whenever the Government or any concessionaire of the Government retakes possession of lands previously disposed of under that Act, the amount to be paid to the grantee shall be equivalent to the amount the grantee paid to the Government.
• Objection to Commissioners’ Valuation: NPC objected to the Commissioners’ Report insofar as it fixed just compensation at P1,000.00 per hectare for NAFCO-acquired lots, insisting that the indemnity must instead be the purchase price paid to NAFCO.

• Special Law and Private Property: Defendants-appellees adopted the trial court’s stand that the lands were obtained from the government not by virtue of Section 114 of the Public Land Law but by virtue of a special law, Republic Act No. 477, disposing of NAFCO’s lands in favor of the grantees, and that the properties in litigation are now private properties.
• Approval of Commissioners’ Valuation: Defendants-appellees adopted the trial court’s approval of the Commissioners’ Report fixing just compensation at P1,000.00 per hectare or P0.10 per square meter.

• Applicability of the Public Land Law: Whether lands acquired from NAFCO by sales patents under Republic Act No. 477 remain subject to the provisions, reservations, encumbrances, limitations, and restrictions of the Public Land Law, particularly Section 114 of Commonwealth Act No. 141, notwithstanding that they are now private properties.
• Measure of Just Compensation: Whether defendants-appellees who acquired their lands from NAFCO under Republic Act No. 477 are entitled to indemnity equivalent to the amounts they paid NAFCO, rather than just compensation at P1,000.00 per hectare as approved by the trial court.
• Scope of “Possession” Under Section 114: Whether the Government or its concessionaire “taking possession” of alienated land under Section 114 includes occupation of the land for the purposes specified in the law, such that the indemnity limitation applies.

• Applicability of the Public Land Law: Yes. Although the lands were disposed of under Republic Act No. 477 and are now private, Section 9 of that Act provides that their disposition shall be governed by Commonwealth Act No. 141, as amended, and Act No. 3038; the reservations and limitations of the Public Land Law therefore bind the lands.
• Measure of Just Compensation: The amount paid to NAFCO, not P1,000.00 per hectare. Under Section 114 of Commonwealth Act No. 141, when the Government or a concessionaire takes possession of land paid for by a grantee, the grantee is entitled to indemnity equal to the amount paid to the Government for the land taken.
• Scope of “Possession” Under Section 114: Yes. The reference to “taking possession” contemplates occupation of the alienated land for the purposes specified in the law, not ownership.

• Applicability of the Public Land Law: The lands were formerly public lands transferred from the Bureau of Lands to NAFCO for disposition and later acquired by the defendants by sales patents under Republic Act No. 477. Although sold under that Act and now private, Section 9 of Republic Act No. 477 expressly provides that, except when otherwise provided, the disposition of lands under the Act shall be governed by Commonwealth Act No. 141, as amended, and Act No. 3038 and the rules and regulations promulgated thereunder. The Court held that the reservations in favor of the Government or its grantees under Section 114 constitute conditions or limitations ingrained in the rights conveyed to the defendants and bind the land as legal encumbrances; the defendants may not evade them on the pretext that their lands are no longer of the public dominion.
• Measure of Just Compensation: Section 114 of Commonwealth Act No. 141 provides that when the Government or any concessionaire of the Government takes possession of land under that section which a grantee under the Act shall have paid for, the grantee is entitled to indemnity from the Government or the concessionaire in the amount, if any, paid by him to the Government for the land taken. The purposes for which the lands were expropriated—construction of access roads, canals, forebay, and flumes in connection with the Talomo River No. 3 Hydro-Electric Project—were undisputed and fell within the contemplation of Section 114. Consequently, the defendants were only entitled to indemnity in the amounts respectively paid by them to the Government for the lands taken. Because the listed defendants submitted no evidence of improvements, they should be reimbursed only the amounts set opposite their names, which were the same purchase prices they paid NAFCO.
• Scope of “Possession” Under Section 114: The defendants could not rely on the fact that Section 114 speaks only of “possession,” and not ownership, in its first proviso. When the provision speaks of the Government or its concessionaires “taking possession” of alienated land, the proviso plainly contemplates occupation of the land for the purposes specified in the law. The expropriation purposes in this case were such an occupation, so the indemnity limitation applied.

• Legal Encumbrances and Reservations in Public Land Grants — Reservations in favor of the Government or its concessionaires under Section 114 of the Public Land Law are conditions or limitations ingrained in the rights conveyed to grantees and bind the land as legal encumbrances, even after the land ceases to be public dominion and becomes private property. The Court applied this to hold that NAFCO-acquired lands remained subject to Section 114 despite being private.
• Section 9 of Republic Act No. 477 — Governing Law — Except when otherwise provided, the disposition of lands under Republic Act No. 477 is governed by Commonwealth Act No. 141, as amended, and Act No. 3038 and the rules and regulations promulgated thereunder. The Court used this to hold that NAFCO sales patents did not remove the Public Land Law’s restrictions.
• Indemnity Under Section 114 of Commonwealth Act No. 141 — When the Government or a concessionaire takes possession of land under Section 114 that a grantee paid for, the grantee is entitled to indemnity equal to the amount paid to the Government for the land taken, not its current market value. The Court applied this to limit NPC’s compensation to the purchase prices paid to NAFCO.
• “Taking Possession” Includes Occupation for Specified Purposes — The reference to “possession” in Section 114 contemplates occupation of the alienated land for the purposes specified in the law, not merely ownership. The Court applied this to the hydro-electric project purposes, which fell within Section 114.

• "Except when otherwise provided, the disposition of lands under this Act shall be governed by Commonwealth Act No. 141, as amended, and of Act No. 3038 of the Philippine Legislature and of the rules and regulations promulgated thereunder." — Section 9 of Republic Act No. 477, quoted by the Court, establishes that NAFCO dispositions remain governed by the Public Land Law.
• "We hold that the reservations in favor of the Government or its grantees under said section constitute conditions or limitations that are ingrained in the rights conveyed to defendants-appellees, and bind the land which they acquired, being in the nature of legal encumbrances thereon that the appellees may not evade on the pretext that their lands are no longer of the public dominion." — This is the ratio decidendi: Section 114 reservations bind the land despite the land having become private property.
• "Nor can they rely on the fact that section 114 speaks only of "possession", and not ownership, in the first proviso; for when the latter speaks of the Government, or its concessionaires, "taking possession" of the alienated land, the proviso plainly contemplates a case of the occupation of the land for the purposes specified in the law." — This defines the scope of “possession” under Section 114 and explains why the indemnity limitation applies.
• "Under the foregoing circumstance, defendants-appellees are only entitled to indemnity from the plaintiff in the amounts respectively paid by them to the Government for the lands taken from them." — This states the measure of compensation adopted by the Court for the expropriated NAFCO-acquired lands.

• Section 9, Republic Act No. 477 — Provides that, except when otherwise provided, the disposition of lands under the Act shall be governed by Commonwealth Act No. 141, as amended, and Act No. 3038 of the Philippine Legislature and the rules and regulations promulgated thereunder. The Court applied it to hold that NAFCO-acquired lands remained subject to the Public Land Law.
• Section 114, Commonwealth Act No. 141 (Public Land Law), as amended — Reserves from patents, certificates, entries, and grants the right to use water for power; excepts land for mill site, power house, dam, and water massing; reserves rights of way for flumes, aqueducts, wires, poles, or other conduits; and provides that when the Government or a concessionaire takes possession of land paid for by a grantee, the grantee is entitled to indemnity equal to the amount paid to the Government for the land taken. The Court applied it to limit NPC’s indemnity to the purchase prices paid to NAFCO.
• Commonwealth Act No. 120, as amended — Created the National Power Corporation as a public corporation with authority to exercise the right of eminent domain. It supplied the basis for NPC’s expropriation action.
• Act No. 3038 — Cited in Section 9 of Republic Act No. 477 as part of the law governing the disposition of lands under that Act. The Court included it in the governing framework for NAFCO-acquired lands.
• Republic Act No. 477 — Governed the disposition of NAFCO lands and, through its Section 9, subjected such disposition to Commonwealth Act No. 141, as amended, and Act No. 3038. The Court relied on it to hold that the lands remained subject to the Public Land Law.

Concepcion, C.J.; Dizon; Regala; Makalintal; Bengzon, J.P.; Zaldivar; Sanchez; and Castro, JJ., concurred. Barrera, J., was on leave.