Republic vs. Capital Resources Corporation

A party cannot raise on appeal issues that were not pleaded in the complaint nor included in the pre-trial order, as such issues are barred by estoppel and the party is bound by the stipulations made during pre-trial. Once a homestead patent is registered and the corresponding certificate of title is issued, the land covered by it ceases to be part of the public domain and becomes private property, such that the constitutional prohibition on corporations acquiring alienable lands of the public domain no longer applies.

The Republic of the Philippines, through the Office of the Solicitor General, sought the reversion of a parcel of land in Barangay Pugo, Bauang, La Union, covered by Transfer Certificate of Title (TCT) No. T-23343 in the names of respondents Capital Resources Corporation (CRC) and Romeo Roxas. The property originated from a homestead patent granted to Vitaliano Dumuk in 1924, and was subsequently transferred through several owners before being acquired by respondents in 1982. The case involved the application of the Public Land Act (Act No. 2874, later superseded by CA 141) and the 1973 Constitutional provision prohibiting private corporations from acquiring alienable lands of the public domain.

Vitaliano Dumuk submitted Homestead Survey Plan H-6811 covering a parcel of land in La Union with an area of 15.8245 hectares, which was approved by the Bureau of Lands on May 10, 1924. A Homestead Patent was granted to Dumuk on July 26, 1924, resulting in the issuance of Original Certificate of Title (OCT) No. 137 on August 25, 1924. OCT No. 137 was subsequently cancelled and superseded by TCT No. T-6603 in the name of spouses Cecilio and Laura Milo. Respondents Capital Resources Corporation and Romeo Roxas acquired the subject property from the spouses Milo, resulting in the cancellation of TCT No. T-6603 and the issuance of TCT No. T-23343 on December 16, 1982.

Respondents caused the subdivision of the subject property on May 27, 1985 via subdivision plan Psd-1-009891 prepared by Geodetic Engineer Rosario Mercado, subdividing it into several blocks, among which are Block 35 (18,079 sq.m.) and Block 36 (16,856 sq.m.). The plan indicated that Block 35 is a "salvage zone" while a portion of Block 36 appeared to overlap a portion of the China Sea. The subdivision plan was approved on July 15, 1988 but was subsequently cancelled pursuant to an Order of Cancellation issued by DENR Regional Technical Director Josefino Daquioag on January 25, 2005. Sometime in 1987, the town of Bauang, La Union was cadastrally surveyed, and based on the Cadastral Survey Map, Block 35 (identified as Lot No. 400480) and Block 36 (identified as Lot No. 400475) were projected as part of the identified foreshore land and seabed, respectively.

On March 13, 2003, Alberto Hidalgo filed a Foreshore Lease Application (FLA) No. 012209-02 over a parcel of land with an area of 0.9971 hectares located at Barangay Pugo, Bauang, La Union. Respondents filed a formal protest, docketed as Claim Case No. 01-LU-046, on the ground that the parcel of land being applied for encroaches upon a portion of the subject property. Hidalgo filed a counter-protest assailing the validity of TCT No. T-23343 on the grounds that it covers foreshore land, salvage zone, and portions of the South China Sea, and that his right to the foreshore land is prejudiced by the existence of this fraudulent title. The protest and counter-protest were consolidated and assigned to Land Management Officer Orlando "Mahar" Santos for investigation.

A Panel of Investigators was organized by the DENR, which recommended the creation of a Regional Fact-Finding Committee. The Committee sought the help of Engr. Santiago Santiago, Chief of the Field Network and Survey Party of the DENR, who conducted a relocation survey of the subject property. After receiving the relocation survey report, the Committee conducted an ocular inspection on February 26, 2007 and found that Blocks 35 and 36 are within the existing foreshore area. In its Terminal Report, the Committee concluded that the submission of subdivision plan Psd-1-009891 by respondents is tantamount to an admission that the northwestern portion of the subject property was eaten up and eroded due to the adverse effects of sea waters. The Committee recommended the filing of appropriate reversion proceedings to effect the cancellation of OCT No. 137, TCT No. T-6603, and TCT No. T-23343.

Consequently, the Republic filed a Complaint for Cancellation of Title and Reversion against respondents and the Register of Deeds of La Union before the RTC. The Republic alleged that from the time Homestead Survey Plan H-6811 was approved in 1924 until the cadastral survey in 1987, the northwestern portion of the subject property had been washed out and eaten up by sea waters, and that Blocks 35 and 36 formed part of the public domain. Respondents filed their Answer denying the allegations, insisting that they and their predecessors-in-interest had purchased the subject property for valuable consideration and in good faith, and that Blocks 35 and 36 are suitable for agricultural, residential, industrial and commercial purposes and are not alternatively covered and uncovered by the movement of the tide.

• New Issues on Appeal: Petitioner Republic argued that the issues of inconsistencies between TCT No. T-23343 and subdivision plan Psd-1-009891 pertaining to land area, and respondent CRC's ineligibility to acquire the subject property under the Public Land Act, were "within the bounds" of the initial issues, being "germane to the sole purpose of cancelling [TCT No. T-23343] in its entirety."
• Inconsistencies in Land Area: Petitioner Republic argued that the land area of the subject property reflected in TCT No. T-23343 is 158,345 square meters while in subdivision plan Psd-1-009891 the land area is 165,582 square meters, warranting the outright cancellation of TCT No. T-23343 and reversion of the entire subject property.
• Corporate Ineligibility: Petitioner Republic argued that respondent CRC, being a corporation, is ineligible to acquire the subject property under the Public Land Act (Act No. 2874), which was the law in force at the time OCT No. 137 was issued, and that the transfer to CRC is violative of Section 11 of the 1973 Constitution prohibiting private corporations from holding alienable lands of the public domain except through a lease agreement.

• Issues Not Pleaded: Respondents argued that the issues raised in the Petition were not alleged in the Complaint and therefore can no longer be considered on appeal, as petitioner Republic raised them for the first time only in its Motion for Partial Reconsideration dated June 30, 2011 without amending the Complaint.
• No Ground for Cancellation: Respondents posited that the mere existence of alleged discrepancies in various public documents was not a ground to cancel TCT No. T-23343.
• No Violation of Public Land Act: Respondents argued that there was no violation of the Public Land Act and that the CA correctly resolved such issue despite being belatedly raised by petitioner Republic.

• Consideration of New Issues: Whether the Court may consider the issues raised by petitioner Republic for the first time in its Motion for Partial Reconsideration, specifically the alleged inconsistencies between TCT No. T-23343 and Psd-1-009891 and respondent CRC's alleged ineligibility to acquire the subject property.
• Reversion of Remaining Portion: Whether the remaining portion of the Subject Property, other than Blocks 35 and 36, may be reverted to the public domain.

• Consideration of New Issues: No. The issues raised by petitioner Republic for the first time in its Motion for Partial Reconsideration are barred by estoppel, as a party is not permitted to change its theory on appeal, and the allegations of the complaint, not the prayer, determine the basis of the plaintiff's relief.
• Reversion of Remaining Portion: No. The remaining portion of the Subject Property may not be reverted to the public domain because the property had become private property upon the issuance of OCT No. 137 to Vitaliano Dumuk on August 25, 1924, and the constitutional prohibition on corporations acquiring alienable lands of the public domain does not apply to private property.

• Consideration of New Issues: The Court applied the long-standing principle that issues not timely raised in the proceedings before the lower court are barred by estoppel, and a party is not permitted to change its theory on appeal. The Court reviewed the Complaint and found that while it prayed for the reversion of the entire Subject Property, the allegations were predicated merely on the assertion that Blocks 35 and 36 had become foreshore lands. The Pre-Trial Order dated January 19, 2009 reflected only the issues of whether Blocks 35 and 36 are foreshore lands and/or salvaged zones. The Court cited the rule that it is the allegations of the complaint, not the prayer, that determine the basis of the plaintiff's relief, and the prayer will not be construed as enlarging the complaint so as to embrace a cause of action not pleaded therein. When petitioner Republic filed its Motion for Partial Reconsideration on June 30, 2011, it was only then that it tendered issues pertinent to the reversion of the entire Subject Property, which respondents did not have the opportunity to counteract. The Court further cited Villanueva vs. Court of Appeals for the proposition that parties are bound by the stipulations made during pre-trial and are not allowed to flip-flop. The Court noted that petitioner Republic likewise failed to proffer such issues in its pre-trial brief.

• Reversion of Remaining Portion: The Court addressed the substantive issues despite the procedural bar, in light of the policy of deciding cases on the merits rather than technicalities. Anent the first issue of inconsistencies in land area, the Court found that petitioner Republic failed to allege any legal basis that would warrant the outright cancellation of TCT No. T-23343, and that such discrepancies were already addressed by the CA when it ordered the conduct of a resurvey. Anent the second issue of corporate ineligibility, the Court adopted the CA's disquisition. Under Section 121 of CA 141 (which superseded Section 119 of Act No. 2874), a corporation may acquire land granted under the free patent or homestead only if it was with the consent of the grantee and the approval of the Secretary of Natural Resources. However, as clarified in Villaflor vs. Court of Appeals, Section 121 pertains to acquisitions of public land by a corporation from a grantee. In this case, the original grantee was Vitaliano Dumuk, who transferred the property to spouses Milo, who in turn sold it to respondents. Thus, Capital Resources did not acquire the subject property from the original grantee. Moreover, even assuming Capital Resources is ineligible, Romeo Roxas, an individual, is not barred from acquiring the subject property. As to the 1973 Constitution prohibition, the consistent ruling is that the prohibition will not apply if the property acquired by the corporation is private property and not alienable lands of the public domain. Once a patent is registered and the corresponding certificate of title is issued, the land covered by it ceases to be part of the public domain and becomes private property. The subject property became private property upon the issuance of OCT No. 137 to Vitaliano Dumuk on August 25, 1924, and when respondents acquired it in 1982, it was no longer part of the alienable lands of the public domain.

• Doctrine of Estoppel in Raising New Issues on Appeal — Issues not timely raised in the proceedings before the lower court are barred by estoppel. A party is not permitted to change its theory on appeal, as to allow it to do so would be offensive to the rules of fair play, justice and due process. The Court applied this doctrine to bar petitioner Republic from raising issues that were not alleged in the Complaint nor included in the Pre-Trial Order.

• Allegations of the Complaint Control Over the Prayer — It is the allegations of the complaint, not the prayer, that determine the basis of the plaintiff's relief, and the prayer will not be construed as enlarging the complaint so as to embrace a cause of action not pleaded therein. The Court applied this rule to hold that although the Complaint prayed for reversion of the entire Subject Property, the allegations pertained only to Blocks 35 and 36.

• Pre-Trial Stipulations Bind the Parties — Parties are bound by the stipulations made during pre-trial, and issues not included in the pre-trial order can no longer be considered on appeal. The Court cited Villanueva vs. Court of Appeals for the proposition that parties are not allowed to flip-flop, and it would be grossly unfair to allow a party the luxury of changing its mind to the detriment of the other party at a late stage.

• Land Covered by a Patent Becomes Private Property — Once a patent is registered and the corresponding certificate of title is issued, the land covered by it ceases to be part of the public domain and becomes private property. The constitutional prohibition on corporations acquiring alienable lands of the public domain will not apply if the property acquired by the corporation is private property and not alienable lands of the public domain.

• "It has been a long-standing principle that issues not timely raised in the proceedings before the lower court are barred by estoppel. As a rule, new issues can no longer be considered by the appellate court because a party is not permitted to change his theory on appeal; to allow him to do so would be offensive to the rules of fair play, justice and due process." — This passage states the controlling procedural doctrine that barred petitioner Republic from raising new issues on appeal.

• "In this regard, basic is the rule that it is the allegations of the complaint and not the prayer that determines the basis of the plaintiffs relief. In the same vein, the prayer will not be construed as enlarging the complaint so as to embrace a cause of action not pleaded therein." — This passage articulates the rule that the complaint's allegations, not its prayer, define the scope of the plaintiff's cause of action.

• "The rule is that once a patent is registered and the corresponding certificate of title is issued, the land covered by it ceases to be part of the public domain and becomes private property." — This passage states the substantive rule that converted the subject property into private property upon issuance of OCT No. 137, making the constitutional prohibition on corporate acquisition inapplicable.

• Villanueva vs. Court of Appeals, 471 Phil. 394 (2004) — Controlling precedent on the binding effect of pre-trial stipulations. The Court cited this case for the proposition that parties are bound by the stipulations made during pre-trial and cannot raise issues for the first time on appeal, even if such issues were raised in the answer but not included in the pre-trial order.

• Villaflor vs. Court of Appeals — Followed on the interpretation of Section 121 of CA 141. The Court adopted the CA's reliance on this case to clarify that Section 121 pertains to acquisitions of public land by a corporation from a grantee, and does not apply when the corporation acquired the property from a subsequent transferee rather than the original grantee.

• Lazaro vs. Court of Appeals, 423 Phil. 554 (2001) — Cited as authority for the principle that issues not timely raised in the proceedings before the lower court are barred by estoppel.

• Balitaosan vs. The Secretary of Education, 457 Phil. 300 (2003) — Cited as authority for the rule that a party is not permitted to change its theory on appeal.

• Asian Transmission Corp. vs. Canlubang Sugar Estates, 457 Phil. 260 (2003) — Cited as authority for the rule that it is the allegations of the complaint, not the prayer, that determine the basis of the plaintiff's relief.

• Section 119, Act No. 2874 (Public Land Act) — The provision prohibiting corporations from acquiring public lands. The Court discussed this provision in the context of the Committee's recommendation and petitioner Republic's argument on corporate ineligibility, but ultimately held it inapplicable because the subject property had already become private property.

• Section 121, CA 141 — The provision superseding Section 119 of Act No. 2874, which allows a corporation to acquire land granted under the free patent or homestead only with the consent of the grantee and the approval of the Secretary of Natural Resources. The Court held this provision inapplicable because Capital Resources did not acquire the subject property from the original grantee.

• Section 11, 1973 Constitution — The provision prohibiting private corporations from holding alienable lands of the public domain except through a lease agreement. The Court held this prohibition inapplicable because the subject property had become private property upon the issuance of OCT No. 137, and the prohibition applies only to alienable lands of the public domain.

• Sereno, C.J. (Chairperson)
• Leonardo-De Castro, J.
• Bersamin, J.
• Perlas-Bernabe, J.