MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, AND AIR TRANSPORTATION OFFICE, PETITIONERS, VS. MILAGROS URGELLO, RESPONDENT.

Mactan-Cebu International Airport Authority versus Urgello

The Case

This is a petition for review on certiorari brought by the Mactan-Cebu International Airport Authority, the Department of Public Works and Highways, and the Air Transportation Office against Milagros Urgello. Urgello sued to recover several parcels of land in the old Lahug Airport in Cebu City, which the government had taken from her under a conditional sale and later under a compromise agreement that the government never honored. The case matters because it fixes the liability of a successor government corporation for the obligations of its predecessor, and because it shows how a resolutory condition in a deed of sale operates to return title to the seller.

Procedural History

Urgello first filed a complaint for injunction with damages before the Regional Trial Court of Cebu against the Bureau of Air Transportation and a construction company, which in turn impleaded the Ministry of Public Works and Highways. She later filed a separate complaint for reconveyance of one lot against the Bureau of Air Transportation. Branch 6 of the Cebu Regional Trial Court rendered judgment in the reconveyance case on January 3, 1989, holding that the resolutory condition had taken place and ordering reconveyance upon payment of the repurchase price. The injunction case was then settled by a compromise agreement approved by the same court on January 21, 1991.

When the government failed to comply with that compromise, Urgello filed a new complaint for reconveyance with damages against the Department of Public Works and Highways and the Air Transportation Office, and later amended it to implead the Mactan-Cebu International Airport Authority. Branch 22 of the Cebu Regional Trial Court rendered judgment on March 10, 1999, holding all three solidarily liable to reconvey the lots, pay rentals, demolish the fence, and pay attorney's fees. The Court of Appeals affirmed on February 17, 2004. The matter then reached the Supreme Court by petition for review on certiorari.

Facts

Urgello owned Lot No. 913-E of the Banilad Estate in Cebu City, which she subdivided into four parcels. In the 1950s the Civil Aeronautics Administration sued to expropriate Lot No. 913-E-3 for the expansion of the Lahug Airport. The case ended in a compromise judgment of the Court of Appeals on July 27, 1964, under which the government bought the lot for 3,105 pesos subject to a resolutory condition: if the Republic should no longer use the lot as an airport, title would revert to Urgello or her heirs upon reimbursement of the purchase price. The conditional deed of sale was annotated on her title.

When Mactan Airport began operations in April 1966, the airlines stopped using Lahug Airport. In 1983 the Bureau of Air Transportation leased the lot to the Ministry of Public Works and Highways for twenty-five years, and the ministry began building fences. The bureau also fenced portions of Urgello's other lots over her objection. She tendered the 3,105 pesos repurchase price in July 1985, but the bureau did not reconvey. The trial court then held that the resolutory condition had taken place.

In January 1990 the parties entered into a compromise agreement, approved in January 1991, in which the department agreed to buy the lots and both agencies agreed to comply with the reconveyance decision. The government never paid and never demolished the wall. Urgello demanded performance, obtained a writ of execution that was never enforced, and finally sued. The Mactan-Cebu International Airport Authority, created by its charter in 1990, was impleaded as the alleged successor of the Air Transportation Office.

Issues

• Whether or not Urgello's money claim must first be filed with the Commission on Audit.
• Whether or not the Mactan-Cebu International Airport Authority is obliged to reconvey the lots.
• Whether or not the Mactan-Cebu International Airport Authority is obliged to pay rentals for the use of the lots.
• Whether or not the Mactan-Cebu International Airport Authority is obliged to demolish the fence traversing the lot.

Applicable Provisions

Section 15 of Republic Act No. 6958, the charter of the Mactan-Cebu International Airport Authority, provides:

SECTION 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, as well as all assets and other properties belonging to the Authority or under its administration, are hereby transferred to the Authority.

This provision is the basis for holding the Authority the legal transferee of the Lahug Airport properties, and therefore the successor of the Air Transportation Office with respect to the lot subject of the resolutory condition.

Section 17 of the same law provides:

SECTION 17. Transfer of Liabilities and Debts. Upon the transfer to and acceptance by the Authority of the existing physical facilities, intangible assets and completed projects referred to in the preceding sections, all debts, liabilities, and obligations of government agencies or entities concerned, intangible assets and completed projects within the airports shall likewise be assumed by the Authority.

This is the provision that makes the Authority answerable for the obligations attached to the properties it received, including the duty to reconvey.

Ruling

On the first issue, the Court held that the claim is not a mere money claim against the government that must be filed with the Commission on Audit. The action is one for reconveyance of property taken without just compensation, and the Court treated the failure to reconvey as expropriation without just compensation.

On the second issue, the Court held that the Department of Public Works and Highways and the Air Transportation Office are solidarily liable to reconvey Lot No. 913-E-3, since they failed to comply with their undertakings in the compromise agreement despite Urgello's tender of the purchase price. The Authority is likewise liable, because under Section 15 it became the legal transferee of the Lahug Airport properties, and under Section 17 it assumed the debts and obligations attached to them. The Court rejected the argument that the Authority escapes liability because no formal turnover took place.

On the third and fourth issues, the Court held the Authority liable for rentals and for the demolition of the fence, for the same reason: the obligations follow the properties transferred by law. The Court affirmed the findings that the government had occupied the lots without authority and had built the fence in bad faith.

Doctrine

A resolutory condition in a deed of sale operates to return title to the seller once the condition happens, and the buyer's continued retention of the property after the condition is expropriation without just compensation. A successor government corporation that receives airport lands by operation of its charter assumes the obligations attached to those lands, and it cannot escape liability by pointing to the absence of a formal turnover. The rule is that the transfer of assets under the charter carries with it the transfer of liabilities, as Sections 15 and 17 of Republic Act No. 6958 expressly provide.

Disposition

The Court denied the petition and affirmed the decision of the Court of Appeals, holding all three petitioners solidarily liable to reconvey the lots, pay rentals, demolish the fence, and pay attorney's fees.

Remember This

The one line to memorize is that the transfer of airport assets under the charter carries the transfer of the liabilities attached to them, so the successor authority cannot hide behind the absence of a formal turnover. Examiners use this case to test the operation of a resolutory condition in a conditional sale and the liability of a successor government corporation for the obligations of its predecessor.