G.R. No.

L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First
Instance of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA
BALUYUT-MAGCALE, respondents.

PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court
of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs.
Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor of petitioner
bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and
Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from
the defendant Prudential Bank. To secure payment of this loan, plaintiffs
executed in favor of defendant on the aforesaid date a deed of Real Estate
Mortgage over the following described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse
spaces containing a total floor area of 263 sq. meters, more or less,
generally constructed of mixed hard wood and concrete materials, under a
roofing of cor. g. i. sheets; declared and assessed in the name of
FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the
Assessor of Olongapo City with an assessed value of P35,290.00. This
building is the only improvement of the lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the
right of occupancy on the lot where the above property is erected, and
more particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308,
Olongapo Townsite Subdivision) Ardoin Street, East BajacBajac, Olongapo City, containing an area of 465 sq. m. more
or less, declared and assessed in the name of FERNANDO
MAGCALE under Tax Duration No. 19595 issued by the
Assessor of Olongapo City with an assessed value of
P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
All corners of the lot marked by conc. cylindrical
monuments of the Bureau of Lands as visible
limits. ( Exhibit "A, " also Exhibit "1" for
defendant).
1

Apart from the stipulations in the printed portion of the

aforestated deed of mortgage, there appears a rider typed at
the bottom of the reverse side of the document under the lists
of the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event
the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued
by the Bureau of Lands, the Mortgagors hereby
authorize the Register of Deeds to hold the
Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on
the Title upon authority from the Secretary of
Agriculture and Natural Resources, which title
with annotation, shall be released in favor of the
herein Mortgage.
From the aforequoted stipulation, it is obvious that the
mortgagee (defendant Prudential Bank) was at the outset
aware of the fact that the mortgagors (plaintiffs) have already
filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the
Provisions of Act 3344 with the Registry of Deeds of Zambales
on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from
defendant Prudential Bank in the sum of P20,000.00. To
secure payment of this additional loan, plaintiffs executed in
favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged in
Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This
second deed of Real Estate Mortgage was likewise registered
with the Registry of Deeds, this time in Olongapo City, on May
2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales
Patent No. 4776 over the parcel of land, possessory rights over which
were mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the
basis of the aforesaid Patent, and upon its transcription in the Registration
Book of the Province of Zambales, Original Certificate of Title No. P-2554
was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio
Register of Deeds of Zambales, on May 15, 1972.
For failure of plaintiffs to pay their obligation to defendant Bank after it
became due, and upon application of said defendant, the deeds of Real
Estate Mortgage (Exhibits "A" and "B") were extrajudicially foreclosed.
Consequent to the foreclosure was the sale of the properties therein
mortgaged to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The
auction sale aforesaid was held despite written request from plaintiffs
through counsel dated March 29, 1978, for the defendant City Sheriff to
desist from going with the scheduled public auction sale (Exhibit "D")."
(Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
2

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real
Estate Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53),
opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order
dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for
lack of merit. Hence, the instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require
the respondents to comment (Ibid., p. 65), which order was complied with the
Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979
(Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course
and the parties were required to submit simultaneously their respective memoranda.
(Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision
(Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID;
AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE
RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24,
1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF
TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines,
this Court ruled that, "it is obvious that the inclusion of "building" separate and distinct
from the land, in said provision of law can only mean that a building is by itself an
immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be
still a real estate mortgage for the building would still be considered immovable
property even if dealt with separately and apart from the land (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that
possessory rights over said properties before title is vested on the grantee, may be
validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos,
3 SCRA 438 [1961]).
3

Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse and
on the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register
of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776
on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was
issued in the name of private respondent Fernando Magcale on May 15, 1972. It is
therefore without question that the original mortgage was executed before the issuance
of the final patent and before the government was divested of its title to the land, an
event which takes effect only on the issuance of the sales patent and its subsequent
registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96
Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing
considerations, it is evident that the mortgage executed by private respondent on his
own building which was erected on the land belonging to the government is to all
intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it
will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land
already acquired under the Public Land Act, or any improvement thereon and therefore
have no application to the assailed mortgage in the case at bar which was executed
before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction
appearing on the face of private respondent's title has likewise no application in the
instant case, despite its reference to encumbrance or alienation before the patent is
issued because it refers specifically to encumbrance or alienation on the land itself and
does not mention anything regarding the improvements existing thereon.
But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered
with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is
evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121,
122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore
null and void.
Petitioner points out that private respondents, after physically possessing the title for
five years, voluntarily surrendered the same to the bank in 1977 in order that the
mortgaged may be annotated, without requiring the bank to get the prior approval of the
Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential
Bank to cause the annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which refers to
Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held:
... Nonetheless, we apply our earlier rulings because we believe that as
in pari delicto may not be invoked to defeat the policy of the State neither
may the doctrine of estoppel give a validating effect to a void contract.
Indeed, it is generally considered that as between parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy (19 Am. Jur. 802). It is not within the competence of
any citizen to barter away what public policy by law was to preserve
(Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal
vs. IAC, 143 SCRA 54 [1986]).
This pronouncement covers only the previous transaction already alluded to and does
not pass upon any new contract between the parties (Ibid), as in the case at bar. It
4

should not preclude new contracts that may be entered into between petitioner bank
and private respondents that are in accordance with the requirements of the law. After
all, private respondents themselves declare that they are not denying the legitimacy of
their debts and appear to be open to new negotiations under the law (Comment; Rollo,
pp. 95-96). Any new transaction, however, would be subject to whatever steps the
Government may take for the reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales &
Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage
for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an
additional loan of P20,000.00 is null and void, without prejudice to any appropriate
action the Government may take against private respondents.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

G.R. No. L-30173 September 30, 1971

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J.:

Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the
reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal court of
Manila in Civil Case No. 43073, for ejectment. Having lost therein, defendantsappellants appealed to the court a quo (Civil Case No. 30993) which also rendered a
decision against them, the dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs
and against the defendants, ordering the latter to pay jointly and severally
the former a monthly rent of P200.00 on the house, subject-matter of this
action, from March 27, 1956, to January 14, 1967, with interest at the legal
rate from April 18, 1956, the filing of the complaint, until fully paid, plus
attorney's fees in the sum of P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants executed a
chattel mortgage in favor of plaintiffs-appellees over their house of strong materials
located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 75

B, Block No. 2554, which were being rented from Madrigal & Company, Inc. The
mortgage was registered in the Registry of Deeds of Manila on 2 September 1955. The
herein mortgage was executed to guarantee a loan of P4,800.00 received from
plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment
was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of
P3,150 was payable on or before August, 1956. It was also agreed that default in the
payment of any of the amortizations, would cause the remaining unpaid balance to
becomeimmediately due and Payable and
the Chattel Mortgage will be enforceable in accordance with the provisions
of Special Act No. 3135, and for this purpose, the Sheriff of the City of
Manila or any of his deputies is hereby empowered and authorized to sell
all the Mortgagor's property after the necessary publication in order to
settle the financial debts of P4,800.00, plus 12% yearly interest, and
attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was extrajudicially
foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to the
said contract. As highest bidder, plaintiffs-appellees were issued the corresponding
certificate of sale. 3 Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the house be vacated and its possession surrendered
to them, and for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time the
4
possession is surrendered. On 21 September 1956, the municipal court rendered its decision

... ordering the defendants to vacate the premises described in the

complaint; ordering further to pay monthly the amount of P200.00 from
March 27, 1956, until such (time that) the premises is (sic) completely
vacated; plus attorney's fees of P100.00 and the costs of the suit. 5
Defendants-appellants, in their answers in both the municipal court and court a
quo impugned the legality of the chattel mortgage, claiming that they are still the
owners of the house; but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in support of their motion to
dismiss, predicated mainly on the grounds that: (a) the municipal court did not have
jurisdiction to try and decide the case because (1) the issue involved, is ownership, and
(2) there was no allegation of prior possession; and (b) failure to prove prior demand
pursuant to Section 2, Rule 72, of the Rules of Court. 6
During the pendency of the appeal to the Court of First Instance, defendants-appellants
failed to deposit the rent for November, 1956 within the first 10 days of December, 1956
as ordered in the decision of the municipal court. As a result, the court granted
plaintiffs-appellees' motion for execution, and it was actually issued on 24 January
1957. However, the judgment regarding the surrender of possession to plaintiffsappellees could not be executed because the subject house had been already
demolished on 14 January 1957 pursuant to the order of the court in a separate civil
case (No. 25816) for ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond
and withdrawal of deposited rentals was denied for the reason that the liability therefor
was disclaimed and was still being litigated, and under Section 8, Rule 72, rentals
deposited had to be held until final disposition of the appeal. 7
On 7 October 1957, the appellate court of First Instance rendered its decision, the
dispositive portion of which is quoted earlier. The said decision was appealed by
defendants to the Court of Appeals which, in turn, certified the appeal to this Court.
6

Plaintiffs-appellees failed to file a brief and this appeal was submitted for decision
without it.
Defendants-appellants submitted numerous assignments of error which can be
condensed into two questions, namely: .
(a) Whether the municipal court from which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals
to the plaintiffs during the period of one (1) year provided by law for the
redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court
from which the case originated, and consequently, the appellate jurisdiction of the Court
of First Instance a quo, on the theory that the chattel mortgage is void ab initio; whence
it would follow that the extrajudicial foreclosure, and necessarily the consequent auction
sale, are also void. Thus, the ownership of the house still remained with defendantsappellants who are entitled to possession and not plaintiffs-appellees. Therefore, it is
argued by defendants-appellants, the issue of ownership will have to be adjudicated
first in order to determine possession. lt is contended further that ownership being in
issue, it is the Court of First Instance which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two
grounds, which are: (a) that, their signatures on the chattel mortgage were obtained
through fraud, deceit, or trickery; and (b) that the subject matter of the mortgage is a
house of strong materials, and, being an immovable, it can only be the subject of a real
estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found defendantsappellants' contentions as not supported by evidence and accordingly dismissed the
charge, 8 confirming the earlier finding of the municipal court that "the defense of ownership as well as the
allegations of fraud and deceit ... are mere allegations."

It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the answer is a mere
11

statement of the facts which the party filing it expects to prove, but it is not evidence; and further, that when the
question to be determined is one of title, the Court is given the authority to proceed with the hearing of the cause
12
until this fact is clearly established. In the case of Sy vs. Dalman, wherein the defendant was also a successful
bidder in an auction sale, it was likewise held by this Court that in detainer cases the aim of ownership "is a matter
of defense and raises an issue of fact which should be determined from the evidence at the trial." What
13
determines jurisdiction are the allegations or averments in the complaint and the relief asked for.

Moreover, even granting that the charge is true, fraud or deceit does not render a
contract void ab initio, and can only be a ground for rendering the contract voidable or
annullable pursuant to Article 1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. Hence, defendants-appellants' claim of ownership on the basis of a voidable
contract which has not been voided fails.

It is claimed in the alternative by defendants-appellants that even if there was no fraud,

deceit or trickery, the chattel mortgage was still null and void ab initio because only
personal properties can be subject of a chattel mortgage. The rule about the status of
buildings as immovable property is stated in Lopez vs. Orosa, Jr. and Plaza Theatre
Inc., 15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the effect that

... it is obvious that the inclusion of the building, separate and distinct from
the land, in the enumeration of what may constitute real properties (art.
415, New Civil Code) could only mean one thing that a building is by
itself an immovable property irrespective of whether or not said structure
and the land on which it is adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case
of Manarang and Manarang vs. Ofilada, 17 this Court stated that "it is undeniable that the parties to a
contract may by agreement treat as personal property that which by nature would be real property",
18
citing Standard Oil Company of New York vs. Jaramillo. In the latter case, the mortgagor conveyed and
19
transferred to the mortgagee by way of mortgage "the following described personal property." The "personal
20
property" consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion, the subject
of the contract designated as Chattel Mortgage was a house of mixed materials, and this Court hold therein that it
was a valid Chattel mortgage because it was so expressly designated and specifically that the property given as
security "is a house of mixed materials, which by its very nature is considered personal property." In the later case
21
of Navarro vs. Pineda, this Court stated that

The view that parties to a deed of chattel mortgage may agree to consider
a house as personal property for the purposes of said contract, "is good
only insofar as the contracting parties are concerned. It is based, partly,
upon the principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139,
23 April 1958). In a case, a mortgaged house built on a rented land was
held to be a personal property, not only because the deed of mortgage
considered it as such, but also because it did not form part of the land
(Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an
object placed on land by one who had only a temporary right to the same,
such as the lessee or usufructuary, does not become immobilized by
attachment (Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house
belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property as so stipulated in the
document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted,
however that the principle is predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably estop
him from subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA]
48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that "the mortgagor ...
voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage 23 the property
24

together with its leasehold rights over the lot on which it is constructed and participation ..." Although there is no
specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel,
or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendats-appellants
merely had a temporary right as lessee, and although this can not in itself alone determine the status of the
property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and
25
26
Plaza Theatre, Inc. and Leung Yee vs. F. L. Strong Machinery and Williamson, wherein third
27
persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtorsmortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having treated the subject house as personalty.

(b) Turning to the question of possession and rentals of the premises in question. The
Court of First Instance noted in its decision that nearly a year after the foreclosure sale
the mortgaged house had been demolished on 14 and 15 January 1957 by virtue of a
decision obtained by the lessor of the land on which the house stood. For this reason,
the said court limited itself to sentencing the erstwhile mortgagors to pay plaintiffs a
monthly rent of P200.00 from 27 March 1956 (when the chattel mortgage was
8

foreclosed and the house sold) until 14 January 1957 (when it was torn down by the
Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to remain in
possession without any obligation to pay rent during the one year redemption period
after the foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the
appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508. 28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at public auction
through a public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No.
29
4118, provided that the requirements of the law relative to notice and registration are complied with. In the
instant case, the parties specifically stipulated that "the chattel mortgage will be enforceable in accordance with
30
the provisions of Special Act No. 3135 ... ." (Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the date of the auction sale, redeem the property sold at the extra
32
judicial foreclosure sale. Section 7 of the same Act allows the purchaser of the property to obtain from the court
the possession during the period of redemption: but the same provision expressly requires the filing of a petition
with the proper Court of First Instance and the furnishing of a bond. It is only upon filing of the proper motion and
the approval of the corresponding bond that the order for a writ of possession issues as a matter of course. No
33
discretion is left to the court. In the absence of such a compliance, as in the instant case, the purchaser can not
claim possession during the period of redemption as a matter of right. In such a case, the governing provision is
34
Section 34, Rule 39, of the Revised Rules of Court which also applies to properties purchased in extrajudicial
35
foreclosure proceedings. Construing the said section, this Court stated in the aforestated case of Reyes vs.
Hamada.

In other words, before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the purchaser
thereof is not entitled, as a matter of right, to possession of the same.
Thus, while it is true that the Rules of Court allow the purchaser to receive
the rentals if the purchased property is occupied by tenants, he is,
nevertheless, accountable to the judgment-debtor or mortgagor as the
case may be, for the amount so received and the same will be duly
credited against the redemption price when the said debtor or mortgagor
effects the redemption.Differently stated, the rentals receivable from
tenants, although they may be collected by the purchaser during the
redemption period, do not belong to the latter but still pertain to the debtor
of mortgagor. The rationale for the Rule, it seems, is to secure for the
benefit of the debtor or mortgagor, the payment of the redemption amount
and the consequent return to him of his properties sold at public auction.
(Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe. 36
Since the defendants-appellants were occupying the house at the time of the auction
sale, they are entitled to remain in possession during the period of redemption or within
one year from and after 27 March 1956, the date of the auction sale, and to collect the
rents or profits during the said period.
It will be noted further that in the case at bar the period of redemption had not yet
expired when action was instituted in the court of origin, and that plaintiffs-appellees did
not choose to take possession under Section 7, Act No. 3135, as amended, which is
the law selected by the parties to govern the extrajudicial foreclosure of the chattel
mortgage. Neither was there an allegation to that effect. Since plaintiffs-appellees' right
to possess was not yet born at the filing of the complaint, there could be no violation or
breach thereof. Wherefore, the original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be ordered dismissed, even if there
was no assignment of error to that effect. The Supreme Court is clothed with ample
9

authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision of the cases. 37
It follows that the court below erred in requiring the mortgagors to pay rents for the year
following the foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-appellees.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.

Footnotes
1 Exhibit "A," page 1, Folder of Exhibits.
2 See paragraph "G," Exhibit "A," supra.
3 Exhibit "B," page 4, Folder of Exhibits.
4 Page 2, Defendants' Record on appeal, page 97, Rollo.
5 Page 20, Id., page 115, Rollo.
6 Now Section 2, Rule 70, Revised Rules of Court, which reads that
"SEC. 2. Landlord, to proceed against tenant only after demand. No
landlord, or his legal representative or assign, shall bring such action
against a tenant for failure to pay rent due or to comply with the conditions
of his lease, unless the tenant shall have failed to pay such rent or comply
with such conditions for a period of ... five (5) days in the case of building,
after demand therefor, made upon him personally, or by serving written
notice of such demand upon the person found on the premises, or by
posting such notice on the premises if no persons be found thereon."
7 See CFI order of 20 February 1957, pages 21-25, Defendants' Record
on Appeal.
8 Page 31, Defendants' Record on Appeal, page 213, Rollo.
9 See Municipal court decision, pages 17-18, Defendants' Record on
Appeal, pages 199-200, Rollo.
10 59 Phil. 320-321.
11 Emphasis supplied.
12 L-19200, 27 February 1958, 22 SCRA 834; See also Aquino vs. Deala,
63 Phil. 582 and De los Reyes vs. Elepao, et al., G.R. No. L-3466, 13
October 1950.
13 See Canaynay vs. Sarmiento, L-1246, 27 August 1947, 79 Phil. 36.
10

14 Last paragraph, Article 1290, N.C.C., supra.

15 No. L-10817-18, 28 February 1958, 103 Phil. 98.
16 No. L-10827-38, 30 May 1958, 103 Phil. 972.
17 No. L-8133, 18 May 1956, 99 Phil. 109.
18 No. L-20329, 16 March 1923, 44 Phil. 632.
19 Emphasis supplied.
20 No. L-4637, 30 June 1952, 91 Phil. 531.
21 No. L-18456, 30 November 1963, 9 SCRA 631.
22 Emphasis supplied.
23 Emphasis supplied.
24 See paragraph 2 of Exhibit "A," page 1, Folder of Exhibits.
25 Supra.
26 Supra.
27 See Navarro vs. Pineda, supra.
28 Effective 1 August 1906.
29 See Luna vs. Encarnacion, et al., No. L-4637, 30 June 1952, 91 Phil.
531.
30 See paragraph "G," Exhibit "A," supra.
31 Section 6, Act No. 3135, as amended, provides:
"In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundredand sixty-four to four
hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as
these are not inconsistent with the provisions of this Act." (Emphasis
supplied) .
32 Section 7, Act No. 3135, as amended, states: .
"In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the
property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the
11

mortgage or without complying with the requirements of this Act..."

(Emphasis supplied) .
33 See De Gracia vs. San Jose, et al., No. L-6493, 25 March 1954.
34 "SEC. 34. Rents and profits pending redemption. Statement thereof and
credit therefor on redemption. The purchaser, from the time of the sale
until a redemption, and a redemptioner, from the time of his redemption
until another redemption, is entitled to receive the rents of the property sold
or the value of the use and occupation thereof when such property is in
possession of a tenant. But when any such rents and profits have been
received by the judgment creditor or purchaser, or by a redemptioner, or
by the assignee or either of them, from property thus sold preceding such
redemption, the amounts of such rents and profits shall be a credit upon
the redemption money to be paid; ..."
35 See Reyes vs. Hamada, No. L-19967, 31 May 1965, 14 SCRA 215;
Emphasis supplied.
36 No. L-16777, 20 April 1961, 1 SCRA 1004.
37 Saura Import & Export Co. vs. Philippine International Surety Co., et al.,
No. L-15184, 31 May 1963, 8 SCRA 143, 148; Hernandez vs. Andal, 78
Phil.198, See also Sec. 7, Rule 51, of the Revised Rules of Court. Cf.
Santaells vs.Otto Lange Co., 155 Fed. 719; Mast vs. Superior Drill Co.,
154 Fed., 45, Francisco, Rules of Court (1965 Ed), Vol. 3, page 765.

[G.R. No. 137705. August 22, 2000]

SERGS
PRODUCTS,
INC.,
GOQUIOLAY, petitioners, vs. PCI
INC., respondent.

and
LEASING

SERGIO
T.
AND FINANCE,

DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently claiming
otherwise. Hence, such property is a proper subject of a writ of replevin obtained by
the other contracting party.

The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26,
1999 Resolution[3] denying reconsideration. The decretal portion of the CA Decision
reads as follows:
12

WHEREFORE, premises considered, the assailed Order dated February 18, 1998
and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.
[4]

In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City
(Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied
petitioners Motion for Special Protective Order, praying that the deputy sheriff be
enjoined from seizing immobilized or other real properties in (petitioners) factory in
Cainta, Rizal and to return to their original place whatever immobilized machineries or
equipments he may have removed.[9]

The Facts
The undisputed facts are summarized by the Court of Appeals as follows: [10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing
for short) filed with the RTC-QC a complaint for [a] sum of money (Annex E), with
an application for a writ of replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge
issued a writ of replevin (Annex B) directing its sheriff to seize and deliver the
machineries and equipment to PCI Leasing after 5 days and upon the payment of
the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to
petitioners factory, seized one machinery with [the] word that he [would] return for
the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex
C), invoking the power of the court to control the conduct of its officers and amend
and control its processes, praying for a directive for the sheriff to defer enforcement
of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ of
replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further stated that PCI Leasing [was]
estopped from treating these machineries as personal because the contracts in
which the alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was
prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
13

Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned, by
petitioners. It also ruled that the words of the contract are clear and leave no doubt
upon the true intention of the contracting parties. Observing that Petitioner Goquiolay
was an experienced businessman who was not unfamiliar with the ways of the
trade, it ruled that he should have realized the import of the document he
signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial court in
ruling upon the case below, since the merits of the whole matter are laid down
before us via a petition whose sole purpose is to inquire upon the existence of a
grave abuse of discretion on the part of the [RTC] in issuing the assailed Order and
Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine.
Hence, this Petition.[11]

The Issues
In their Memorandum, petitioners submit the following issues for our consideration:

A. Whether or not the machineries purchased and imported by SERGS became

real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.

[12]

In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised by
respondent.
The Courts Ruling
The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was
being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the
Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion
finds support in the very title of the Petition, which is Petition for Review on
Certiorari.[13]
While Judge Laqui should not have been impleaded as a respondent,[14] substantial
justice requires that such lapse by itself should not warrant the dismissal of the present
Petition. In this light, the Court deems it proper to remove, motu proprio, the name of
Judge Laqui from the caption of the present case.

Main Issue: Nature of the Subject Machinery

14

Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[15] Section 3 thereof reads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the
court shall issue an order and the corresponding writ of replevin describing the
personal property alleged to be wrongfully detained and requiring the sheriff
forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them have
become immobilized by destination because they are essential and principal elements
in the industry.[16] In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[18] After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any material fact
found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to
treat a house as a personal property because it had been made the subject of a
chattel mortgage. The Court ruled:

x x x. Although there is no specific statement referring to the subject house as

personal property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not now
be allowed to make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills[20] also held that the machinery used in a factory and essential to the
industry, as in the present case, was a proper subject of a writ of replevin because it
was treated as personal property in a contract. Pertinent portions of the Courts ruling
are reproduced hereunder:
15

x x x. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the chattel
mortgage.
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of the
Agreement reads as follows:[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently
resting upon, real property or any building thereon, or attached in any manner to
what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.[22] Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no showing
that any specific third party would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and the
validity of the lease agreement itself.[25] In their Reply to respondents Comment, they
further allege that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the contract are
the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence, they
should be threshed out in the trial, not in the proceedings involving the issuance of the
Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy under
Rule 60 was that questions involving title to the subject property questions which
petitioners are now raising -- should be determined in the trial. In that case, the Court
noted that the remedy of defendants under Rule 60 was either to post a counter-bond
or to question the sufficiency of the plaintiffs bond. They were not allowed, however,
to invoke the title to the subject property. The Court ruled:

In other words, the law does not allow the defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint
or of the grounds relied upon therefor, as in proceedings on preliminary attachment
or injunction, and thereby put at issue the matter of the title or right of possession
over the specific chattel being replevied, the policy apparently being that said matter
should be ventilated and determined only at the trial on the merits.
[28]

16

Besides, these questions require a determination of facts and a presentation of

evidence, both of which have no place in a petition for certiorari in the CA under Rule
65 or in a petition for review in this Court under Rule 45.[29]

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In fact,
petitioners assailed it first only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed valid and binding as the
law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent had allegedly been required
to sign a printed form of chattel mortgage which was in a blank form at the time of
signing. The Court rejected the argument and relied on the Deed, ruling as follows:

x x x. Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said contract
voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper
action in court. There is nothing on record to show that the mortgage has been
annulled. Neither is it disclosed that steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized, then
its workers would be out of work and thrown into the streets.[31] They also allege that
the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As earlier
discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the remedy under Section 5 of Rule 60,
which allows the filing of a counter-bond. The provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately require
the return of the property, but if he does not so object, he may, at any time before
the delivery of the property to the applicant, require the return thereof, by filing with
the court where the action is pending a bond executed to the applicant, in double
the value of the property as stated in the applicants affidavit for the delivery thereof
to the applicant, if such delivery be adjudged, and for the payment of such sum to
him as may be recovered against the adverse party, and by serving a copy bond on
the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

G.R. No. 120098

October 2, 2001
17

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R
VILLALUZ, respondents.
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV
No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in
Civil Case No. 89-48265. Also assailed is respondent court's resolution denying
petitioners' motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a
three million peso (P3,000,000.00) loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of
PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein as enumerated in a schedule
attached to the mortgage contract. The pertinent portions of the Real and Chattel
Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx

xxx

xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First

Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all the
buildings and improvements now existing or which may hereafter exist thereon,
situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in
Hongkong:
Serial Numbers Size of Machines
xxx

xxx

xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx

xxx

xxx
18

C. Two (2) Circular Knitting Machines made in West Germany.

xxx

xxx

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx
SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx

xxx

xxx

II. Any and all buildings and improvements now existing or hereafter to exist on
the above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the
above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and accretions
to above properties.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The
loan was secured by a Chattel Mortgage over personal properties enumerated in a list
attached thereto. These listed properties were similar to those listed in Annex A of the
first mortgage deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned
above, EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency
proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First
Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982
declaring the corporation insolvent. All its assets were taken into the custody of the
Insolvency Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135,
otherwise known as "An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982.

19

On December 15, 1982, the first public auction was held where petitioner PBCom
emerged as the highest bidder and a Certificate of Sale was issued in its favor on the
same date. On December 23, 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same
day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the
properties in it. In November 1986, it leased the entire factory premises to petitioner
Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock,
stock and barrel to Tsai for P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance,
and damages with the Regional Trial Court against PBCom, alleging inter alia that the
extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law.
EVERTEX claimed that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her,
and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and Chattel
Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and
neither were those properties included in the Notice of Sheriff's Sale dated December
1, 1982 and Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular
Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment
and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and
illegal because they were not duly foreclosed nor sold at the December 15, 1982
auction sale since these were not included in the schedules attached to the mortgage
contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and
against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it
affects the personal properties listed in par. 9 of the complaint, and their return to
the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for
disposition by the Insolvency Court, to be done within ten (10) days from finality
of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P5,200,000.00 as compensation for the use and possession of the
properties in question from November 1986 to February 1991 and P100,000.00
every month thereafter, with interest thereon at the legal rate per annum until full
payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the
sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
20

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its
decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary damages,
and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from
November 1986 until subject personal properties are restored to appellees, the
judgment appealed from is hereby AFFIRMED, in all other respects. No
pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution of
April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent
court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981
ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES
WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE
OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR
IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME
COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND
EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGAL
BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND
LACHES.6
In G.R. No. 120098, PBCom raised the following issues:
I.
21

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED

UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY
OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED
THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY
PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTERACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL
FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID
MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL
PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE
ASSESSED FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN
GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH
AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE
AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE
BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN
TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED
DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST
ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned
properties in the foreclosed properties is proper. The secondary issue is whether or not
the sale of these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the
parties by treating the 1981 acquired units of machinery as chattels instead of real
properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of
Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that
the disputed 1981 machineries are not real properties.9 Finally, she contends that the
Court of Appeals erred in holding against petitioner's arguments on prescription and
laches10 and in assessing petitioner actual damages, attorney's fees and expenses of
litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed
and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of
Appeals' pronouncement that the pieces of machinery in question were personal
properties have no factual and legal basis. Finally, it asserts that the Court of Appeals
erred in assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are
not "real properties" but chattels, and, therefore, they were not part of the foreclosed
real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity. 12
Considering the assigned errors and the arguments of the parties, we find the petitions
devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.14
22

The following are the facts as found by the RTC and affirmed by the Court of Appeals
that are decisive of the issues: (1) the "controverted machineries" are not covered by,
or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and
the pure Chattel Mortgage; (2) the said machineries were not included in the list of
properties appended to the Notice of Sale, and neither were they included in the
Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom,
make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code.
This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose
the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by the parties herein gives us a
contrary indication. In the case at bar, both the trial and the appellate courts reached
the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat
machinery and equipment as chattels. The pertinent portion of respondent appellate
court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as
chattels; never as real properties. Indeed, the 1975 mortgage contract, which
was actually real and chattel mortgage, militates against appellants' posture. It
should be noted that the printed form used by appellant bank was mainly for real
estate mortgages. But reflective of the true intention of appellant PBCOM and
appellee EVERTEX was the typing in capital letters, immediately following the
printed caption of mortgage, of the phrase "real and chattel." So also, the
"machineries and equipment" in the printed form of the bank had to be inserted in
the blank space of the printed contract and connected with the word "building" by
typewritten slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there would have been
no necessity to ink a chattel mortgage specifically mentioning as part III of
Schedule A a listing of the machineries covered thereby. It would have sufficed to
list them as immovables in the Deed of Real Estate Mortgage of the land and
building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond
question. It refers solely tochattels. The inventory list of the mortgaged properties
is an itemization of sixty-three (63) individually described machineries while the
schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics
and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to depart
therefrom.
Too, assuming arguendo that the properties in question are immovable by nature,
nothing detracts the parties from treating it as chattels to secure an obligation under the
principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property if there is a stipulation as when it is
used as security in the payment of an obligation where a chattel mortgage is executed
over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate
Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their
intention is to treat all properties included therein as immovable, and (2) attached to the
23

said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken
together, evince the conclusion that the parties' intention is to treat these units of
machinery as chattels. A fortiori, the contested after-acquired properties, which are of
the same description as the units enumerated under the title "LIST OF MACHINERIES
& EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that
inasmuch as the subject mortgages were intended by the parties to involve chattels,
insofar as equipment and machinery were concerned, the Chattel Mortgage Law
applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed
to cover only the property described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been
involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the
part of the Sheriff to include subject machineries with the properties enumerated in said
chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in
its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary
principle of nemo dat quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested
properties is a nullity, she is nevertheless a purchaser in good faith and for value who
now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court that
she is not a purchaser in good faith. Well-settled is the rule that the person who asserts
the status of a purchaser in good faith and for value has the burden of proving such
assertion.18 Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or before
he has notice of the claims or interest of some other person in the property. 19 Records
reveal, however, that when Tsai purchased the controverted properties, she knew of
respondent's claim thereon. As borne out by the records, she received the letter of
respondent's counsel, apprising her of respondent's claim, dated February 27,
1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's
claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus,
the RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not
to sale of properties situated therein. Likewise, the mere fact that the lot where the
factory and the disputed properties stand is in PBCom's name does not automatically
make PBCom the owner of everything found therein, especially in view of EVERTEX's
letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find
no cogent reason to disturb the consistent findings of both courts below that the case
for the reconveyance of the disputed properties was filed within the reglementary
period. Here, in our view, the doctrine of laches does not apply. Note that upon
petitioners' adamant refusal to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and ownership of the disputed
24

properties. There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier. The doctrine of stale demands would
apply only where by reason of the lapse of time, it would be inequitable to allow a party
to enforce his legal rights. Moreover, except for very strong reasons, this Court is not
disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages, and
attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to
the unpaid rentals of the contested properties based on the testimony of John Chua,
who testified that the P100,000.00 was based on the accepted practice in banking and
finance, business and investments that the rental price must take into account the cost
of money used to buy them. The Court of Appeals did not give full credence to Chua's
projection and reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be
capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount
thereof.23 However, the allegations of respondent company as to the amount of
unrealized rentals due them as actual damages remain mere assertions unsupported
by documents and other competent evidence. In determining actual damages, the court
cannot rely on mere assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence obtainable regarding the actual
amount of loss.24 However, we are not prepared to disregard the following dispositions
of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on record
warranting the said award of P5,200,000.00, representing monthly rental income
of P100,000.00 from November 1986 to February 1991, and the additional award
of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary
to substantiate the actual damages allegedly sustained by appellees, by way of
unrealized rental income of subject machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on
what is claimed to be a practice in business and industry. But such a testimony
cannot serve as the sole basis for assessing the actual damages complained of.
What is more, there is no showing that had appellant Tsai not taken possession
of the machineries and equipments in question, somebody was willing and ready
to rent the same for P100,000.00 a month.
xxx

xxx

xxx

Then, too, even assuming arguendo that the said machineries and equipments
could have generated a rental income of P30,000.00 a month, as projected by
witness Mamerto Villaluz, the same would have been a gross income. Therefrom
should be deducted or removed, expenses for maintenance and repairs . . .
Therefore, in the determination of the actual damages or unrealized rental
income sued upon, there is a good basis to calculate that at least four months in
a year, the machineries in dispute would have been idle due to absence of a
lessee or while being repaired. In the light of the foregoing rationalization and
25

computation, We believe that a net unrealized rental income of P20,000.00 a

month, since November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the
Court of Appeals deleted. But according to the CA, there was no clear showing that
petitioners acted malevolently, wantonly and oppressively. The evidence, however,
shows otherwise.It is a requisite to award exemplary damages that the wrongful act
must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent,
oppressive, reckless or malevolent manner.27 As previously stressed, petitioner Tsai's
act of purchasing the controverted properties despite her knowledge of EVERTEX's
claim was oppressive and subjected the already insolvent respondent to gross
disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties
found in the factory of the financially handicapped respondent, including those
properties not covered by or included in the mortgages, is equally oppressive and
tainted with bad faith. Thus, we are in agreement with the RTC that an award of
exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article
2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the
adjudication of exemplary damages, their assessment being left to the discretion of the
court in accordance with the circumstances of each case.29 While the imposition of
exemplary damages is justified in this case, equity calls for its reduction. In Inhelder
Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30,
1983), we laid down the rule that judicial discretion granted to the courts in the
assessment of damages must always be exercised with balanced restraint and
measured objectivity. Thus, here the award of exemplary damages by way of example
for the public good should be reduced to P100,000.00.
By the same token, attorney's fees and other expenses of litigation may be recovered
when exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as
attorney's fees and expenses of litigation is reasonable, given the circumstances in
these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the
Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS.
Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to
pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month,
as compensation for the use and possession of the properties in question from
November 198631 until subject personal properties are restored to respondent
corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as
attorney's fees and litigation expenses. Costs against petitioners.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.
26

AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated
water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car
washer, car hoists, truck hoists, air compressors and tireflators. The city assessor
described the said equipment and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is
erected, a water tank if there is any is placed in one corner of the lot, car
hoists are placed in an adjacent shed, an air compressor is attached in the
wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is
dug deep about six feet more or less, a few meters away from the shed.
This is done to prevent conflagration because gasoline and other
combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump
and the gasoline pump is commonly placed or constructed under the shed.
The footing of the pump is a cement pad and this cement pad is imbedded
in the pavement under the shed, and evidence that the gasoline
underground tank is attached and connected to the shed or building
through the pipe to the pump and the pump is attached and affixed to the
cement pad and pavement covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a
separate shed, the air compressor, the underground gasoline tank, neon
lights signboard, concrete fence and pavement and the lot where they are
all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the
tenement, it is clear they are, for the tenement we consider in this
particular case are (is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and the improvement
which holds all the properties under question, they are attached and
affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as
well as all the improvements, machines, equipments and apparatus are
allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to
the pump, so with the water tank it is connected also by a steel pipe to the
pavement, then to the electric motor which electric motor is placed under
the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only
the building as the service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under
an appropriate lease agreement or receipt. It is stipulated in the lease contract that the
27

operators, upon demand, shall return to Caltex the machines and equipment in good
condition as when received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become the owner of
the machines and equipment installed therein. Caltex retains the ownership thereof
during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment
and machinery as taxable realty. The realty tax on said equipment amounts to
P4,541.10 annually (p. 52, Rollo). The city board of tax appeals ruled that they are
personalty. The assessor appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman,
Acting Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government
and Community Development Jose Roo, held in its decision of June 3, 1977 that the
said machines and equipment are real property within the meaning of sections 3(k) &
(m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took
effect on June 1, 1974, and that the definitions of real property and personal property in
articles 415 and 416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took
Macaraig's place) in its resolution of January 12, 1978, denying Caltex's motion for
reconsideration, a copy of which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside
of the Board's decision and for a declaration that t he said machines and equipment are
personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive
appellate jurisdiction over this case is not correct. When Republic act No. 1125 created
the Tax Court in 1954, there was as yet no Central Board of Assessment Appeals.
Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by
appeal decisions of provincial or city boards of assessment appeals had in mind the
local boards of assessment appeals but not the Central Board of Assessment Appeals
which under the Real Property Tax Code has appellate jurisdiction over decisions of the
said local boards of assessment appeals and is, therefore, in the same category as the
Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central
Board of Assessment Appeals shall become final and executory after the lapse of
fifteen days from the receipt of its decision by the appellant. Within that fifteen-day
period, a petition for reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the
decision of the Central Board of Assessment Appeals is the special civil action of
certiorari, the recourse resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already
enumerated are subject to realty tax. This issue has to be resolved primarily under the
provisions of the Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:
28

SEC. 38. Incidence of Real Property Tax. There shall be levied,

assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings, machinery
and other improvements affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances,
instruments, appliances and apparatus attached to the real estate. It
includes the physical facilities available for production, as well as the
installations and appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing, industrial or
agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station
building or shed owned by Caltex (as to which it is subject to realty tax) and which
fixtures are necessary to the operation of the gas station, for without them the gas
station would be useless, and which have been attached or affixed permanently to the
gas station site or embedded therein, are taxable improvements and machinery within
the meaning of the Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant but not when
so placed by a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo,
61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding
machinery that becomes real property by destination. In the Davao Saw Mills case the
question was whether the machinery mounted on foundations of cement and installed
by the lessee on leased land should be regarded as real property forpurposes of
execution of a judgment against the lessee. The sheriff treated the machinery as
personal property. This Court sustained the sheriff's action. (Compare with Machinery &
Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently
affixed by Caltex to its gas station and pavement (which are indubitably taxable realty)
should be subject to the realty tax. This question is different from the issue raised in
the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes
they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property" (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila
Electric Co., 119 Phil. 328, where Meralco's steel towers were considered poles within
the meaning of paragraph 9 of its franchise which exempts its poles from taxation. The
29

steel towers were considered personalty because they were attached to square metal
frames by means of bolts and could be moved from place to place when unscrewed
and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and
equipment in the repair shop of a bus company which were held to be personal
property not subject to realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion
in upholding the city assessor's is imposition of the realty tax on Caltex's gas station
and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of
Assessment Appeals are affirmed. The petition for certiorari is dismissed for lack of
merit. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr. and Abad Santos, JJ., took no part.

G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF
BATANGAS, respondents.

AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed in
1969 by Manila Electric Company on a lot in San Pascual, Batangas which it leased in
1968 from Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They
have a total capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's
power plants.
According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the intermediate layer and a two-inch thick
bituminous asphalt stratum as the top layer. The bottom of each tank is in contact with
the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to
Meralco, the tank is not attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of the foundation by
bolts, screws or similar devices. The tank merely sits on its foundation. Each empty
tank can be floated by flooding its dike-inclosed location with water four feet deep. (pp.
29-30, Rollo.)
30

On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with
earthen dikes with electric steel poles on top thereof and is divided into two parts as the
site of each tank. The foundation of the tanks is elevated from the remaining area. On
both sides of the earthen dikes are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch
thick. Pipelines were installed on the sides of each tank and are connected to the
pipelines of the Manila Enterprises Industrial Corporation whose buildings and pumping
station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the foundation
itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to
the land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the
municipal treasurer of Bauan, Batangas, on the basis of an assessment made by the
provincial assessor, required Meralco to pay realty taxes on the two tanks. For the fiveyear period from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27,
Rollo). The Board required Meralco to pay the tax and penalties as a condition for
entertaining its appeal from the adverse decision of the Batangas board of assessment
appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance
Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development Jose Roo as members)
in its decision dated November 5, 1976 ruled that the tanks together with the
foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable
improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it
filed a motion for reconsideration which the Board denied in its resolution of November
25, 1977, a copy of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the
Board's decision and resolution. It contends that the Board acted without jurisdiction
and committed a grave error of law in holding that its storage tanks are taxable real
property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of
real property enumerated in article 415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by destination nor by analogy. Stress
is laid on the fact that the tanks are not attached to the land and that they were placed
on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the
classification of property where strong divergent opinions are inevitable. The issue
raised by Meralco has to be resolved in the light of the provisions of the Assessment
Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:

31

Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed
and collected in all provinces, cities and municipalities an annual ad
valorem tax on real property, such as land, buildings, machinery and
other improvements affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs.
Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which should
generally be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property (Standard Oil Co. of New York
vs. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover, the steel towers were not
attached to any land or building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and
blacksmith shops of a transportation company were held not subject to realty tax
because they were personal property.
WHEREFORE, the petition is dismissed. The Board's questioned decision and
resolution are affirmed. No costs.
SO ORDERED.
Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.
Concepcion, Jr., J., is on leave.
Justice Abad Santos, J., took no part.

G.R. No. 155076

February 27, 2006

32

LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati
City, Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals
(CA) in CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar,
Regional Trial Court (RTC), Makati City, Branch 150, which denied the "Motion to
Quash (With Motion to Defer Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative
franchise to render local and international telecommunication services under Republic
Act No. 7082.2 Under said law, PLDT is authorized to establish, operate, manage,
lease, maintain and purchase telecommunication systems, including transmitting,
receiving and switching stations, for both domestic and international calls. For this
purpose, it has installed an estimated 1.7 million telephone lines nationwide. PLDT also
offers other services as authorized by Certificates of Public Convenience and Necessity
(CPCN) duly issued by the National Telecommunications Commission (NTC), and
operates and maintains an International Gateway Facility (IGF). The PLDT network is
thus principally composed of the Public Switch Telephone Network (PSTN), telephone
handsets and/or telecommunications equipment used by its subscribers, the wires and
cables linking said telephone handsets and/or telecommunications equipment, antenna,
the IGF, and other telecommunications equipment which provide interconnections.3
1av vphil.net

PLDT alleges that one of the alternative calling patterns that constitute network fraud
and violate its network integrity is that which is known as International Simple Resale
(ISR). ISR is a method of routing and completing international long distance calls using
International Private Leased Lines (IPL), cables, antenna or air wave or frequency,
which connect directly to the local or domestic exchange facilities of the terminating
country (the country where the call is destined). The IPL is linked to switching
equipment which is connected to a PLDT telephone line/number. In the process, the
calls bypass the IGF found at the terminating country, or in some instances, even those
from the originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which
sells "Bay Super Orient Card" phone cards to people who call their friends and relatives
in the Philippines. With said card, one is entitled to a 27-minute call to the Philippines
for about 37.03 per minute. After dialing the ISR access number indicated in the
phone card, the ISR operator requests the subscriber to give the PIN number also
indicated in the phone card. Once the callers identity (as purchaser of the phone card)
is confirmed, the ISR operator will then provide a Philippine local line to the requesting
caller via the IPL. According to PLDT, calls made through the IPL never pass the toll
center of IGF operators in the Philippines. Using the local line, the Baynet card user is
able to place a call to any point in the Philippines, provided the local line is National
Direct Dial (NDD) capable.5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its
incoming international long distance calls from Japan. The IPL is linked to switching
equipment, which is then connected to PLDT telephone lines/numbers and equipment,
with Baynet as subscriber. Through the use of the telephone lines and other auxiliary
equipment, Baynet is able to connect an international long distance call from Japan to
33

any part of the Philippines, and make it appear as a call originating from Metro Manila.
Consequently, the operator of an ISR is able to evade payment of access, termination
or bypass charges and accounting rates, as well as compliance with the regulatory
requirements of the NTC. Thus, the ISR operator offers international telecommunication
services at a lower rate, to the damage and prejudice of legitimate operators like
PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its ISR activities:
lines, cables, and antennas or equipment or device capable of transmitting air waves or
frequency, such as an IPL and telephone lines and equipment; computers or any
equipment or device capable of accepting information applying the prescribed process
of the information and supplying the result of this process; modems or any equipment
or device that enables a data terminal equipment such as computers to communicate
with other data terminal equipment via a telephone line; multiplexers or any equipment
or device that enables two or more signals from different sources to pass through a
common cable or transmission line; switching equipment, or equipment or device
capable of connecting telephone lines; and software, diskettes, tapes or equipment or
device used for recording and storing information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls passing
through Baynets ISR network which bypass the IGF toll center, PLDT incurred an
estimated monthly loss of P10,185,325.96.9 Records at the Securities and Exchange
Commission (SEC) also revealed that Baynet was not authorized to provide
international or domestic long distance telephone service in the country. The following
are its officers: Yuji Hijioka, a Japanese national (chairman of the board of directors);
Gina C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a
Filipino (board member and corporate secretary); Ricky Chan Pe, a Filipino (board
member and treasurer); and Yasushi Ueshima, also a Japanese national (board
member).
Upon complaint of PLDT against Baynet for network fraud, and on the strength of two
search warrants10 issued by the RTC of Makati, Branch 147, National Bureau of
Investigation (NBI) agents searched its office at the 7th Floor, SJG Building, Kalayaan
Avenue, Makati City on November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake,
Edourd D. Lacson and Rolando J. Villegas were arrested by NBI agents while in the act
of manning the operations of Baynet. Seized in the premises during the search were
numerous equipment and devices used in its ISR activities, such as multiplexers,
modems, computer monitors, CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of accounts, parabolic
antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a
Resolution11 on January 28, 2000, finding probable cause for theft under Article 308 of
the Revised Penal Code and Presidential Decree No. 40112 against the respondents
therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati
City charging Matsuura, Miyake, Lacson and Villegas with theft under Article 308 of the
Revised Penal Code. After conducting the requisite preliminary investigation, the State
Prosecutor filed an Amended Information impleading Laurel (a partner in the law firm of
Ingles, Laurel, Salinas, and, until November 19, 1999, a member of the board of
directors and corporate secretary of Baynet), and the other members of the board of
directors of said corporation, namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson
and Villegas, as accused for theft under Article 308 of the Revised Penal Code. The
inculpatory portion of the Amended Information reads:
34

On or about September 10-19, 1999, or prior thereto, in Makati City, and within the
jurisdiction of this Honorable Court, the accused, conspiring and confederating together
and all of them mutually helping and aiding one another, with intent to gain and without
the knowledge and consent of the Philippine Long Distance Telephone (PLDT), did
then and there willfully, unlawfully and feloniously take, steal and use the international
long distance calls belonging to PLDT by conducting International Simple Resale (ISR),
which is a method of routing and completing international long distance calls using
lines, cables, antennae, and/or air wave frequency which connect directly to the local or
domestic exchange facilities of the country where the call is destined, effectively
stealing this business from PLDT while using its facilities in the estimated amount of
P20,370,651.92 to the damage and prejudice of PLDT, in the said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the
ground that the factual allegations in the Amended Information do not constitute the
felony of theft under Article 308 of the Revised Penal Code. He averred that the
Revised Penal Code, or any other special penal law for that matter, does not prohibit
ISR operations. He claimed that telephone calls with the use of PLDT telephone lines,
whether domestic or international, belong to the persons making the call, not to PLDT.
He argued that the caller merely uses the facilities of PLDT, and what the latter owns
are the telecommunication infrastructures or facilities through which the call is made.
He also asserted that PLDT is compensated for the callers use of its facilities by way of
rental; for an outgoing overseas call, PLDT charges the caller per minute, based on the
duration of the call. Thus, no personal property was stolen from PLDT. According to
Laurel, the P20,370,651.92 stated in the Information, if anything, represents the rental
for the use of PLDT facilities, and not the value of anything owned by it. Finally, he
averred that the allegations in the Amended Information are already subsumed under
the Information for violation of Presidential Decree (P.D.) No. 401 filed and pending in
the Metropolitan Trial Court of Makati City, docketed as Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed the motion,14 contending
that the movant unlawfully took personal property belonging to it, as follows: 1)
intangible telephone services that are being offered by PLDT and other
telecommunication companies, i.e., the connection and interconnection to their
telephone lines/facilities; 2) the use of those facilities over a period of time; and 3) the
revenues derived in connection with the rendition of such services and the use of such
facilities.15
The prosecution asserted that the use of PLDTs intangible telephone services/facilities
allows electronic voice signals to pass through the same, and ultimately to the called
partys number. It averred that such service/facility is akin to electricity which, although
an intangible property, may, nevertheless, be appropriated and be the subject of theft.
Such service over a period of time for a consideration is the business that PLDT
provides to its customers, which enables the latter to send various messages to
installed recipients. The service rendered by PLDT is akin to merchandise which has
specific value, and therefore, capable of appropriation by another, as in this case,
through the ISR operations conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and revenues
constitute personal property envisaged in Article 308 of the Revised Penal Code."
Moreover, the intangible telephone services/facilities belong to PLDT and not to the
movant and the other accused, because they have no telephone services and facilities
of their own duly authorized by the NTC; thus, the taking by the movant and his coaccused of PLDT services was with intent to gain and without the latters consent.
35

The prosecution pointed out that the accused, as well as the movant, were paid in
exchange for their illegal appropriation and use of PLDTs telephone services and
facilities; on the other hand, the accused did not pay a single centavo for their illegal
ISR operations. Thus, the acts of the accused were akin to the use of a "jumper" by a
consumer to deflect the current from the house electric meter, thereby enabling one to
steal electricity. The prosecution emphasized that its position is fortified by the
Resolutions of the Department of Justice in PLDT v. Tiongson, et al. (I.S. No. 97-0925)
and in PAOCTF-PLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which were
issued on August 14, 2000 finding probable cause for theft against the respondents
therein.
On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash the
Amended Information. The court declared that, although there is no law that expressly
prohibits the use of ISR, the facts alleged in the Amended Information "will show how
the alleged crime was committed by conducting ISR," to the damage and prejudice of
PLDT.
Laurel filed a Motion for Reconsideration17 of the Order, alleging that international long
distance calls are not personal property, and are not capable of appropriation. He
maintained that business or revenue is not considered personal property, and that the
prosecution failed to adduce proof of its existence and the subsequent loss of personal
property belonging to another. Citing the ruling of the Court in United States v. De
Guzman,18Laurel averred that the case is not one with telephone calls which originate
with a particular caller and terminates with the called party. He insisted that telephone
calls are considered privileged communications under the Constitution and cannot be
considered as "the property of PLDT." He further argued that there is no kinship
between telephone calls and electricity or gas, as the latter are forms of energy which
are generated and consumable, and may be considered as personal property because
of such characteristic. On the other hand, the movant argued, the telephone business is
not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants Motion for
Reconsideration. This time, it ruled that what was stolen from PLDT was its "business"
because, as alleged in the Amended Information, the international long distance calls
made through the facilities of PLDT formed part of its business. The RTC noted that the
movant was charged with stealing the business of PLDT. To support its ruling, it cited
Strochecker v. Ramirez,20 where the Court ruled that interest in business is personal
property capable of appropriation. It further declared that, through their ISR operations,
the movant and his co-accused deprived PLDT of fees for international long distance
calls, and that the ISR used by the movant and his co-accused was no different from
the "jumper" used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He
alleged that the respondent judge gravely abused his discretion in denying his Motion
to Quash the Amended Information.21 As gleaned from the material averments of the
amended information, he was charged with stealing the international long distance calls
belonging to PLDT, not its business. Moreover, the RTC failed to distinguish between
the business of PLDT (providing services for international long distance calls) and the
revenues derived therefrom. He opined that a "business" or its revenues cannot be
considered as personal property under Article 308 of the Revised Penal Code, since a
"business" is "(1) a commercial or mercantile activity customarily engaged in as a
means of livelihood and typically involving some independence of judgment and power
of decision; (2) a commercial or industrial enterprise; and (3) refers to transactions,
dealings or intercourse of any nature." On the other hand, the term "revenue" is defined
as "the income that comes back from an investment (as in real or personal property);
36

the annual or periodical rents, profits, interests, or issues of any species of real or
personal property."22
Laurel further posited that an electric companys business is the production and
distribution of electricity; a gas companys business is the production and/or distribution
of gas (as fuel); while a water companys business is the production and distribution of
potable water. He argued that the "business" in all these cases is the commercial
activity, while the goods and merchandise are the products of such activity. Thus, in
prosecutions for theft of certain forms of energy, it is the electricity or gas which is
alleged to be stolen and not the "business" of providing electricity or gas. However,
since a telephone company does not produce any energy, goods or merchandise and
merely renders a service or, in the words of PLDT, "the connection and interconnection
to their telephone lines/facilities," such service cannot be the subject of theft as defined
in Article 308 of the Revised Penal Code.23
He further declared that to categorize "business" as personal property under Article 308
of the Revised Penal Code would lead to absurd consequences; in prosecutions for
theft of gas, electricity or water, it would then be permissible to allege in the Information
that it is the gas business, the electric business or the water business which has been
stolen, and no longer the merchandise produced by such enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in Piltel v.
Mendoza,25 where it was ruled that the Revised Penal Code, legislated as it was before
present technological advances were even conceived, is not adequate to address the
novel means of "stealing" airwaves or airtime. In said resolution, it was noted that the
inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The AntiTelecommunications Fraud of 1997" to deter cloning of cellular phones and other forms
of communications fraud. The said bill "aims to protect in number (ESN) (sic) or
Capcode, mobile identification number (MIN), electronic-international mobile equipment
identity (EMEI/IMEI), or subscriber identity module" and "any attempt to duplicate the
data on another cellular phone without the consent of a public telecommunications
entity would be punishable by law."26 Thus, Laurel concluded, "there is no crime if there
is no law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the petition.27 The appellate
court ruled that a petition for certiorari under Rule 65 of the Rules of Court was not the
proper remedy of the petitioner. On the merits of the petition, it held that while business
is generally an activity
which is abstract and intangible in form, it is nevertheless considered "property" under
Article 308 of the Revised Penal Code. The CA opined that PLDTs business of
providing international calls is personal property which may be the object of theft, and
cited United States v. Carlos28 to support such conclusion. The tribunal also cited
Strochecker v. Ramirez,29 where this Court ruled that one-half interest in a days
business is personal property under Section 2 of Act No. 3952, otherwise known as the
Bulk Sales Law. The appellate court held that the operations of the ISR are not
subsumed in the charge for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending that THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL
PROPERTY ALLEGEDLY STOLEN PER THE INFORMATION IS NOT THE
"INTERNATIONAL LONG DISTANCE CALLS" BUT THE "BUSINESS OF PLDT."

37

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS"

IS PERSONAL PROPERTY WITHIN THE MEANING OF ART. 308 OF THE
REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an
interlocutory order of the trial court which was issued with grave abuse of discretion
amounting to excess or lack of jurisdiction. In support of his petition before the Court,
he reiterates the arguments in his pleadings filed before the CA. He further claims that
while the right to carry on a business or an interest or participation in business is
considered property under the New Civil Code, the term "business," however, is not. He
asserts that the Philippine Legislature, which approved the Revised Penal Code way
back in January 1, 1932, could not have contemplated to include international long
distance calls and "business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General (OSG) maintains that
the amended information clearly states all the essential elements of the crime of theft.
Petitioners interpretation as to whether an "international long distance call" is personal
property under the law is inconsequential, as a reading of the amended information
readily reveals that specific acts and circumstances were alleged charging Baynet,
through its officers, including petitioner, of feloniously taking, stealing and illegally using
international long distance calls belonging to respondent PLDT by conducting ISR
operations, thus, "routing and completing international long distance calls using lines,
cables, antenna and/or airwave frequency which connect directly to the local or
domestic exchange facilities of the country where the call is destined." The OSG
maintains that the international long distance calls alleged in the amended information
should be construed to mean "business" of PLDT, which, while abstract and intangible
in form, is personal property susceptible of appropriation.31 The OSG avers that what
was stolen by petitioner and his co-accused is the business of PLDT providing
international long distance calls which, though intangible, is personal property of the
PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of the
Revised Penal Code comprehends intangible property such as electricity and gas
which are valuable articles for merchandise, brought and sold like other personal
property, and are capable of appropriation. It insists that the business of international
calls and revenues constitute personal property because the same are valuable articles
of merchandise. The respondent reiterates that international calls involve (a) the
intangible telephone services that are being offered by it, that is, the connection and
interconnection to the telephone network, lines or facilities; (b) the use of its telephone
network, lines or facilities over a period of time; and (c) the income derived in
connection therewith.33
PLDT further posits that business revenues or the income derived in connection with
the rendition of such services and the use of its telephone network, lines or facilities are
personal properties under Article 308 of the Revised Penal Code; so is the use of said
telephone services/telephone network, lines or facilities which allow electronic voice
signals to pass through the same and ultimately to the called partys number. It is akin
to electricity which, though intangible property, may nevertheless be appropriated and
can be the object of theft. The use of respondent PLDTs telephone network, lines, or
facilities over a period of time for consideration is the business that it provides to its
customers, which enables the latter to send various messages to intended recipients.
Such use over a period of time is akin to merchandise which has value and, therefore,
can be appropriated by another. According to respondent PLDT, this is what actually
happened when petitioner Laurel and the other accused below conducted illegal ISR
operations.34
38

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for certiorari is
the proper remedy of the petitioner in the Court of Appeals; (b) whether or not
international telephone calls using Bay Super Orient Cards through the
telecommunication services provided by PLDT for such calls, or, in short, PLDTs
business of providing said telecommunication services, are proper subjects of theft
under Article 308 of the Revised Penal Code; and (c) whether or not the trial court
committed grave abuse of discretion amounting to excess or lack of jurisdiction in
denying the motion of the petitioner to quash the amended information.
On the issue of whether or not the petition for certiorari instituted by the petitioner in the
CA is proper, the general rule is that a petition for certiorari under Rule 65 of the Rules
of Court, as amended, to nullify an order denying a motion to quash the Information is
inappropriate because the aggrieved party has a remedy of appeal in the ordinary
course of law. Appeal and certiorari are mutually exclusive of each other. The remedy
of the aggrieved party is to continue with the case in due course and, when an
unfavorable judgment is rendered, assail the order and the decision on appeal.
However, if the trial court issues the order denying the motion to quash the Amended
Information with grave abuse of discretion amounting to excess or lack of jurisdiction, or
if such order is patently erroneous, or null and void for being contrary to the
Constitution, and the remedy of appeal would not afford adequate and expeditious
relief, the accused may resort to the extraordinary remedy of certiorari.35 A special civil
action for certiorari is also available where there are special circumstances clearly
demonstrating the inadequacy of an appeal. As this Court held in Bristol Myers Squibb
(Phils.), Inc. v. Viloria:36
Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where,
despite availability of appeal after trial, there is at least a prima facie showing on the
face of the petition and its annexes that: (a) the trial court issued the order with grave
abuse of discretion amounting to lack of or in excess of jurisdiction; (b) appeal would
not prove to be a speedy and adequate remedy; (c) where the order is a patent nullity;
(d) the decision in the present case will arrest future litigations; and (e) for certain
considerations such as public welfare and public policy.37
In his petition for certiorari in the CA, petitioner averred that the trial court committed
grave abuse of its discretion amounting to excess or lack of jurisdiction when it denied
his motion to quash the Amended Information despite his claim that the material
allegations in the Amended Information do not charge theft under Article 308 of the
Revised Penal Code, or any offense for that matter. By so doing, the trial court deprived
him of his constitutional right to be informed of the nature of the charge against him. He
further averred that the order of the trial court is contrary to the constitution and is, thus,
null and void. He insists that he should not be compelled to undergo the rigors and
tribulations of a protracted trial and incur expenses to defend himself against a nonexistent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly every act or omission
constituting an offense38 and must allege facts establishing conduct that a penal statute
makes criminal;39 and describes the property which is the subject of theft to advise the
accused with reasonable certainty of the accusation he is called upon to meet at the
trial and to enable him to rely on the judgment thereunder of a subsequent prosecution
for the same offense.40 It must show, on its face, that if the alleged facts are true, an
offense has been committed. The rule is rooted on the constitutional right of the
accused to be informed of the nature of the crime or cause of the accusation against
39

him. He cannot be convicted of an offense even if proven unless it is alleged or

necessarily included in the Information filed against him.
As a general prerequisite, a motion to quash on the ground that the Information does
not constitute the offense charged, or any offense for that matter, should be resolved
on the basis of said allegations whose truth and veracity are hypothetically
committed;41 and on additional facts admitted or not denied by the prosecution.42 If the
facts alleged in the Information do not constitute an offense, the complaint or
information should be quashed by the court.43
We have reviewed the Amended Information and find that, as mentioned by the
petitioner, it does not contain material allegations charging the petitioner of theft of
personal property under Article 308 of the Revised Penal Code. It, thus, behooved the
trial court to quash the Amended Information. The Order of the trial court denying the
motion of the petitioner to quash the Amended Information is a patent nullity.
On the second issue, we find and so hold that the international telephone calls placed
by Bay Super Orient Card holders, the telecommunication services provided by PLDT
and its business of providing said services are not personal properties under Article 308
of the Revised Penal Code. The construction by the respondents of Article 308 of the
said Code to include, within its coverage, the aforesaid international telephone calls,
telecommunication services and business is contrary to the letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is founded on the
tenderness of the law for the rights of individuals and on the plain principle that the
power of punishment is vested in Congress, not in the judicial department. It is
Congress, not the Court, which is to define a crime, and ordain its punishment.44 Due
respect for the prerogative of Congress in defining crimes/felonies constrains the Court
to refrain from a broad interpretation of penal laws where a "narrow interpretation" is
appropriate. The Court must take heed to language, legislative history and purpose, in
order to strictly determine the wrath and breath of the conduct the law
forbids.45However, when the congressional purpose is unclear, the court must apply the
rule of lenity, that is, ambiguity concerning the ambit of criminal statutes should be
resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the fair meaning of
the language used; and may not be held to include offenses other than those which are
clearly described, notwithstanding that the Court may think that Congress should have
made them more comprehensive.47 Words and phrases in a statute are to be construed
according to their common meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the
principle that a case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime not enumerated
in the statute because it is of equal atrocity, or of kindred character with those which
are enumerated.48 When interpreting a criminal statute that does not explicitly reach the
conduct in question, the Court should not base an expansive reading on inferences
from subjective and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person who, with intent to
gain but without violence, against or intimidation of persons nor force upon things, shall
take personal property of another without the latters consent.
40

The provision was taken from Article 530 of the Spanish Penal Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas ni
fuerza en las cosas, toman las cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal (animus furandi)
personal property, meaning the intent to deprive another of his ownership/lawful
possession of personal property which intent is apart from and concurrently with the
general criminal intent which is an essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements: (a) the
taking of personal property; (b) the said property belongs to another; (c) the taking be
done with intent to gain; and (d) the taking be accomplished without the use of violence
or intimidation of person/s or force upon things.51
One is apt to conclude that "personal property" standing alone, covers both tangible
and intangible properties and are subject of theft under the Revised Penal Code. But
the words "Personal property" under the Revised Penal Code must be considered in
tandem with the word "take" in the law. The statutory definition of "taking" and movable
property indicates that, clearly, not all personal properties may be the proper subjects
of theft. The general rule is that, only movable properties which have physical or
material existence and susceptible of occupation by another are proper objects of
theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal,
material, susceptible de ser aprehendida que tenga un valor cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only those movable
properties which can be taken and carried from the place they are found are proper
subjects of theft. Intangible properties such as rights and ideas are not subject of theft
because the same cannot be "taken" from the place it is found and is occupied or
appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustraccin
de cosas inmuebles y la cosas incorporales (v. gr., los derechos, las ideas) no puede
integrar este delito, pues no es posible asirlas, tomarlas, para conseguir su
apropiacin. El Codigo emplea la expresin "cosas mueble" en el sentido de cosa que
es susceptible de ser llevada del lugar donde se encuentra, como dinero, joyas, ropas,
etctera, asi que su concepto no coincide por completo con el formulado por el Codigo
civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised Penal Code should be
distinguished from the rights or interests to which they relate. A naked right existing
merely in contemplation of law, although it may be very valuable to the person who is
entitled to exercise it, is not the subject of theft or larceny.55 Such rights or interests are
intangible and cannot be "taken" by another. Thus, right to produce oil, good will or an
interest in business, or the right to engage in business, credit or franchise are
properties. So is the credit line represented by a credit card. However, they are not
proper subjects of theft or larceny because they are without form or substance, the
mere "breath" of the Congress. On the other hand, goods, wares and merchandise of
businessmen and credit cards issued to them are movable properties with physical and
material existence and may be taken by another; hence, proper subjects of theft.
There is "taking" of personal property, and theft is consummated when the offender
unlawfully acquires possession of personal property even if for a short time; or if such
property is under the dominion and control of the thief. The taker, at some particular
amount, must have obtained complete and absolute possession and control of the
property adverse to the rights of the owner or the lawful possessor thereof.56 It is not
41

necessary that the property be actually carried away out of the physical possession of
the lawful possessor or that he should have made his escape with it.57 Neither
asportation nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough.58
The essence of the element is the taking of a thing out of the possession of the owner
without his privity and consent and without animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent persons without any
felonious intent, as well as any mechanical device, such as an access device or card,
or any agency, animate or inanimate, with intent to gain. Intent to gain includes the
unlawful taking of personal property for the purpose of deriving utility, satisfaction,
enjoyment and pleasure.60
We agree with the contention of the respondents that intangible properties such as
electrical energy and gas are proper subjects of theft. The reason for this is that, as
explained by this Court in United States v. Carlos61 and United States v.
Tambunting,62 based on decisions of the Supreme Court of Spain and of the courts in
England and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical energy may be taken,
carried away and appropriated. In People v. Menagas,63 the Illinois State Supreme
Court declared that electricity, like gas, may be seen and felt. Electricity, the same as
gas, is a valuable article of merchandise, bought and sold like other personal property
and is capable of appropriation by another. It is a valuable article of merchandise,
bought and sold like other personal property, susceptible of being severed from a mass
or larger quantity and of being transported from place to place. Electrical energy may,
likewise, be taken and carried away. It is a valuable commodity, bought and sold like
other personal property. It may be transported from place to place. There is nothing in
the nature of gas used for illuminating purposes which renders it incapable of being
feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of Appeals of
New York held that electric energy is manufactured and sold in determinate quantities
at a fixed price, precisely as are coal, kerosene oil, and gas. It may be conveyed to the
premises of the consumer, stored in cells of different capacity known as an
accumulator; or it may be sent through a wire, just as gas or oil may be transported
either in a close tank or forced through a pipe. Having reached the premises of the
consumer, it may be used in any way he may desire, being, like illuminating gas,
capable of being transformed either into heat, light, or power, at the option of the
purchaser. In Woods v. People,65 the Supreme Court of Illinois declared that there is
nothing in the nature of gas used for illuminating purposes which renders it incapable of
being feloniously taken and carried away. It is a valuable article of merchandise, bought
and sold like other personal property, susceptible of being severed from a mass or
larger quantity and of being transported from place to place.
Gas and electrical energy should not be equated with business or services provided by
business entrepreneurs to the public. Business does not have an exact definition.
Business is referred as that which occupies the time, attention and labor of men for the
purpose of livelihood or profit. It embraces everything that which a person can be
employed.66 Business may also mean employment, occupation or profession. Business
is also defined as a commercial activity for gain benefit or advantage.67 Business, like
services in business, although are properties, are not proper subjects of theft under the
Revised Penal Code because the same cannot be "taken" or "occupied." If it were
otherwise, as claimed by the respondents, there would be no juridical difference
between the taking of the business of a person or the services provided by him for gain,
vis--vis, the taking of goods, wares or merchandise, or equipment comprising his
42

business.68 If it was its intention to include "business" as personal property under Article
308 of the Revised Penal Code, the Philippine Legislature should have spoken in
language that is clear and definite: that business is personal property under Article 308
of the Revised Penal Code.69
We agree with the contention of the petitioner that, as gleaned from the material
averments of the Amended Information, he is charged of "stealing the international long
distance calls belonging to PLDT" and the use thereof, through the ISR. Contrary to the
claims of the OSG and respondent PLDT, the petitioner is not charged of stealing
P20,370,651.95 from said respondent. Said amount of P20,370,651.95 alleged in the
Amended Information is the aggregate amount of access, transmission or termination
charges which the PLDT expected from the international long distance calls of the
callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal
property without the consent of the owner thereof, the Philippine legislature could not
have contemplated the human voice which is converted into electronic impulses or
electrical current which are transmitted to the party called through the PSTN of
respondent PLDT and the ISR of Baynet Card Ltd. within its coverage. When the
Revised Penal Code was approved, on December 8, 1930, international telephone calls
and the transmission and routing of electronic voice signals or impulses emanating
from said calls, through the PSTN, IPL and ISR, were still non-existent. Case law is
that, where a legislative history fails to evidence congressional awareness of the scope
of the statute claimed by the respondents, a narrow interpretation of the law is more
consistent with the usual approach to the construction of the statute. Penal
responsibility cannot be extended beyond the fair scope of the statutory mandate. 70
Respondent PLDT does not acquire possession, much less, ownership of the voices of
the telephone callers or of the electronic voice signals or current emanating from said
calls. The human voice and the electronic voice signals or current caused thereby are
intangible and not susceptible of possession, occupation or appropriation by the
respondent PLDT or even the petitioner, for that matter. PLDT merely transmits the
electronic voice signals through its facilities and equipment. Baynet Card Ltd., through
its operator, merely intercepts, reroutes the calls and passes them to its toll center.
Indeed, the parties called receive the telephone calls from Japan.
In this modern age of technology, telecommunications systems have become so tightly
merged with computer systems that it is difficult to know where one starts and the other
finishes. The telephone set is highly computerized and allows computers to
communicate across long distances.71 The instrumentality at issue in this case is not
merely a telephone but a telephone inexplicably linked to a computerized
communications system with the use of Baynet Cards sold by the Baynet Card Ltd. The
corporation uses computers, modems and software, among others, for its ISR.72
The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang
term for the action of making a telephone system to do something that it normally
should not allow by "making the phone company bend over and grab its ankles"). A
"phreaker" is one who engages in the act of manipulating phones and illegally markets
telephone services.73 Unless the phone company replaces all its hardware, phreaking
would be impossible to stop. The phone companies in North America were impelled to
replace all their hardware and adopted full digital switching system known as the
Common Channel Inter Office Signaling. Phreaking occurred only during the 1960s
and 1970s, decades after the Revised Penal Code took effect.
The petitioner is not charged, under the Amended Information, for theft of
telecommunication or telephone services offered by PLDT. Even if he is, the term
43

"personal property" under Article 308 of the Revised Penal Code cannot be interpreted
beyond its seams so as to include "telecommunication or telephone services" or
computer services for that matter. The word "service" has a variety of meanings
dependent upon the context, or the sense in which it is used; and, in some instances, it
may include a sale. For instance, the sale of food by restaurants is usually referred to
as "service," although an actual sale is involved.74 It may also mean the duty or labor to
be rendered by one person to another; performance of labor for the benefit of
another.75 In the case of PLDT, it is to render local and international
telecommunications services and such other services as authorized by the CPCA
issued by the NTC. Even at common law, neither time nor services may be taken and
occupied or appropriated.76A service is generally not considered property and a theft of
service would not, therefore, constitute theft since there can be no caption or
asportation.77 Neither is the unauthorized use of the equipment and facilities of PLDT by
the petitioner theft under the aforequoted provision of the Revised Penal Code. 78
If it was the intent of the Philippine Legislature, in 1930, to include services to be the
subject of theft, it should have incorporated the same in Article 308 of the Revised
Penal Code. The Legislature did not. In fact, the Revised Penal Code does not even
contain a definition of services.
If taking of telecommunication services or the business of a person, is to be proscribed,
it must be by special statute79 or an amendment of the Revised Penal Code. Several
states in the United States, such as New York, New Jersey, California and Virginia,
realized that their criminal statutes did not contain any provisions penalizing the theft of
services and passed laws defining and penalizing theft of telephone and computer
services. The Pennsylvania Criminal Statute now penalizes theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for himself or for
another which he knows are available only for compensation, by deception or threat, by
altering or tampering with the public utility meter or measuring device by which such
services are delivered or by causing or permitting such altering or tampering, by making
or maintaining any unauthorized connection, whether physically, electrically or
inductively, to a distribution or transmission line, by attaching or maintaining the
attachment of any unauthorized device to any cable, wire or other component of an
electric, telephone or cable television system or to a television receiving set connected
to a cable television system, by making or maintaining any unauthorized modification or
alteration to any device installed by a cable television system, or by false token or other
trick or artifice to avoid payment for the service.
In the State of Illinois in the United States of America, theft of labor or services or use of
property is penalized:
(a) A person commits theft when he obtains the temporary use of property, labor or
services of another which are available only for hire, by means of threat or deception or
knowing that such use is without the consent of the person providing the property, labor
or services.
In 1980, the drafters of the Model Penal Code in the United States of America arrived at
the conclusion that labor and services, including professional services, have not been
included within the traditional scope of the term "property" in ordinary theft statutes.
Hence, they decided to incorporate in the Code Section 223.7, which defines and
penalizes theft of services, thus:

44

(1) A person is guilty of theft if he purposely obtains services which he knows are
available only for compensation, by deception or threat, or by false token or other
means to avoid payment for the service. "Services" include labor, professional service,
transportation, telephone or other public service, accommodation in hotels, restaurants
or elsewhere, admission to exhibitions, use of vehicles or other movable property.
Where compensation for service is ordinarily paid immediately upon the rendering of
such service, as in the case of hotels and restaurants, refusal to pay or absconding
without payment or offer to pay gives rise to a presumption that the service was
obtained by deception as to intention to pay; (2) A person commits theft if, having
control over the disposition of services of others, to which he is not entitled, he
knowingly diverts such services to his own benefit or to the benefit of another not
entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund
v. Commonwealth,80declaring that neither time nor services may be taken and carried
away and are not proper subjects of larceny, the General Assembly of Virginia enacted
Code No. 18-2-98 which reads:
Computer time or services or data processing services or information or data stored in
connection therewith is hereby defined to be property which may be the subject of
larceny under 18.2-95 or 18.2-96, or embezzlement under 18.2-111, or false
pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975
penalizes theft of services:
"A person commits the crime of theft of services if: (a) He intentionally obtains services
known by him to be available only for compensation by deception, threat, false token or
other means to avoid payment for the services "
In the Philippines, Congress has not amended the Revised Penal Code to include theft
of services or theft of business as felonies. Instead, it approved a law, Republic Act No.
8484, otherwise known as the Access Devices Regulation Act of 1998, on February 11,
1998. Under the law, an access device means any card, plate, code, account number,
electronic serial number, personal identification number and other telecommunication
services, equipment or instrumentalities-identifier or other means of account access
that can be used to obtain money, goods, services or any other thing of value or to
initiate a transfer of funds other than a transfer originated solely by paper instrument.
Among the prohibited acts enumerated in Section 9 of the law are the acts of obtaining
money or anything of value through the use of an access device, with intent to defraud
or intent to gain and fleeing thereafter; and of effecting transactions with one or more
access devices issued to another person or persons to receive payment or any other
thing of value. Under Section 11 of the law, conspiracy to commit access devices fraud
is a crime. However, the petitioner is not charged of violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to any liability for
violation of any provisions of the Revised Penal Code inclusive of theft under Rule 308
of the Revised Penal Code and estafa under Article 315 of the Revised Penal Code.
Thus, if an individual steals a credit card and uses the same to obtain services, he is
liable of the following: theft of the credit card under Article 308 of the Revised Penal
Code; violation of Republic Act No. 8484; and estafa under Article 315(2)(a) of the
Revised Penal Code with the service provider as the private complainant. The
petitioner is not charged of estafa before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
45

Sec. 33. Penalties. The following Acts shall be penalized by fine and/or
imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a
computer system/server or information and communication system; or any access in
order to corrupt, alter, steal, or destroy using a computer or other similar information
and communication devices, without the knowledge and consent of the owner of the
computer or information and communications system, including the introduction of
computer viruses and the like, resulting on the corruption, destruction, alteration, theft
or loss of electronic data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory imprisonment of six (6)
months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders
of the Regional Trial Court and the Decision of the Court of Appeals are REVERSED
and SET ASIDE. The Regional Trial Court is directed to issue an order granting the
motion of the petitioner to quash the Amended Information.
SO ORDERED.

G.R. No. 133250

July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,

vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.
CARPIO, J.:
This is an original Petition for Mandamus with prayer for a writ of preliminary injunction
and a temporary restraining order. The petition seeks to compel the Public Estates
Authority ("PEA" for brevity) to disclose all facts on PEA's then on-going renegotiations
with Amari Coastal Bay and Development Corporation ("AMARI" for brevity) to reclaim
portions of Manila Bay. The petition further seeks to enjoin PEA from signing a new
agreement with AMARI involving such reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of Public
Highways, signed a contract with the Construction and Development Corporation of the
Philippines ("CDCP" for brevity) to reclaim certain foreshore and offshore areas of
Manila Bay. The contract also included the construction of Phases I and II of the
Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works in
consideration of fifty percent of the total reclaimed land.
On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree
No. 1084 creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore
and submerged areas," and "to develop, improve, acquire, x x x lease and sell any and
all kinds of lands."1 On the same date, then President Marcos issued Presidential
Decree No. 1085 transferring to PEA the "lands reclaimed in the foreshore and offshore
46

of the Manila Bay"2 under the Manila-Cavite Coastal Road and Reclamation Project
(MCCRRP).
On December 29, 1981, then President Marcos issued a memorandum directing PEA
to amend its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be
funded and owned by PEA." Accordingly, PEA and CDCP executed a Memorandum of
Agreement dated December 29, 1981, which stated:
"(i) CDCP shall undertake all reclamation, construction, and such other works in
the MCCRRP as may be agreed upon by the parties, to be paid according to
progress of works on a unit price/lump sum basis for items of work to be agreed
upon, subject to price escalation, retention and other terms and conditions
provided for in Presidential Decree No. 1594. All the financing required for such
works shall be provided by PEA.
xxx
(iii) x x x CDCP shall give up all its development rights and hereby agrees to
cede and transfer in favor of PEA, all of the rights, title, interest and participation
of CDCP in and to all the areas of land reclaimed by CDCP in the MCCRRP as of
December 30, 1981 which have not yet been sold, transferred or otherwise
disposed of by CDCP as of said date, which areas consist of approximately
Ninety-Nine Thousand Four Hundred Seventy Three (99,473) square meters in
the Financial Center Area covered by land pledge No. 5 and approximately Three
Million Three Hundred Eighty Two Thousand Eight Hundred Eighty Eight
(3,382,888) square meters of reclaimed areas at varying elevations above Mean
Low Water Level located outside the Financial Center Area and the First
Neighborhood Unit."3
On January 19, 1988, then President Corazon C. Aquino issued Special Patent No.
3517, granting and transferring to PEA "the parcels of land so reclaimed under the
Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) containing a total
area of one million nine hundred fifteen thousand eight hundred ninety four (1,915,894)
square meters." Subsequently, on April 9, 1988, the Register of Deeds of the
Municipality of Paraaque issued Transfer Certificates of Title Nos. 7309, 7311, and
7312, in the name of PEA, covering the three reclaimed islands known as the "Freedom
Islands" located at the southern portion of the Manila-Cavite Coastal Road, Paraaque
City. The Freedom Islands have a total land area of One Million Five Hundred Seventy
Eight Thousand Four Hundred and Forty One (1,578,441) square meters or 157.841
hectares.
On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with
AMARI, a private corporation, to develop the Freedom Islands. The JVA also required
the reclamation of an additional 250 hectares of submerged areas surrounding these
islands to complete the configuration in the Master Development Plan of the Southern
Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA through
negotiation without public bidding.4 On April 28, 1995, the Board of Directors of PEA, in
its Resolution No. 1245, confirmed the JVA.5On June 8, 1995, then President Fidel V.
Ramos, through then Executive Secretary Ruben Torres, approved the JVA.6
On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege
speech in the Senate and denounced the JVA as the "grandmother of all scams." As a
result, the Senate Committee on Government Corporations and Public Enterprises, and
the Committee on Accountability of Public Officers and Investigations, conducted a joint
investigation. The Senate Committees reported the results of their investigation in
Senate Committee Report No. 560 dated September 16, 1997.7 Among the conclusions
47

of their report are: (1) the reclaimed lands PEA seeks to transfer to AMARI under the
JVA are lands of the public domain which the government has not classified as
alienable lands and therefore PEA cannot alienate these lands; (2) the certificates of
title covering the Freedom Islands are thus void, and (3) the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos issued Presidential
Administrative Order No. 365 creating a Legal Task Force to conduct a study on the
legality of the JVA in view of Senate Committee Report No. 560. The members of the
Legal Task Force were the Secretary of Justice,8 the Chief Presidential Legal
Counsel,9 and the Government Corporate Counsel.10 The Legal Task Force upheld the
legality of the JVA, contrary to the conclusions reached by the Senate Committees. 11
On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that
there were on-going renegotiations between PEA and AMARI under an order issued by
then President Fidel V. Ramos. According to these reports, PEA Director Nestor Kalaw,
PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the
negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition
with Application for the Issuance of a Temporary Restraining Order and Preliminary
Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court
dismissed the petition "for unwarranted disregard of judicial hierarchy, without prejudice
to the refiling of the case before the proper court."12
On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer,
filed the instant Petition for Mandamus with Prayer for the Issuance of a Writ of
Preliminary Injunction and Temporary Restraining Order. Petitioner contends the
government stands to lose billions of pesos in the sale by PEA of the reclaimed lands to
AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation of the
JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 Constitution
on the right of the people to information on matters of public concern. Petitioner assails
the sale to AMARI of lands of the public domain as a blatant violation of Section 3,
Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the public
domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the
loss of billions of pesos in properties of the State that are of public dominion.
After several motions for extension of time,13 PEA and AMARI filed their Comments on
October 19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998,
petitioner filed an Omnibus Motion: (a) to require PEA to submit the terms of the
renegotiated PEA-AMARI contract; (b) for issuance of a temporary restraining order;
and (c) to set the case for hearing on oral argument. Petitioner filed a Reiterative
Motion for Issuance of a TRO dated May 26, 1999, which the Court denied in a
Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to the petition and
required the parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement
("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the
administration of then President Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the President, petitioner now
prays that on "constitutional and statutory grounds the renegotiated contract be
declared null and void."14
The Issues
48

The issues raised by petitioner, PEA15 and AMARI16 are as follows:

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE
MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO
OBSERVE THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION
OF ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES
OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL
AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE
AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS,
RECLAIMED AND STILL TO BE RECLAIMED, VIOLATE THE 1987
CONSTITUTION; AND
VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE
ISSUE OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS
GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT.
The Court's Ruling
First issue: whether the principal reliefs prayed for in the petition are moot and
academic because of subsequent events.
The petition prays that PEA publicly disclose the "terms and conditions of the on-going
negotiations for a new agreement." The petition also prays that the Court enjoin PEA
from "privately entering into, perfecting and/or executing any new agreement with
AMARI."
PEA and AMARI claim the petition is now moot and academic because AMARI
furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing
the terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied
petitioner's prayer for a public disclosure of the renegotiations. Likewise, petitioner's
prayer to enjoin the signing of the Amended JVA is now moot because PEA and
AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the
Office of the President has approved the Amended JVA on May 28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply
fast-tracking the signing and approval of the Amended JVA before the Court could act
on the issue. Presidential approval does not resolve the constitutional issue or remove
it from the ambit of judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by
the President cannot operate to moot the petition and divest the Court of its jurisdiction.
PEA and AMARI have still to implement the Amended JVA. The prayer to enjoin the
signing of the Amended JVA on constitutional grounds necessarily includes preventing
its implementation if in the meantime PEA and AMARI have signed one in violation of
the Constitution. Petitioner's principal basis in assailing the renegotiation of the JVA is
its violation of Section 3, Article XII of the Constitution, which prohibits the government
49

from alienating lands of the public domain to private corporations. If the Amended JVA
indeed violates the Constitution, it is the duty of the Court to enjoin its implementation,
and if already implemented, to annul the effects of such unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one which seeks
to transfer title and ownership to 367.5 hectares of reclaimed lands and
submerged areas of Manila Bay to a single private corporation. It now becomes
more compelling for the Court to resolve the issue to insure the government itself does
not violate a provision of the Constitution intended to safeguard the national patrimony.
Supervening events, whether intended or accidental, cannot prevent the Court from
rendering a decision if there is a grave violation of the Constitution. In the instant case,
if the Amended JVA runs counter to the Constitution, the Court can still prevent the
transfer of title and ownership of alienable lands of the public domain in the name of
AMARI. Even in cases where supervening events had made the cases moot, the Court
did not hesitate to resolve the legal or constitutional issues raised to formulate
controlling principles to guide the bench, bar, and the public.17
Also, the instant petition is a case of first impression. All previous decisions of the Court
involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in
the 1973 Constitution,18 covered agricultural landssold to private corporations which
acquired the lands from private parties. The transferors of the private corporations
claimed or could claim the right to judicial confirmation of their imperfect
titles19 under Title II of Commonwealth Act. 141 ("CA No. 141" for brevity). In the
instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed lands
and submerged areas for non-agricultural purposes by purchase under PD No. 1084
(charter of PEA) and Title III of CA No. 141. Certain undertakings by AMARI under the
Amended JVA constitute the consideration for the purchase. Neither AMARI nor PEA
can claim judicial confirmation of their titles because the lands covered by the Amended
JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of imperfect title
requires open, continuous, exclusive and notorious occupation of agricultural lands of
the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the
deadline for filing applications for judicial confirmation of imperfect title expired on
December 31, 1987.20
Lastly, there is a need to resolve immediately the constitutional issue raised in this
petition because of the possible transfer at any time by PEA to AMARI of title and
ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is
obligated to transfer to AMARI the latter's seventy percent proportionate share in the
reclaimed areas as the reclamation progresses. The Amended JVA even allows AMARI
to mortgage at any time the entirereclaimed area to raise financing for the reclamation
project.21
Second issue: whether the petition merits dismissal for failing to observe the
principle governing the hierarchy of courts.
PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly
from the Court. The principle of hierarchy of courts applies generally to cases involving
factual questions. As it is not a trier of facts, the Court cannot entertain cases involving
factual issues. The instant case, however, raises constitutional issues of transcendental
importance to the public.22 The Court can resolve this case without determining any
factual issue related to the case. Also, the instant case is a petition for mandamus
which falls under the original jurisdiction of the Court under Section 5, Article VIII of the
Constitution. We resolve to exercise primary jurisdiction over the instant case.
Third issue: whether the petition merits dismissal for non-exhaustion of
administrative remedies.
50

PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose
publicly certain information without first asking PEA the needed information. PEA
claims petitioner's direct resort to the Court violates the principle of exhaustion of
administrative remedies. It also violates the rule that mandamus may issue only if there
is no other plain, speedy and adequate remedy in the ordinary course of law.
PEA distinguishes the instant case from Taada v. Tuvera23 where the Court granted
the petition for mandamus even if the petitioners there did not initially demand from the
Office of the President the publication of the presidential decrees. PEA points out that
in Taada, the Executive Department had an affirmative statutory duty under Article 2
of the Civil Code24 and Section 1 of Commonwealth Act No. 63825 to publish the
presidential decrees. There was, therefore, no need for the petitioners in Taada to
make an initial demand from the Office of the President. In the instant case, PEA claims
it has no affirmative statutory duty to disclose publicly information about its
renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of
exhaustion of administrative remedies to the instant case in view of the failure of
petitioner here to demand initially from PEA the needed information.
The original JVA sought to dispose to AMARI public lands held by PEA, a government
corporation. Under Section 79 of the Government Auditing Code,26 the disposition of
government lands to private parties requires public bidding. PEA was under a positive
legal duty to disclose to the public the terms and conditions for the sale of its
lands. The law obligated PEA to make this public disclosure even without demand from
petitioner or from anyone. PEA failed to make this public disclosure because the
original JVA, like the Amended JVA, was the result of a negotiated contract, not of a
public bidding. Considering that PEA had an affirmative statutory duty to make the
public disclosure, and was even in breach of this legal duty, petitioner had the right to
seek direct judicial intervention.
Moreover, and this alone is determinative of this issue, the principle of exhaustion of
administrative remedies does not apply when the issue involved is a purely legal or
constitutional question.27 The principal issue in the instant case is the capacity of
AMARI to acquire lands held by PEA in view of the constitutional ban prohibiting the
alienation of lands of the public domain to private corporations. We rule that the
principle of exhaustion of administrative remedies does not apply in the instant case.
Fourth issue: whether petitioner has locus standi to bring this suit
PEA argues that petitioner has no standing to institute mandamus proceedings to
enforce his constitutional right to information without a showing that PEA refused to
perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that
petitioner has not shown that he will suffer any concrete injury because of the signing or
implementation of the Amended JVA. Thus, there is no actual controversy requiring the
exercise of the power of judicial review.
The petitioner has standing to bring this taxpayer's suit because the petition seeks to
compel PEA to comply with its constitutional duties. There are two constitutional issues
involved here. First is the right of citizens to information on matters of public concern.
Second is the application of a constitutional provision intended to insure the equitable
distribution of alienable lands of the public domain among Filipino citizens. The thrust of
the first issue is to compel PEA to disclose publicly information on the sale of
government lands worth billions of pesos, information which the Constitution and
statutory law mandate PEA to disclose. The thrust of the second issue is to prevent
PEA from alienating hundreds of hectares of alienable lands of the public domain in
violation of the Constitution, compelling PEA to comply with a constitutional duty to the
nation.
51

Moreover, the petition raises matters of transcendental importance to the public.

In Chavez v. PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit
on matters of transcendental importance to the public, thus "Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of
the Marcoses is an issue of 'transcendental importance to the public.' He asserts
that ordinary taxpayers have a right to initiate and prosecute actions questioning
the validity of acts or orders of government agencies or instrumentalities, if the
issues raised are of 'paramount public interest,' and if they 'immediately affect the
social, economic and moral well being of the people.'
Moreover, the mere fact that he is a citizen satisfies the requirement of personal
interest, when the proceeding involves the assertion of a public right, such as in
this case. He invokes several decisions of this Court which have set aside the
procedural matter of locus standi, when the subject of the case involved public
interest.
xxx
In Taada v. Tuvera, the Court asserted that when the issue concerns a public
right and the object of mandamus is to obtain the enforcement of a public duty,
the people are regarded as the real parties in interest; and because it is sufficient
that petitioner is a citizen and as such is interested in the execution of the laws,
he need not show that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce their right to be
informed on matters of public concern, a right then recognized in Section 6,
Article IV of the 1973 Constitution, in connection with the rule that laws in order to
be valid and enforceable must be published in the Official Gazette or otherwise
effectively promulgated. In ruling for the petitioners' legal standing, the Court
declared that the right they sought to be enforced 'is a public right recognized by
no less than the fundamental law of the land.'
Legaspi v. Civil Service Commission, while reiterating Taada, further declared
that 'when a mandamus proceeding involves the assertion of a public right, the
requirement of personal interest is satisfied by the mere fact that petitioner is a
citizen and, therefore, part of the general 'public' which possesses the right.'
Further, in Albano v. Reyes, we said that while expenditure of public funds may
not have been involved under the questioned contract for the development,
management and operation of the Manila International Container Terminal,
'public interest [was] definitely involved considering the important role [of the
subject contract] . . . in the economic development of the country and the
magnitude of the financial consideration involved.' We concluded that, as a
consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioner's standing.
Similarly, the instant petition is anchored on the right of the people to information
and access to official records, documents and papers a right guaranteed
under Section 7, Article III of the 1987 Constitution. Petitioner, a former solicitor
general, is a Filipino citizen. Because of the satisfaction of the two basic
requisites laid down by decisional law to sustain petitioner's legal standing, i.e.
(1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule
that the petition at bar should be allowed."
We rule that since the instant petition, brought by a citizen, involves the enforcement of
constitutional rights - to information and to the equitable diffusion of natural resources 52

matters of transcendental public importance, the petitioner has the requisite locus
standi.
Fifth issue: whether the constitutional right to information includes official
information on on-going negotiations before a final agreement.
Section 7, Article III of the Constitution explains the people's right to information on
matters of public concern in this manner:
"Sec. 7. The right of the people to information on matters of public concern shall
be recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to
government research data used as basis for policy development, shall be
afforded the citizen, subject to such limitations as may be provided by law."
(Emphasis supplied)
The State policy of full transparency in all transactions involving public interest
reinforces the people's right to information on matters of public concern. This State
policy is expressed in Section 28, Article II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts
and implements a policy of full public disclosure of all its transactions
involving public interest." (Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency in policymaking and in the operations of the government, as well as provide the people
sufficient information to exercise effectively other constitutional rights. These twin
provisions are essential to the exercise of freedom of expression. If the government
does not disclose its official acts, transactions and decisions to citizens, whatever
citizens say, even if expressed without any restraint, will be speculative and amount to
nothing. These twin provisions are also essential to hold public officials "at all times x x
x accountable to the people,"29 for unless citizens have the proper information, they
cannot hold public officials accountable for anything. Armed with the right information,
citizens can participate in public discussions leading to the formulation of government
policies and their effective implementation. An informed citizenry is essential to the
existence and proper functioning of any democracy. As explained by the Court
inValmonte v. Belmonte, Jr.30
"An essential element of these freedoms is to keep open a continuing dialogue or
process of communication between the government and the people. It is in the
interest of the State that the channels for free political discussion be maintained
to the end that the government may perceive and be responsive to the people's
will. Yet, this open dialogue can be effective only to the extent that the citizenry is
informed and thus able to formulate its will intelligently. Only when the
participants in the discussion are aware of the issues and have access to
information relating thereto can such bear fruit."
PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right
to information is limited to "definite propositions of the government." PEA maintains the
right does not include access to "intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in the process of
being formulated or are in the 'exploratory stage'."
Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage
or before the closing of the transaction. To support its contention, AMARI cites the
following discussion in the 1986 Constitutional Commission:
53

"Mr. Suarez. And when we say 'transactions' which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the
steps leading to the consummation of the contract, or does he refer to the
contract itself?
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore,
it can cover both steps leading to a contract and already a consummated
contract, Mr. Presiding Officer.
Mr. Suarez: This contemplates inclusion of negotiations leading to the
consummation of the transaction.
Mr. Ople: Yes, subject only to reasonable safeguards on the national
interest.
Mr. Suarez: Thank you."32 (Emphasis supplied)
AMARI argues there must first be a consummated contract before petitioner can invoke
the right. Requiring government officials to reveal their deliberations at the predecisional stage will degrade the quality of decision-making in government agencies.
Government officials will hesitate to express their real sentiments during deliberations if
there is immediate public dissemination of their discussions, putting them under all
kinds of pressure before they decide.
We must first distinguish between information the law on public bidding requires PEA to
disclose publicly, and information the constitutional right to information requires PEA to
release to the public. Before the consummation of the contract, PEA must, on its own
and without demand from anyone, disclose to the public matters relating to the
disposition of its property. These include the size, location, technical description and
nature of the property being disposed of, the terms and conditions of the disposition,
the parties qualified to bid, the minimum price and similar information. PEA must
prepare all these data and disclose them to the public at the start of the disposition
process, long before the consummation of the contract, because the Government
Auditing Code requires public bidding. If PEA fails to make this disclosure, any citizen
can demand from PEA this information at any time during the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being
undertaken by the bidding or review committee is not immediately accessible under the
right to information. While the evaluation or review is still on-going, there are no "official
acts, transactions, or decisions" on the bids or proposals. However, once the committee
makes its official recommendation, there arises a "definite proposition" on the part
of the government. From this moment, the public's right to information attaches, and
any citizen can access all the non-proprietary information leading to such definite
proposition. In Chavez v. PCGG,33 the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we believe that it is
incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed
settlement they have decided to take up with the ostensible owners and holders
of ill-gotten wealth. Such information, though, must pertain to definite
propositions of the government, not necessarily to intra-agency or interagency recommendations or communications during the stage when common
assertions are still in the process of being formulated or are in the "exploratory"
stage. There is need, of course, to observe the same restrictions on disclosure of
information in general, as discussed earlier such as on matters involving
54

national security, diplomatic or foreign relations, intelligence and other classified

information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986 Constitutional
Commission understood that the right to information "contemplates inclusion of
negotiations leading to the consummation of the transaction." Certainly, a
consummated contract is not a requirement for the exercise of the right to information.
Otherwise, the people can never exercise the right if no contract is consummated, and
if one is consummated, it may be too late for the public to expose its defects.
1w phi 1.nt

Requiring a consummated contract will keep the public in the dark until the contract,
which may be grossly disadvantageous to the government or even illegal, becomes
a fait accompli. This negates the State policy of full transparency on matters of public
concern, a situation which the framers of the Constitution could not have intended.
Such a requirement will prevent the citizenry from participating in the public discussion
of any proposedcontract, effectively truncating a basic right enshrined in the Bill of
Rights. We can allow neither an emasculation of a constitutional right, nor a retreat by
the State of its avowed "policy of full disclosure of all its transactions involving public
interest."
The right covers three categories of information which are "matters of public concern,"
namely: (1) official records; (2) documents and papers pertaining to official acts,
transactions and decisions; and (3) government research data used in formulating
policies. The first category refers to any document that is part of the public records in
the custody of government agencies or officials. The second category refers to
documents and papers recording, evidencing, establishing, confirming, supporting,
justifying or explaining official acts, transactions or decisions of government agencies or
officials. The third category refers to research data, whether raw, collated or processed,
owned by the government and used in formulating government policies.
The information that petitioner may access on the renegotiation of the JVA includes
evaluation reports, recommendations, legal and expert opinions, minutes of meetings,
terms of reference and other documents attached to such reports or minutes, all
relating to the JVA. However, the right to information does not compel PEA to prepare
lists, abstracts, summaries and the like relating to the renegotiation of the JVA.34 The
right only affords access to records, documents and papers, which means the
opportunity to inspect and copy them. One who exercises the right must copy the
records, documents and papers at his expense. The exercise of the right is also subject
to reasonable regulations to protect the integrity of the public records and to minimize
disruption to government operations, like rules specifying when and how to conduct the
inspection and copying.35
The right to information, however, does not extend to matters recognized as privileged
information under the separation of powers.36 The right does not also apply to
information on military and diplomatic secrets, information affecting national security,
and information on investigations of crimes by law enforcement agencies before the
prosecution of the accused, which courts have long recognized as confidential. 37 The
right may also be subject to other limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner is privileged
information rooted in the separation of powers. The information does not cover
Presidential conversations, correspondences, or discussions during closed-door
Cabinet meetings which, like internal deliberations of the Supreme Court and other
collegiate courts, or executive sessions of either house of Congress,38 are recognized
as confidential. This kind of information cannot be pried open by a co-equal branch of
government. A frank exchange of exploratory ideas and assessments, free from the
55

glare of publicity and pressure by interested parties, is essential to protect the

independence of decision-making of those tasked to exercise Presidential, Legislative
and Judicial power.39 This is not the situation in the instant case.
We rule, therefore, that the constitutional right to information includes official
information on on-going negotiations before a final contract. The information,
however, must constitute definite propositions by the government and should not cover
recognized exceptions like privileged information, military and diplomatic secrets and
similar matters affecting national security and public order.40 Congress has also
prescribed other limitations on the right to information in several legislations.41
Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI
of lands, reclaimed or to be reclaimed, violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged areas is rooted in the
Regalian doctrine which holds that the State owns all lands and waters of the public
domain. Upon the Spanish conquest of the Philippines, ownership of all "lands,
territories and possessions" in the Philippines passed to the Spanish Crown.42 The
King, as the sovereign ruler and representative of the people, acquired and owned all
lands and territories in the Philippines except those he disposed of by grant or sale to
private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting,
however, the State, in lieu of the King, as the owner of all lands and waters of the public
domain. The Regalian doctrine is the foundation of the time-honored principle of land
ownership that "all lands that were not acquired from the Government, either by
purchase or by grant, belong to the public domain."43 Article 339 of the Civil Code of
1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian
doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law governing the ownership
and disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine
Commission enacted Act No. 1654 which provided for the lease, but not the sale, of
reclaimed lands of the government to corporations and individuals. Later, on
November 29, 1919, the Philippine Legislature approved Act No. 2874, the Public Land
Act, which authorized the lease, but not the sale, of reclaimed lands of the
government to corporations and individuals. On November 7, 1936, the National
Assembly passed Commonwealth Act No. 141, also known as the Public Land Act,
which authorized the lease, but not the sale, of reclaimed lands of the government
to corporations and individuals. CA No. 141 continues to this day as the general law
governing the classification and disposition of lands of the public domain.
The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all
waters within the maritime zone of the Spanish territory belonged to the public domain
for public use.44 The Spanish Law of Waters of 1866 allowed the reclamation of the sea
under Article 5, which provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by
the State, or by the provinces, pueblos or private persons, with proper
56

permission, shall become the property of the party constructing such works,
unless otherwise provided by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party
undertaking the reclamation, provided the government issued the necessary permit and
did not reserve ownership of the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public dominion as follows:
"Art. 339. Property of public dominion is
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, riverbanks, shores, roadsteads, and that of a
similar character;
2. That belonging exclusively to the State which, without being of general public
use, is employed in some public service, or in the development of the national
wealth, such as walls, fortresses, and other works for the defense of the territory,
and mines, until granted to private individuals."
Property devoted to public use referred to property open for use by the public. In
contrast, property devoted to public service referred to property used for some specific
public service and open only to those authorized to use the property.
Property of public dominion referred not only to property devoted to public use, but also
to property not so used but employed to develop the national wealth. This class of
property constituted property of public dominion although employed for some economic
or commercial activity to increase the national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of property of public
dominion into private property, to wit:
"Art. 341. Property of public dominion, when no longer devoted to public use or to
the defense of the territory, shall become a part of the private property of the
State."
This provision, however, was not self-executing. The legislature, or the executive
department pursuant to law, must declare the property no longer needed for public use
or territorial defense before the government could lease or alienate the property to
private parties.45
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the
lease of reclaimed and foreshore lands. The salient provisions of this law were as
follows:
"Section 1. The control and disposition of the foreshore as defined in existing
law, and the title to all Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise throughout the Philippine
Islands, shall be retained by the Government without prejudice to vested rights
and without prejudice to rights conceded to the City of Manila in the Luneta
Extension.
Section 2. (a) The Secretary of the Interior shall cause all Government or public
lands made or reclaimed by the Government by dredging or filling or otherwise to
57

be divided into lots or blocks, with the necessary streets and alleyways located
thereon, and shall cause plats and plans of such surveys to be prepared and filed
with the Bureau of Lands.
(b) Upon completion of such plats and plans the Governor-General shall give
notice to the public that such parts of the lands so made or reclaimed as
are not needed for public purposes will be leased for commercial and
business purposes, x x x.
xxx
(e) The leases above provided for shall be disposed of to the highest and
best bidder therefore, subject to such regulations and safeguards as the
Governor-General may by executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title to all lands
reclaimed by the government. The Act also vested in the government control and
disposition of foreshore lands. Private parties could lease lands reclaimed by the
government only if these lands were no longer needed for public purpose. Act No. 1654
mandated public bidding in the lease of government reclaimed lands. Act No. 1654
made government reclaimed lands sui generis in that unlike other public lands which
the government could sell to private parties, these reclaimed lands were available only
for lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866.
Act No. 1654 did not prohibit private parties from reclaiming parts of the sea under
Section 5 of the Spanish Law of Waters. Lands reclaimed from the sea by private
parties with government permission remained private lands.
Act No. 2874 of the Philippine Legislature
On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public
Land Act.46 The salient provisions of Act No. 2874, on reclaimed lands, were as follows:
"Sec. 6. The Governor-General, upon the recommendation of the Secretary
of Agriculture and Natural Resources, shall from time to time classify the
lands of the public domain into
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands, x x x.
Sec. 7. For the purposes of the government and disposition of alienable or
disposable public lands, the Governor-General, upon recommendation by the
Secretary of Agriculture and Natural Resources, shall from time to time
declare what lands are open to disposition or concession under this Act."
Sec. 8. Only those lands shall be declared open to disposition or
concession which have been officially delimited or classified x x x.
xxx
Sec. 55. Any tract of land of the public domain which, being neither timber nor
mineral land, shall be classified as suitable for residential purposes or for
58

commercial, industrial, or other productive purposes other than

agricultural purposes, and shall be open to disposition or concession, shall be
disposed of under the provisions of this chapter, and not otherwise.
Sec. 56. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other
means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores
or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six
shall be disposed of to private parties by lease only and not otherwise, as
soon as the Governor-General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall declare that the same are not
necessary for the public service and are open to disposition under this
chapter. The lands included in class (d) may be disposed of by sale or lease
under the provisions of this Act." (Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the
public domain into x x x alienable or disposable"47 lands. Section 7 of the Act
empowered the Governor-General to "declare what lands are open to disposition or
concession." Section 8 of the Act limited alienable or disposable lands only to those
lands which have been "officially delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be
classified" as government reclaimed, foreshore and marshy lands, as well as other
lands. All these lands, however, must be suitable for residential, commercial, industrial
or other productive non-agricultural purposes. These provisions vested upon the
Governor-General the power to classify inalienable lands of the public domain into
disposable lands of the public domain. These provisions also empowered the
Governor-General to classify further such disposable lands of the public domain into
government reclaimed, foreshore or marshy lands of the public domain, as well as
other non-agricultural lands.
Section 58 of Act No. 2874 categorically mandated that disposable lands of the public
domain classified as government reclaimed, foreshore and marshy lands "shall be
disposed of to private parties by lease only and not otherwise." The GovernorGeneral, before allowing the lease of these lands to private parties, must formally
declare that the lands were "not necessary for the public service." Act No. 2874
reiterated the State policy to lease and not to sell government reclaimed, foreshore and
marshy lands of the public domain, a policy first enunciated in 1907 in Act No. 1654.
Government reclaimed, foreshore and marshy lands remained sui generis, as the only
alienable or disposable lands of the public domain that the government could not sell to
private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore and
marshy public lands for non-agricultural purposes retain their inherent potential as
areas for public service. This is the reason the government prohibited the sale, and only
59

allowed the lease, of these lands to private parties. The State always reserved these
lands for some future public service.
Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore
and marshy lands into other non-agricultural lands under Section 56 (d). Lands falling
under Section 56 (d) were the only lands for non-agricultural purposes the government
could sell to private parties. Thus, under Act No. 2874, the government could not sell
government reclaimed, foreshore and marshy lands to private parties, unless the
legislature passed a law allowing their sale.49
Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to
Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by
private parties with government permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino
people. The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1,
Article XIII, that
"Section 1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy and other natural resources of the Philippines belong to the State, and
their disposition, exploitation, development, or utilization shall be limited to
citizens of the Philippines or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any existing
right, grant, lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural resources, with the
exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years,
renewable for another twenty-five years, except as to water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water
power, in which cases beneficial use may be the measure and limit of the grant."
(Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources except public
agricultural lands, which were the only natural resources the State could alienate. Thus,
foreshore lands, considered part of the State's natural resources, became inalienable
by constitutional fiat, available only for lease for 25 years, renewable for another 25
years. The government could alienate foreshore lands only after these lands were
reclaimed and classified as alienable agricultural lands of the public domain.
Government reclaimed and marshy lands of the public domain, being neither timber nor
mineral lands, fell under the classification of public agricultural lands.50 However,
government reclaimed and marshy lands, although subject to classification as
disposable public agricultural lands, could only be leased and not sold to private parties
because of Act No. 2874.
The prohibition on private parties from acquiring ownership of government reclaimed
and marshy lands of the public domain was only a statutory prohibition and the
legislature could therefore remove such prohibition. The 1935 Constitution did not
prohibit individuals and corporations from acquiring government reclaimed and marshy
lands of the public domain that were classified as agricultural lands under existing
public land laws. Section 2, Article XIII of the 1935 Constitution provided as follows:

60

"Section 2. No private corporation or association may acquire, lease, or hold

public agricultural lands in excess of one thousand and twenty four
hectares, nor may any individual acquire such lands by purchase in excess
of one hundred and forty hectares, or by lease in excess of one thousand
and twenty-four hectares, or by homestead in excess of twenty-four hectares.
Lands adapted to grazing, not exceeding two thousand hectares, may be leased
to an individual, private corporation, or association." (Emphasis supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section
58 of Act No. 2874 to open for sale to private parties government reclaimed and
marshy lands of the public domain. On the contrary, the legislature continued the long
established State policy of retaining for the government title and ownership of
government reclaimed and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved Commonwealth Act No. 141,
also known as the Public Land Act, which compiled the then existing laws on lands of
the public domain. CA No. 141, as amended, remains to this day the existing general
law governing the classification and disposition of lands of the public domain other than
timber and mineral lands.51
Section 6 of CA No. 141 empowers the President to classify lands of the public domain
into "alienable or disposable"52 lands of the public domain, which prior to such
classification are inalienable and outside the commerce of man. Section 7 of CA No.
141 authorizes the President to "declare what lands are open to disposition or
concession." Section 8 of CA No. 141 states that the government can declare open for
disposition or concession only lands that are "officially delimited and classified."
Sections 6, 7 and 8 of CA No. 141 read as follows:
"Sec. 6. The President, upon the recommendation of the Secretary of
Agriculture and Commerce, shall from time to time classify the lands of the
public domain into
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in like manner transfer such lands from one class to
another,53 for the purpose of their administration and disposition.
Sec. 7. For the purposes of the administration and disposition of alienable or
disposable public lands, the President, upon recommendation by the
Secretary of Agriculture and Commerce, shall from time to time declare
what lands are open to disposition or concession under this Act.
Sec. 8. Only those lands shall be declared open to disposition or
concession which have been officially delimited and classified and, when
practicable, surveyed, and which have not been reserved for public or quasipublic uses, nor appropriated by the Government, nor in any manner become
private property, nor those on which a private right authorized and recognized by
this Act or any other valid law may be claimed, or which, having been reserved or
appropriated, have ceased to be so. x x x."
61

Thus, before the government could alienate or dispose of lands of the public domain,
the President must first officially classify these lands as alienable or disposable, and
then declare them open to disposition or concession. There must be no law reserving
these lands for public or quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy
lands of the public domain, are as follows:
"Sec. 58. Any tract of land of the public domain which, being neither timber
nor mineral land, is intended to be used for residential purposes or for
commercial, industrial, or other productive purposes other than
agricultural, and is open to disposition or concession, shall be disposed of
under the provisions of this chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other
means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores
or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
Sec. 60. Any tract of land comprised under this title may be leased or sold, as the
case may be, to any person, corporation, or association authorized to purchase
or lease public lands for agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine
shall be disposed of to private parties by lease only and not otherwise, as
soon as the President, upon recommendation by the Secretary of
Agriculture, shall declare that the same are not necessary for the public
service and are open to disposition under this chapter. The lands included in
class (d) may be disposed of by sale or lease under the provisions of this
Act." (Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution,
Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore and
marshy disposable lands of the public domain. All these lands are intended for
residential, commercial, industrial or other non-agricultural purposes. As before,
Section 61 allowed only the lease of such lands to private parties. The government
could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or
those lands for non-agricultural purposes not classified as government reclaimed,
foreshore and marshy disposable lands of the public domain. Foreshore lands,
however, became inalienable under the 1935 Constitution which only allowed the lease
of these lands to qualified private parties.
Section 58 of CA No. 141 expressly states that disposable lands of the public domain
intended for residential, commercial, industrial or other productive purposes other than
agricultural "shall be disposed of under the provisions of this chapter and not
otherwise." Under Section 10 of CA No. 141, the term "disposition" includes lease of
the land. Any disposition of government reclaimed, foreshore and marshy disposable
lands for non-agricultural purposes must comply with Chapter IX, Title III of CA No.
141,54 unless a subsequent law amended or repealed these provisions.
62

In his concurring opinion in the landmark case of Republic Real Estate Corporation v.
Court of Appeals,55Justice Reynato S. Puno summarized succinctly the law on this
matter, as follows:
"Foreshore lands are lands of public dominion intended for public use. So too are
lands reclaimed by the government by dredging, filling, or other means. Act 1654
mandated that the control and disposition of the foreshore and lands under water
remained in the national government. Said law allowed only the 'leasing' of
reclaimed land. The Public Land Acts of 1919 and 1936 also declared that the
foreshore and lands reclaimed by the government were to be "disposed of to
private parties by lease only and not otherwise." Before leasing, however, the
Governor-General, upon recommendation of the Secretary of Agriculture and
Natural Resources, had first to determine that the land reclaimed was not
necessary for the public service. This requisite must have been met before the
land could be disposed of. But even then, the foreshore and lands under
water were not to be alienated and sold to private parties. The disposition
of the reclaimed land was only by lease. The land remained property of the
State." (Emphasis supplied)
As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141
has remained in effect at present."
The State policy prohibiting the sale to private parties of government reclaimed,
foreshore and marshy alienable lands of the public domain, first implemented in 1907
was thus reaffirmed in CA No. 141 after the 1935 Constitution took effect. The
prohibition on the sale of foreshore lands, however, became a constitutional edict under
the 1935 Constitution. Foreshore lands became inalienable as natural resources of the
State, unless reclaimed by the government and classified as agricultural lands of the
public domain, in which case they would fall under the classification of government
reclaimed lands.
After the effectivity of the 1935 Constitution, government reclaimed and marshy
disposable lands of the public domain continued to be only leased and not sold to
private parties.56 These lands remained sui generis, as the only alienable or
disposable lands of the public domain the government could not sell to private parties.
Since then and until now, the only way the government can sell to private parties
government reclaimed and marshy disposable lands of the public domain is for the
legislature to pass a law authorizing such sale. CA No. 141 does not authorize the
President to reclassify government reclaimed and marshy lands into other nonagricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the
only alienable or disposable lands for non-agricultural purposes that the government
could sell to private parties.
Moreover, Section 60 of CA No. 141 expressly requires congressional authority before
lands under Section 59 that the government previously transferred to government units
or entities could be sold to private parties. Section 60 of CA No. 141 declares that
"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment
of the Secretary of Agriculture and Natural Resources, be reasonably necessary
for the purposes for which such sale or lease is requested, and shall not exceed
one hundred and forty-four hectares: Provided, however, That this limitation shall
not apply to grants, donations, or transfers made to a province, municipality or
branch or subdivision of the Government for the purposes deemed by said
entities conducive to the public interest;but the land so granted, donated, or
transferred to a province, municipality or branch or subdivision of the
63

Government shall not be alienated, encumbered, or otherwise disposed of

in a manner affecting its title, except when authorized by Congress: x x x."
(Emphasis supplied)
The congressional authority required in Section 60 of CA No. 141 mirrors the legislative
authority required in Section 56 of Act No. 2874.
One reason for the congressional authority is that Section 60 of CA No. 141 exempted
government units and entities from the maximum area of public lands that could be
acquired from the State. These government units and entities should not just turn
around and sell these lands to private parties in violation of constitutional or statutory
limitations. Otherwise, the transfer of lands for non-agricultural purposes to government
units and entities could be used to circumvent constitutional limitations on ownership of
alienable or disposable lands of the public domain. In the same manner, such transfers
could also be used to evade the statutory prohibition in CA No. 141 on the sale of
government reclaimed and marshy lands of the public domain to private parties.
Section 60 of CA No. 141 constitutes by operation of law a lien on these lands.57
In case of sale or lease of disposable lands of the public domain falling under Section
59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of
CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this chapter are not
needed for public purposes, the Director of Lands shall ask the Secretary of
Agriculture and Commerce (now the Secretary of Natural Resources) for
authority to dispose of the same. Upon receipt of such authority, the Director of
Lands shall give notice by public advertisement in the same manner as in the
case of leases or sales of agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding; and adjudication
shall be made to the highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales
of alienable or disposable lands of the public domain.58
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of
the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the
sea with government permission. However, the reclaimed land could become private
land only if classified as alienable agricultural land of the public domain open to
disposition under CA No. 141. The 1935 Constitution prohibited the alienation of all
natural resources except public agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of property of public
dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of
1950 state that
"Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
64

x x x.
Art. 422. Property of public dominion, when no longer intended for public use or
for public service, shall form part of the patrimonial property of the State."
Again, the government must formally declare that the property of public dominion is no
longer needed for public use or public service, before the same could be classified as
patrimonial property of the State.59 In the case of government reclaimed and marshy
lands of the public domain, the declaration of their being disposable, as well as the
manner of their disposition, is governed by the applicable provisions of CA No. 141.
Like the Civil Code of 1889, the Civil Code of 1950 included as property of public
dominion those properties of the State which, without being for public use, are intended
for public service or the "development of the national wealth." Thus, government
reclaimed and marshy lands of the State, even if not employed for public use or public
service, if developed to enhance the national wealth, are classified as property of public
dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the
Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, wildlife, and other
natural resources of the Philippines belong to the State. With the exception of
agricultural, industrial or commercial, residential, and resettlement lands of
the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or utilization
of any of the natural resources shall be granted for a period exceeding twentyfive years, renewable for not more than twenty-five years, except as to water
rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases, beneficial use may be the measure
and the limit of the grant." (Emphasis supplied)
The 1973 Constitution prohibited the alienation of all natural resources with the
exception of "agricultural, industrial or commercial, residential, and resettlement lands
of the public domain." In contrast, the 1935 Constitution barred the alienation of all
natural resources except "public agricultural lands." However, the term "public
agricultural lands" in the 1935 Constitution encompassed industrial, commercial,
residential and resettlement lands of the public domain.60 If the land of public domain
were neither timber nor mineral land, it would fall under the classification of agricultural
land of the public domain. Both the 1935 and 1973 Constitutions, therefore,
prohibited the alienation of all natural resources except agricultural lands of the
public domain.
The 1973 Constitution, however, limited the alienation of lands of the public domain to
individuals who were citizens of the Philippines. Private corporations, even if wholly
owned by Philippine citizens, were no longer allowed to acquire alienable lands of the
public domain unlike in the 1935 Constitution. Section 11, Article XIV of the 1973
Constitution declared that
"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological,
and development requirements of the natural resources, shall determine by law
the size of land of the public domain which may be developed, held or acquired
by, or leased to, any qualified individual, corporation, or association, and the
65

conditions therefor. No private corporation or association may hold alienable

lands of the public domain except by lease not to exceed one thousand
hectares in area nor may any citizen hold such lands by lease in excess of five
hundred hectares or acquire by purchase, homestead or grant, in excess of
twenty-four hectares. No private corporation or association may hold by lease,
concession, license or permit, timber or forest lands and other timber or forest
resources in excess of one hundred thousand hectares. However, such area may
be increased by the Batasang Pambansa upon recommendation of the National
Economic and Development Authority." (Emphasis supplied)
Thus, under the 1973 Constitution, private corporations could hold alienable lands of
the public domain only through lease. Only individuals could now acquire alienable
lands of the public domain, and private corporations became absolutely barred
from acquiring any kind of alienable land of the public domain. The constitutional
ban extended to all kinds of alienable lands of the public domain, while the statutory
ban under CA No. 141 applied only to government reclaimed, foreshore and marshy
alienable lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No.
1084 creating PEA, a wholly government owned and controlled corporation with a
special charter. Sections 4 and 8 of PD No. 1084, vests PEA with the following
purposes and powers:
"Sec. 4. Purpose. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging,
filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease
and sell any and all kinds of lands, buildings, estates and other forms of real
property, owned, managed, controlled and/or operated by the government;
(c) To provide for, operate or administer such service as may be necessary for
the efficient, economical and beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out
the purposes for which it is created, have the following powers and functions:
(a)To prescribe its by-laws.
xxx
(i) To hold lands of the public domain in excess of the area permitted to
private corporations by statute.
(j) To reclaim lands and to construct work across, or otherwise, any stream,
watercourse, canal, ditch, flume x x x.
xxx
(o) To perform such acts and exercise such functions as may be necessary for
the attainment of the purposes and objectives herein specified." (Emphasis
supplied)
66

PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the
public domain. Foreshore areas are those covered and uncovered by the ebb and flow
of the tide.61 Submerged areas are those permanently under water regardless of the
ebb and flow of the tide.62 Foreshore and submerged areas indisputably belong to the
public domain63 and are inalienable unless reclaimed, classified as alienable lands open
to disposition, and further declared no longer needed for public service.
The ban in the 1973 Constitution on private corporations from acquiring alienable lands
of the public domain did not apply to PEA since it was then, and until today, a fully
owned government corporation. The constitutional ban applied then, as it still applies
now, only to "private corporations and associations." PD No. 1084 expressly
empowers PEA "to hold lands of the public domain" even "in excess of the area
permitted to private corporations by statute." Thus, PEA can hold title to private
lands, as well as title to lands of the public domain.
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the
public domain, there must be legislative authority empowering PEA to sell these lands.
This legislative authority is necessary in view of Section 60 of CA No.141, which states

"Sec. 60. x x x; but the land so granted, donated or transferred to a province,

municipality, or branch or subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner affecting its title, except when
authorized by Congress; x x x." (Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its reclaimed
foreshore and submerged alienable lands of the public domain. Nevertheless, any
legislative authority granted to PEA to sell its reclaimed alienable lands of the public
domain would be subject to the constitutional ban on private corporations from
acquiring alienable lands of the public domain. Hence, such legislative authority could
only benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the
Regalian doctrine. The 1987 Constitution declares that all natural resources are
"owned by the State," and except for alienable agricultural lands of the public domain,
natural resources cannot be alienated. Sections 2 and 3, Article XII of the 1987
Constitution state that
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall
not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. x x x.
Section 3. Lands of the public domain are classified into agricultural, forest or
timber, mineral lands, and national parks. Agricultural lands of the public domain
may be further classified by law according to the uses which they may be
devoted. Alienable lands of the public domain shall be limited to agricultural
lands. Private corporations or associations 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. Citizens of the Philippines may lease
67

not more than five hundred hectares, or acquire not more than twelve hectares
thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the Congress
shall determine, by law, the size of lands of the public domain which may be
acquired, developed, held, or leased and the conditions therefor." (Emphasis
supplied)
The 1987 Constitution continues the State policy in the 1973 Constitution banning
private corporations fromacquiring any kind of alienable land of the public domain.
Like the 1973 Constitution, the 1987 Constitution allows private corporations to hold
alienable lands of the public domain only through lease. As in the 1935 and 1973
Constitutions, the general law governing the lease to private corporations of reclaimed,
foreshore and marshy alienable lands of the public domain is still CA No. 141.
The Rationale behind the Constitutional Ban
The rationale behind the constitutional ban on corporations from acquiring, except
through lease, alienable lands of the public domain is not well understood. During the
deliberations of the 1986 Constitutional Commission, the commissioners probed the
rationale behind this ban, thus:
"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5
which says:
`No private corporation or association may hold alienable lands of the public
domain except by lease, not to exceed one thousand hectares in area.'
If we recall, this provision did not exist under the 1935 Constitution, but this was
introduced in the 1973 Constitution. In effect, it prohibits private corporations
from acquiring alienable public lands. But it has not been very clear in
jurisprudence what the reason for this is. In some of the cases decided in
1982 and 1983, it was indicated that the purpose of this is to prevent large
landholdings. Is that the intent of this provision?
MR. VILLEGAS: I think that is the spirit of the provision.
FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were
instances where the Iglesia ni Cristo was not allowed to acquire a mere 313square meter land where a chapel stood because the Supreme Court said it
would be in violation of this." (Emphasis supplied)
In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in
this way:
"Indeed, one purpose of the constitutional prohibition against purchases of public
agricultural lands by private corporations is to equitably diffuse land ownership or
to encourage 'owner-cultivatorship and the economic family-size farm' and to
prevent a recurrence of cases like the instant case. Huge landholdings by
corporations or private persons had spawned social unrest."
However, if the constitutional intent is to prevent huge landholdings, the Constitution
could have simply limited the size of alienable lands of the public domain that
corporations could acquire. The Constitution could have followed the limitations on
individuals, who could acquire not more than 24 hectares of alienable lands of the
68

public domain under the 1973 Constitution, and not more than 12 hectares under the
1987 Constitution.
If the constitutional intent is to encourage economic family-size farms, placing the land
in the name of a corporation would be more effective in preventing the break-up of
farmlands. If the farmland is registered in the name of a corporation, upon the death of
the owner, his heirs would inherit shares in the corporation instead of subdivided
parcels of the farmland. This would prevent the continuing break-up of farmlands into
smaller and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional limitation on
individuals from acquiring more than the allowed area of alienable lands of the public
domain. Without the constitutional ban, individuals who already acquired the maximum
area of alienable lands of the public domain could easily set up corporations to acquire
more alienable public lands. An individual could own as many corporations as his
means would allow him. An individual could even hide his ownership of a corporation
by putting his nominees as stockholders of the corporation. The corporation is a
convenient vehicle to circumvent the constitutional limitation on acquisition by
individuals of alienable lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer
ownership of only a limited area of alienable land of the public domain to a qualified
individual. This constitutional intent is safeguarded by the provision prohibiting
corporations from acquiring alienable lands of the public domain, since the vehicle to
circumvent the constitutional intent is removed. The available alienable public lands are
gradually decreasing in the face of an ever-growing population. The most effective way
to insure faithful adherence to this constitutional intent is to grant or sell alienable lands
of the public domain only to individuals. This, it would seem, is the practical benefit
arising from the constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in its second Whereas clause,
consists of three properties, namely:
1. "[T]hree partially reclaimed and substantially eroded islands along Emilio
Aguinaldo Boulevard in Paranaque and Las Pinas, Metro Manila, with a
combined titled area of 1,578,441 square meters;"
2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;"
and
3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or
less to regularize the configuration of the reclaimed area."65
PEA confirms that the Amended JVA involves "the development of the Freedom Islands
and further reclamation of about 250 hectares x x x," plus an option "granted to AMARI
to subsequently reclaim another 350 hectares x x x."66
In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84
hectares of the 750-hectare reclamation project have been reclaimed, and the
rest of the 592.15 hectares are still submerged areas forming part of Manila Bay.
Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for
PEA's "actual cost" in partially reclaiming the Freedom Islands. AMARI will also
complete, at its own expense, the reclamation of the Freedom Islands. AMARI will
69

further shoulder all the reclamation costs of all the other areas, totaling 592.15
hectares, still to be reclaimed. AMARI and PEA will share, in the proportion of 70
percent and 30 percent, respectively, the total net usable area which is defined in the
Amended JVA as the total reclaimed area less 30 percent earmarked for common
areas. Title to AMARI's share in the net usable area, totaling 367.5 hectares, will be
issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides that
"x x x, PEA shall have the duty to execute without delay the necessary deed of
transfer or conveyance of the title pertaining to AMARI's Land share based on
the Land Allocation Plan. PEA, when requested in writing by AMARI, shall
then cause the issuance and delivery of the proper certificates of title
covering AMARI's Land Share in the name of AMARI, x x x; provided, that if
more than seventy percent (70%) of the titled area at any given time pertains to
AMARI, PEA shall deliver to AMARI only seventy percent (70%) of the titles
pertaining to AMARI, until such time when a corresponding proportionate area of
additional land pertaining to PEA has been titled." (Emphasis supplied)
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of
367.5 hectares of reclaimed land which will be titled in its name.
To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI
joint venture PEA's statutory authority, rights and privileges to reclaim foreshore and
submerged areas in Manila Bay. Section 3.2.a of the Amended JVA states that
"PEA hereby contributes to the joint venture its rights and privileges to perform
Rawland Reclamation and Horizontal Development as well as own the
Reclamation Area, thereby granting the Joint Venture the full and exclusive right,
authority and privilege to undertake the Project in accordance with the Master
Development Plan."
The Amended JVA is the product of a renegotiation of the original JVA dated April 25,
1995 and its supplemental agreement dated August 9, 1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can acquire and own
under the Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas
in Manila Bay in view of Sections 2 and 3, Article XII of the 1987 Constitution which
state that:
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources
shall not be alienated. x x x.
xxx
Section 3. x x x Alienable lands of the public domain shall be limited to
agricultural lands. Private corporations or associations may not hold such
alienable lands of the public domain except by lease, x x x."(Emphasis
supplied)
Classification of Reclaimed Foreshore and Submerged Areas

70

PEA readily concedes that lands reclaimed from foreshore or submerged areas of
Manila Bay are alienable or disposable lands of the public domain. In its
Memorandum,67 PEA admits that
"Under the Public Land Act (CA 141, as amended), reclaimed lands are
classified as alienable and disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the government by dredging, filling, or other
means;
x x x.'" (Emphasis supplied)
Likewise, the Legal Task Force68 constituted under Presidential Administrative Order
No. 365 admitted in its Report and Recommendation to then President Fidel V.
Ramos, "[R]eclaimed lands are classified as alienable and disposable lands of the
public domain."69 The Legal Task Force concluded that
"D. Conclusion
Reclaimed lands are lands of the public domain. However, by statutory authority,
the rights of ownership and disposition over reclaimed lands have been
transferred to PEA, by virtue of which PEA, as owner, may validly convey the
same to any qualified person without violating the Constitution or any statute.
The constitutional provision prohibiting private corporations from holding public
land, except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to
reclaimed lands whose ownership has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged
areas of Manila Bay are part of the "lands of the public domain, waters x x x and other
natural resources" and consequently "owned by the State." As such, foreshore and
submerged areas "shall not be alienated," unless they are classified as "agricultural
lands" of the public domain. The mere reclamation of these areas by PEA does not
convert these inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to disposition or
concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use.71
Section 8 of CA No. 141 provides that "only those lands shall be declared open to
disposition or concession which have been officially delimited and classified."72 The
President has the authority to classify inalienable lands of the public domain into
alienable or disposable lands of the public domain, pursuant to Section 6 of CA No.
141. In Laurel vs. Garcia,73 the Executive Department attempted to sell the Roppongi
property in Tokyo, Japan, which was acquired by the Philippine Government for use as
the Chancery of the Philippine Embassy. Although the Chancery had transferred to
another location thirteen years earlier, the Court still ruled that, under Article 42274of the
Civil Code, a property of public dominion retains such character until formally declared
otherwise. The Court ruled that
"The fact that the Roppongi site has not been used for a long time for actual
Embassy service does not automatically convert it to patrimonial property. Any
such conversion happens only if the property is withdrawn from public use (Cebu
Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A property
71

continues to be part of the public domain, not available for private

appropriation or ownership 'until there is a formal declaration on the part of
the government to withdraw it from being such' (Ignacio v. Director of Lands,
108 Phil. 335 [1960]." (Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of special land
patents for lands reclaimed by PEA from the foreshore or submerged areas of Manila
Bay. On January 19, 1988 then President Corazon C. Aquino issued Special Patent
No. 3517 in the name of PEA for the 157.84 hectares comprising the partially reclaimed
Freedom Islands. Subsequently, on April 9, 1999 the Register of Deeds of the
Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA
pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title
corresponding to land patents. To this day, these certificates of title are still in the name
of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a special patent
covering the Freedom Islands, is equivalent to an official proclamation classifying the
Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085
and President Aquino's issuance of a land patent also constitute a declaration that the
Freedom Islands are no longer needed for public service. The Freedom Islands are
thus alienable or disposable lands of the public domain, open to disposition or
concession to qualified parties.
At the time then President Aquino issued Special Patent No. 3517, PEA had already
reclaimed the Freedom Islands although subsequently there were partial erosions on
some areas. The government had also completed the necessary surveys on these
islands. Thus, the Freedom Islands were no longer part of Manila Bay but part of the
land mass. Section 3, Article XII of the 1987 Constitution classifies lands of the public
domain into "agricultural, forest or timber, mineral lands, and national parks." Being
neither timber, mineral, nor national park lands, the reclaimed Freedom Islands
necessarily fall under the classification of agricultural lands of the public domain. Under
the 1987 Constitution, agricultural lands of the public domain are the only natural
resources that the State may alienate to qualified private parties. All other natural
resources, such as the seas or bays, are "waters x x x owned by the State" forming part
of the public domain, and are inalienable pursuant to Section 2, Article XII of the 1987
Constitution.
AMARI claims that the Freedom Islands are private lands because CDCP, then a
private corporation, reclaimed the islands under a contract dated November 20, 1973
with the Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law
of Waters of 1866, argues that "if the ownership of reclaimed lands may be given to the
party constructing the works, then it cannot be said that reclaimed lands are lands of
the public domain which the State may not alienate."75 Article 5 of the Spanish Law of
Waters reads as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by
the State, or by the provinces, pueblos or private persons, with proper
permission, shall become the property of the party constructing such
works, unless otherwise provided by the terms of the grant of authority."
(Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim
from the sea only with "proper permission" from the State. Private parties could own the
reclaimed land only if not "otherwise provided by the terms of the grant of authority."
This clearly meant that no one could reclaim from the sea without permission from the
State because the sea is property of public dominion. It also meant that the State could
72

grant or withhold ownership of the reclaimed land because any reclaimed land, like the
sea from which it emerged, belonged to the State. Thus, a private person reclaiming
from the sea without permission from the State could not acquire ownership of the
reclaimed land which would remain property of public dominion like the sea it
replaced.76 Article 5 of the Spanish Law of Waters of 1866 adopted the time-honored
principle of land ownership that "all lands that were not acquired from the government,
either by purchase or by grant, belong to the public domain."77
Article 5 of the Spanish Law of Waters must be read together with laws subsequently
enacted on the disposition of public lands. In particular, CA No. 141 requires that lands
of the public domain must first be classified as alienable or disposable before the
government can alienate them. These lands must not be reserved for public or quasipublic purposes.78 Moreover, the contract between CDCP and the government was
executed after the effectivity of the 1973 Constitution which barred private corporations
from acquiring any kind of alienable land of the public domain. This contract could not
have converted the Freedom Islands into private lands of a private corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing
the reclamation of areas under water and revested solely in the National Government
the power to reclaim lands. Section 1 of PD No. 3-A declared that
"The provisions of any law to the contrary notwithstanding, the reclamation
of areas under water, whether foreshore or inland, shall be limited to the
National Government or any person authorized by it under a proper
contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because
reclamation of areas under water could now be undertaken only by the National
Government or by a person contracted by the National Government. Private parties
may reclaim from the sea only under a contract with the National Government, and no
longer by grant or permission as provided in Section 5 of the Spanish Law of Waters of
1866.
Executive Order No. 525, issued on February 14, 1979, designated PEA as the
National Government's implementing arm to undertake "all reclamation projects of the
government," which "shall be undertaken by the PEA or through a proper contract
executed by it with any person or entity." Under such contract, a private party
receives compensation for reclamation services rendered to PEA. Payment to the
contractor may be in cash, or in kind consisting of portions of the reclaimed land,
subject to the constitutional ban on private corporations from acquiring alienable lands
of the public domain. The reclaimed land can be used as payment in kind only if the
reclaimed land is first classified as alienable or disposable land open to disposition, and
then declared no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an additional 592.15
hectares which are still submerged and forming part of Manila Bay. There is no
legislative or Presidential act classifying these submerged areas as alienable or
disposable lands of the public domain open to disposition. These submerged
areas are not covered by any patent or certificate of title. There can be no dispute that
these submerged areas form part of the public domain, and in their present state
are inalienable and outside the commerce of man. Until reclaimed from the sea,
these submerged areas are, under the Constitution, "waters x x x owned by the State,"
forming part of the public domain and consequently inalienable. Only when actually
reclaimed from the sea can these submerged areas be classified as public agricultural
73

lands, which under the Constitution are the only natural resources that the State may
alienate. Once reclaimed and transformed into public agricultural lands, the government
may then officially classify these lands as alienable or disposable lands open to
disposition. Thereafter, the government may declare these lands no longer needed for
public service. Only then can these reclaimed lands be considered alienable or
disposable lands of the public domain and within the commerce of man.
The classification of PEA's reclaimed foreshore and submerged lands into alienable or
disposable lands open to disposition is necessary because PEA is tasked under its
charter to undertake public services that require the use of lands of the public domain.
Under Section 5 of PD No. 1084, the functions of PEA include the following: "[T]o own
or operate railroads, tramways and other kinds of land transportation, x x x; [T]o
construct, maintain and operate such systems of sanitary sewers as may be necessary;
[T]o construct, maintain and operate such storm drains as may be necessary." PEA is
empowered to issue "rules and regulations as may be necessary for the proper use by
private parties of any or all of the highways, roads, utilities, buildings and/or any
of its properties and to impose or collect fees or tolls for their use." Thus, part of the
reclaimed foreshore and submerged lands held by the PEA would actually be needed
for public use or service since many of the functions imposed on PEA by its charter
constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily
responsible for integrating, directing, and coordinating all reclamation projects for and
on behalf of the National Government." The same section also states that "[A]ll
reclamation projects shall be approved by the President upon recommendation of the
PEA, and shall be undertaken by the PEA or through a proper contract executed by it
with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No. 3-A and
PD No.1084, PEA became the primary implementing agency of the National
Government to reclaim foreshore and submerged lands of the public domain. EO No.
525 recognized PEA as the government entity "to undertake the reclamation of lands
and ensure their maximum utilization in promoting public welfare and
interests."79 Since large portions of these reclaimed lands would obviously be needed
for public service, there must be a formal declaration segregating reclaimed lands no
longer needed for public service from those still needed for public service.
1w phi 1.nt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to
or be owned by the PEA," could not automatically operate to classify inalienable lands
into alienable or disposable lands of the public domain. Otherwise, reclaimed foreshore
and submerged lands of the public domain would automatically become alienable once
reclaimed by PEA, whether or not classified as alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO
No. 525, vests in the Department of Environment and Natural Resources ("DENR" for
brevity) the following powers and functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
xxx
(4) Exercise supervision and control over forest lands, alienable and
disposable public lands, mineral resources and, in the process of exercising
such control, impose appropriate taxes, fees, charges, rentals and any such form
of levy and collect such revenues for the exploration, development, utilization or
gathering of such resources;
74

xxx
(14) Promulgate rules, regulations and guidelines on the issuance of
licenses, permits, concessions, lease agreements and such other
privileges concerning the development, exploration and utilization of the
country's marine, freshwater, and brackish water and over all aquatic
resources of the country and shall continue to oversee, supervise and
police our natural resources; cancel or cause to cancel such privileges upon
failure, non-compliance or violations of any regulation, order, and for all other
causes which are in furtherance of the conservation of natural resources and
supportive of the national interest;
(15) Exercise exclusive jurisdiction on the management and disposition of
all lands of the public domain and serve as the sole agency responsible for
classification, sub-classification, surveying and titling of lands in consultation
with appropriate agencies."80 (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the State, DENR
exercises "supervision and control over alienable and disposable public lands." DENR
also exercises "exclusive jurisdiction on the management and disposition of all lands of
the public domain." Thus, DENR decides whether areas under water, like foreshore or
submerged areas of Manila Bay, should be reclaimed or not. This means that PEA
needs authorization from DENR before PEA can undertake reclamation projects in
Manila Bay, or in any part of the country.
DENR also exercises exclusive jurisdiction over the disposition of all lands of the public
domain. Hence, DENR decides whether reclaimed lands of PEA should be classified as
alienable under Sections 681 and 782 of CA No. 141. Once DENR decides that the
reclaimed lands should be so classified, it then recommends to the President the
issuance of a proclamation classifying the lands as alienable or disposable lands of the
public domain open to disposition. We note that then DENR Secretary Fulgencio S.
Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised
Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation of areas under
water, while PEA is vested with the power to undertake the physical reclamation of
areas under water, whether directly or through private contractors. DENR is also
empowered to classify lands of the public domain into alienable or disposable lands
subject to the approval of the President. On the other hand, PEA is tasked to develop,
sell or lease the reclaimed alienable lands of the public domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas
does not make the reclaimed lands alienable or disposable lands of the public domain,
much less patrimonial lands of PEA. Likewise, the mere transfer by the National
Government of lands of the public domain to PEA does not make the lands alienable or
disposable lands of the public domain, much less patrimonial lands of PEA.
Absent two official acts a classification that these lands are alienable or disposable
and open to disposition and a declaration that these lands are not needed for public
service, lands reclaimed by PEA remain inalienable lands of the public domain. Only
such an official classification and formal declaration can convert reclaimed lands into
alienable or disposable lands of the public domain, open to disposition under the
Constitution, Title I and Title III83of CA No. 141 and other applicable laws.84
PEA's Authority to Sell Reclaimed Lands
75

PEA, like the Legal Task Force, argues that as alienable or disposable lands of the
public domain, the reclaimed lands shall be disposed of in accordance with CA No.
141, the Public Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed
lands transferred to a branch or subdivision of the government "shall not be alienated,
encumbered, or otherwise disposed of in a manner affecting its title, except when
authorized by Congress: x x x."85 (Emphasis by PEA)
In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code
of 1987, which states that
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of
the Government is authorized by law to be conveyed, the deed of conveyance
shall be executed in behalf of the government by the following: x x x."
Thus, the Court concluded that a law is needed to convey any real property belonging
to the Government. The Court declared that "It is not for the President to convey real property of the government on his or her
own sole will. Any such conveyance must be authorized and approved by a
law enacted by the Congress. It requires executive and legislative
concurrence." (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority
allowing PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977,
provides that
"The land reclaimed in the foreshore and offshore area of Manila
Bay pursuant to the contract for the reclamation and construction of the ManilaCavite Coastal Road Project between the Republic of the Philippines and the
Construction and Development Corporation of the Philippines dated November
20, 1973 and/or any other contract or reclamation covering the same area is
hereby transferred, conveyed and assigned to the ownership and
administration of the Public Estates Authority established pursuant to PD No.
1084; Provided, however, That the rights and interests of the Construction and
Development Corporation of the Philippines pursuant to the aforesaid contract
shall be recognized and respected.
Henceforth, the Public Estates Authority shall exercise the rights and assume the
obligations of the Republic of the Philippines (Department of Public Highways)
arising from, or incident to, the aforesaid contract between the Republic of the
Philippines and the Construction and Development Corporation of the
Philippines.
In consideration of the foregoing transfer and assignment, the Public Estates
Authority shall issue in favor of the Republic of the Philippines the corresponding
shares of stock in said entity with an issued value of said shares of stock (which)
shall be deemed fully paid and non-assessable.
The Secretary of Public Highways and the General Manager of the Public
Estates Authority shall execute such contracts or agreements, including
appropriate agreements with the Construction and Development Corporation of
the Philippines, as may be necessary to implement the above.
Special land patent/patents shall be issued by the Secretary of Natural
Resources in favor of the Public Estates Authority without prejudice to the
subsequent transfer to the contractor or his assignees of such portion or
76

portions of the land reclaimed or to be reclaimed as provided for in the

above-mentioned contract. On the basis of such patents, the Land
Registration Commission shall issue the corresponding certificate of title."
(Emphasis supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides
that "Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the
PEA which shall be responsible for its administration, development, utilization or
disposition in accordance with the provisions of Presidential Decree No. 1084.
Any and all income that the PEA may derive from the sale, lease or use of
reclaimed lands shall be used in accordance with the provisions of Presidential
Decree No. 1084."
There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell
its reclaimed lands. PD No. 1085 merely transferred "ownership and administration" of
lands reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands
reclaimed by PEA "shall belong to or be owned by PEA." EO No. 525 expressly states
that PEA should dispose of its reclaimed lands "in accordance with the provisions of
Presidential Decree No. 1084," the charter of PEA.
PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer,
deal in, subdivide, dispose, lease and sell any and all kinds of lands x x x owned,
managed, controlled and/or operated by the government."87 (Emphasis supplied) There
is, therefore, legislative authority granted to PEA to sell its lands, whether
patrimonial or alienable lands of the public domain. PEA may sell to private parties
its patrimonial properties in accordance with the PEA charter free from constitutional
limitations. The constitutional ban on private corporations from acquiring alienable
lands of the public domain does not apply to the sale of PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of the public domain to private
individuals since, with the legislative authority, there is no longer any statutory
prohibition against such sales and the constitutional ban does not apply to individuals.
PEA, however, cannot sell any of its alienable or disposable lands of the public domain
to private corporations since Section 3, Article XII of the 1987 Constitution expressly
prohibits such sales. The legislative authority benefits only individuals. Private
corporations remain barred from acquiring any kind of alienable land of the public
domain, including government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be
transferred by PEA to the "contractor or his assignees" (Emphasis supplied) would not
apply to private corporations but only to individuals because of the constitutional ban.
Otherwise, the provisions of PD No. 1085 would violate both the 1973 and 1987
Constitutions.
The requirement of public auction in the sale of reclaimed lands
Assuming the reclaimed lands of PEA are classified as alienable or disposable lands
open to disposition, and further declared no longer needed for public service, PEA
would have to conduct a public bidding in selling or leasing these lands. PEA must
observe the provisions of Sections 63 and 67 of CA No. 141 requiring public auction, in
the absence of a law exempting PEA from holding a public auction.88 Special Patent
No. 3517 expressly states that the patent is issued by authority of the Constitution and
PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended." This is an
acknowledgment that the provisions of CA No. 141 apply to the disposition of reclaimed
77

alienable lands of the public domain unless otherwise provided by law. Executive Order
No. 654,89 which authorizes PEA "to determine the kind and manner of payment for the
transfer" of its assets and properties, does not exempt PEA from the requirement of
public auction. EO No. 654 merely authorizes PEA to decide the mode of payment,
whether in kind and in installment, but does not authorize PEA to dispense with public
auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the Government
Auditing Code, the government is required to sell valuable government property
through public bidding. Section 79 of PD No. 1445 mandates that
"Section 79. When government property has become unserviceable for any
cause, or is no longer needed, it shall, upon application of the officer accountable
therefor, be inspected by the head of the agency or his duly authorized
representative in the presence of the auditor concerned and, if found to be
valueless or unsaleable, it may be destroyed in their presence. If found to be
valuable, it may be sold at public auction to the highest bidder under the
supervision of the proper committee on award or similar body in the presence of
the auditor concerned or other authorized representative of the
Commission, after advertising by printed notice in the Official Gazette, or for
not less than three consecutive days in any newspaper of general
circulation, or where the value of the property does not warrant the expense of
publication, by notices posted for a like period in at least three public places in
the locality where the property is to be sold. In the event that the public
auction fails, the property may be sold at a private sale at such price as
may be fixed by the same committee or body concerned and approved by
the Commission."
It is only when the public auction fails that a negotiated sale is allowed, in which case
the Commission on Audit must approve the selling price.90 The Commission on Audit
implements Section 79 of the Government Auditing Code through Circular No. 8929691 dated January 27, 1989. This circular emphasizes that government assets must
be disposed of only through public auction, and a negotiated sale can be resorted to
only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid for PEA's
reclaimed foreshore and submerged alienable lands of the public domain. Private
corporations are barred from bidding at the auction sale of any kind of alienable land of
the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10,
1991. PEA imposed a condition that the winning bidder should reclaim another 250
hectares of submerged areas to regularize the shape of the Freedom Islands, under a
60-40 sharing of the additional reclaimed areas in favor of the winning bidder.92No one,
however, submitted a bid. On December 23, 1994, the Government Corporate Counsel
advised PEA it could sell the Freedom Islands through negotiation, without need of
another public bidding, because of the failure of the public bidding on December 10,
1991.93
However, the original JVA dated April 25, 1995 covered not only the Freedom Islands
and the additional 250 hectares still to be reclaimed, it also granted an option to AMARI
to reclaim another 350 hectares. The original JVA, a negotiated contract, enlarged the
reclamation area to 750 hectares.94 The failure of public bidding on December 10,
1991, involving only 407.84 hectares,95 is not a valid justification for a negotiated sale of
750 hectares, almost double the area publicly auctioned. Besides, the failure of public
bidding happened on December 10, 1991, more than three years before the signing of
78

the original JVA on April 25, 1995. The economic situation in the country had greatly
improved during the intervening period.
Reclamation under the BOT Law and the Local Government Code
The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is
absolute and clear: "Private corporations or associations may not hold such alienable
lands of the public domain except by lease, x x x." Even Republic Act No. 6957 ("BOT
Law," for brevity), cited by PEA and AMARI as legislative authority to sell reclaimed
lands to private parties, recognizes the constitutional ban. Section 6 of RA No. 6957
states
"Sec. 6. Repayment Scheme. - For the financing, construction, operation and
maintenance of any infrastructure projects undertaken through the build-operateand-transfer arrangement or any of its variations pursuant to the provisions of
this Act, the project proponent x x x may likewise be repaid in the form of a share
in the revenue of the project or other non-monetary payments, such as, but not
limited to, the grant of a portion or percentage of the reclaimed land, subject to
the constitutional requirements with respect to the ownership of the land: x
x x." (Emphasis supplied)
A private corporation, even one that undertakes the physical reclamation of a
government BOT project, cannot acquire reclaimed alienable lands of the public
domain in view of the constitutional ban.
Section 302 of the Local Government Code, also mentioned by PEA and AMARI,
authorizes local governments in land reclamation projects to pay the contractor or
developer in kind consisting of a percentage of the reclaimed land, to wit:
"Section 302. Financing, Construction, Maintenance, Operation, and
Management of Infrastructure Projects by the Private Sector. x x x
xxx
In case of land reclamation or construction of industrial estates, the repayment
plan may consist of the grant of a portion or percentage of the reclaimed land or
the industrial estate constructed."
Although Section 302 of the Local Government Code does not contain a proviso similar
to that of the BOT Law, the constitutional restrictions on land ownership automatically
apply even though not expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the contractor or
developer, if a corporate entity, can only be paid with leaseholds on portions of the
reclaimed land. If the contractor or developer is an individual, portions of the reclaimed
land, not exceeding 12 hectares96 of non-agricultural lands, may be conveyed to him in
ownership in view of the legislative authority allowing such conveyance. This is the only
way these provisions of the BOT Law and the Local Government Code can avoid a
direct collision with Section 3, Article XII of the 1987 Constitution.
Registration of lands of the public domain
Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands
to public respondent PEA transformed such lands of the public domain to private
lands." This theory is echoed by AMARI which maintains that the "issuance of the
special patent leading to the eventual issuance of title takes the subject land away from
79

the land of public domain and converts the property into patrimonial or private
property." In short, PEA and AMARI contend that with the issuance of Special Patent
No. 3517 and the corresponding certificates of titles, the 157.84 hectares comprising
the Freedom Islands have become private lands of PEA. In support of their theory, PEA
and AMARI cite the following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,97 where the Court held
"Once the patent was granted and the corresponding certificate of title was
issued, the land ceased to be part of the public domain and became private
property over which the Director of Lands has neither control nor jurisdiction."
2. Lee Hong Hok v. David,98 where the Court declared "After the registration and issuance of the certificate and duplicate certificate of
title based on a public land patent, the land covered thereby automatically comes
under the operation of Republic Act 496 subject to all the safeguards provided
therein."3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,99 where the Court
ruled "While the Director of Lands has the power to review homestead patents, he may
do so only so long as the land remains part of the public domain and continues to
be under his exclusive control; but once the patent is registered and a certificate
of title is issued, the land ceases to be part of the public domain and becomes
private property over which the Director of Lands has neither control nor
jurisdiction."
4. Manalo v. Intermediate Appellate Court,100 where the Court held
"When the lots in dispute were certified as disposable on May 19, 1971, and free
patents were issued covering the same in favor of the private respondents, the
said lots ceased to be part of the public domain and, therefore, the Director of
Lands lost jurisdiction over the same."
5.Republic v. Court of Appeals,101 where the Court stated
"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally
effected a land grant to the Mindanao Medical Center, Bureau of Medical
Services, Department of Health, of the whole lot, validly sufficient for initial
registration under the Land Registration Act. Such land grant is constitutive of a
'fee simple' title or absolute title in favor of petitioner Mindanao Medical Center.
Thus, Section 122 of the Act, which governs the registration of grants or patents
involving public lands, provides that 'Whenever public lands in the Philippine
Islands belonging to the Government of the United States or to the Government
of the Philippines are alienated, granted or conveyed to persons or to public or
private corporations, the same shall be brought forthwith under the operation of
this Act (Land Registration Act, Act 496) and shall become registered lands.'"
The first four cases cited involve petitions to cancel the land patents and the
corresponding certificates of titlesissued to private parties. These four cases
uniformly hold that the Director of Lands has no jurisdiction over private lands or that
upon issuance of the certificate of title the land automatically comes under the Torrens
System. The fifth case cited involves the registration under the Torrens System of a
12.8-hectare public land granted by the National Government to Mindanao Medical
Center, a government unit under the Department of Health. The National Government
transferred the 12.8-hectare public land to serve as the site for the hospital buildings
80

and other facilities of Mindanao Medical Center, which performed a public service. The
Court affirmed the registration of the 12.8-hectare public land in the name of Mindanao
Medical Center under Section 122 of Act No. 496. This fifth case is an example of a
public land being registered under Act No. 496 without the land losing its character as a
property of public dominion.
In the instant case, the only patent and certificates of title issued are those in the name
of PEA, a wholly government owned corporation performing public as well as
proprietary functions. No patent or certificate of title has been issued to any private
party. No one is asking the Director of Lands to cancel PEA's patent or certificates of
title. In fact, the thrust of the instant petition is that PEA's certificates of title should
remain with PEA, and the land covered by these certificates, being alienable lands of
the public domain, should not be sold to a private corporation.
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant
private or public ownership of the land. Registration is not a mode of acquiring
ownership but is merely evidence of ownership previously conferred by any of the
recognized modes of acquiring ownership. Registration does not give the registrant a
better right than what the registrant had prior to the registration.102 The registration of
lands of the public domain under the Torrens system, by itself, cannot convert public
lands into private lands.103
Jurisprudence holding that upon the grant of the patent or issuance of the certificate of
title the alienable land of the public domain automatically becomes private land cannot
apply to government units and entities like PEA. The transfer of the Freedom Islands to
PEA was made subject to the provisions of CA No. 141 as expressly stated in Special
Patent No. 3517 issued by then President Aquino, to wit:
"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the
Philippines and in conformity with the provisions of Presidential Decree No. 1084,
supplemented by Commonwealth Act No. 141, as amended, there are hereby
granted and conveyed unto the Public Estates Authority the aforesaid tracts of
land containing a total area of one million nine hundred fifteen thousand eight
hundred ninety four (1,915,894) square meters; the technical description of which
are hereto attached and made an integral part hereof." (Emphasis supplied)
Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not
covered by PD No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized
by Congress," the sale of alienable lands of the public domain that are transferred to
government units or entities. Section 60 of CA No. 141 constitutes, under Section 44 of
PD No. 1529, a "statutory lien affecting title" of the registered land even if not annotated
on the certificate of title.104Alienable lands of the public domain held by government
entities under Section 60 of CA No. 141 remain public lands because they cannot be
alienated or encumbered unless Congress passes a law authorizing their disposition.
Congress, however, cannot authorize the sale to private corporations of reclaimed
alienable lands of the public domain because of the constitutional ban. Only individuals
can benefit from such law.
The grant of legislative authority to sell public lands in accordance with Section 60 of
CA No. 141 does not automatically convert alienable lands of the public domain into
private or patrimonial lands. The alienable lands of the public domain must be
transferred to qualified private parties, or to government entities not tasked to dispose
of public lands, before these lands can become private or patrimonial lands. Otherwise,
the constitutional ban will become illusory if Congress can declare lands of the public
domain as private or patrimonial lands in the hands of a government agency tasked to
dispose of public lands. This will allow private corporations to acquire directly from
81

government agencies limitless areas of lands which, prior to such law, are concededly
public lands.
Under EO No. 525, PEA became the central implementing agency of the National
Government to reclaim foreshore and submerged areas of the public domain. Thus, EO
No. 525 declares that
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency Primarily Responsible for
all Reclamation Projects
Whereas, there are several reclamation projects which are ongoing or being
proposed to be undertaken in various parts of the country which need to be
evaluated for consistency with national programs;
Whereas, there is a need to give further institutional support to the Government's
declared policy to provide for a coordinated, economical and efficient reclamation
of lands;
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall
be limited to the National Government or any person authorized by it under
proper contract;
Whereas, a central authority is needed to act on behalf of the National
Government which shall ensure a coordinated and integrated approach in
the reclamation of lands;
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority
as a government corporation to undertake reclamation of lands and ensure
their maximum utilization in promoting public welfare and interests; and
Whereas, Presidential Decree No. 1416 provides the President with continuing
authority to reorganize the national government including the transfer, abolition,
or merger of functions and offices.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution and pursuant to
Presidential Decree No. 1416, do hereby order and direct the following:
Section 1. The Public Estates Authority (PEA) shall be primarily responsible
for integrating, directing, and coordinating all reclamation projects for and
on behalf of the National Government. All reclamation projects shall be
approved by the President upon recommendation of the PEA, and shall be
undertaken by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national government
agency or entity authorized under its charter shall be undertaken in consultation
with the PEA upon approval of the President.
x x x ."
As the central implementing agency tasked to undertake reclamation projects
nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by PEA are not private lands, in the
same manner that DENR, when it disposes of other alienable lands, does not dispose
82

of private lands but alienable lands of the public domain. Only when qualified private
parties acquire these lands will the lands become private lands. In the hands of the
government agency tasked and authorized to dispose of alienable of disposable
lands of the public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public
domain" as well as "any and all kinds of lands." PEA can hold both lands of the public
domain and private lands. Thus, the mere fact that alienable lands of the public domain
like the Freedom Islands are transferred to PEA and issued land patents or certificates
of title in PEA's name does not automatically make such lands private.
To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as
private lands will sanction a gross violation of the constitutional ban on private
corporations from acquiring any kind of alienable land of the public domain. PEA will
simply turn around, as PEA has now done under the Amended JVA, and transfer
several hundreds of hectares of these reclaimed and still to be reclaimed lands to a
single private corporation in only one transaction. This scheme will effectively nullify the
constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended
to diffuse equitably the ownership of alienable lands of the public domain among
Filipinos, now numbering over 80 million strong.
This scheme, if allowed, can even be applied to alienable agricultural lands of the
public domain since PEA can "acquire x x x any and all kinds of lands." This will open
the floodgates to corporations and even individuals acquiring hundreds of hectares of
alienable lands of the public domain under the guise that in the hands of PEA these
lands are private lands. This will result in corporations amassing huge landholdings
never before seen in this country - creating the very evil that the constitutional ban was
designed to prevent. This will completely reverse the clear direction of constitutional
development in this country. The 1935 Constitution allowed private corporations to
acquire not more than 1,024 hectares of public lands.105 The 1973 Constitution
prohibited private corporations from acquiring any kind of public land, and the 1987
Constitution has unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands, once registered under Act No. 496
or PD No. 1529, automatically become private lands is contrary to existing laws.
Several laws authorize lands of the public domain to be registered under the Torrens
System or Act No. 496, now PD No. 1529, without losing their character as public
lands. Section 122 of Act No. 496, and Section 103 of PD No. 1529, respectively,
provide as follows:
Act No. 496
"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x
Government of the Philippine Islands are alienated, granted, or conveyed to
persons or the public or private corporations, the same shall be brought
forthwith under the operation of this Act and shall become registered lands."
PD No. 1529
"Sec. 103. Certificate of Title to Patents. Whenever public land is by the
Government alienated, granted or conveyed to any person, the same shall be
brought forthwith under the operation of this Decree." (Emphasis supplied)
Based on its legislative history, the phrase "conveyed to any person" in Section 103 of
PD No. 1529 includes conveyances of public lands to public corporations.
83

Alienable lands of the public domain "granted, donated, or transferred to a province,

municipality, or branch or subdivision of the Government," as provided in Section 60 of
CA No. 141, may be registered under the Torrens System pursuant to Section 103 of
PD No. 1529. Such registration, however, is expressly subject to the condition in
Section 60 of CA No. 141 that the land "shall not be alienated, encumbered or
otherwise disposed of in a manner affecting its title, except when authorized by
Congress." This provision refers to government reclaimed, foreshore and marshy lands
of the public domain that have been titled but still cannot be alienated or encumbered
unless expressly authorized by Congress. The need for legislative authority prevents
the registered land of the public domain from becoming private land that can be
disposed of to qualified private parties.
The Revised Administrative Code of 1987 also recognizes that lands of the public
domain may be registered under the Torrens System. Section 48, Chapter 12, Book I of
the Code states
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of
the Government is authorized by law to be conveyed, the deed of conveyance
shall be executed in behalf of the government by the following:
(1) x x x
(2) For property belonging to the Republic of the Philippines, but titled in
the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality."
(Emphasis supplied)
Thus, private property purchased by the National Government for expansion of a public
wharf may be titled in the name of a government corporation regulating port operations
in the country. Private property purchased by the National Government for expansion of
an airport may also be titled in the name of the government agency tasked to
administer the airport. Private property donated to a municipality for use as a town
plaza or public school site may likewise be titled in the name of the municipality.106 All
these properties become properties of the public domain, and if already registered
under Act No. 496 or PD No. 1529, remain registered land. There is no requirement or
provision in any existing law for the de-registration of land from the Torrens System.
Private lands taken by the Government for public use under its power of eminent
domain become unquestionably part of the public domain. Nevertheless, Section 85 of
PD No. 1529 authorizes the Register of Deeds to issue in the name of the National
Government new certificates of title covering such expropriated lands. Section 85 of PD
No. 1529 states
"Sec. 85. Land taken by eminent domain. Whenever any registered land, or
interest therein, is expropriated or taken by eminent domain, the National
Government, province, city or municipality, or any other agency or instrumentality
exercising such right shall file for registration in the proper Registry a certified
copy of the judgment which shall state definitely by an adequate description, the
particular property or interest expropriated, the number of the certificate of title,
and the nature of the public use. A memorandum of the right or interest taken
shall be made on each certificate of title by the Register of Deeds, and where the
fee simple is taken, a new certificate shall be issued in favor of the National
Government, province, city, municipality, or any other agency or
instrumentality exercising such right for the land so taken. The legal expenses
incident to the memorandum of registration or issuance of a new certificate of title
84

shall be for the account of the authority taking the land or interest therein."
(Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively
private or patrimonial lands. Lands of the public domain may also be registered
pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the
Freedom Islands or of the lands to be reclaimed from submerged areas of Manila Bay.
In the words of AMARI, the Amended JVA "is not a sale but a joint venture with a
stipulation for reimbursement of the original cost incurred by PEA for the earlier
reclamation and construction works performed by the CDCP under its 1973 contract
with the Republic." Whether the Amended JVA is a sale or a joint venture, the fact
remains that the Amended JVA requires PEA to "cause the issuance and delivery of the
certificates of title conveying AMARI's Land Share in the name of AMARI."107
This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which
provides that private corporations "shall not hold such alienable lands of the public
domain except by lease." The transfer of title and ownership to AMARI clearly means
that AMARI will "hold" the reclaimed lands other than by lease. The transfer of title and
ownership is a "disposition" of the reclaimed lands, a transaction considered a sale or
alienation under CA No. 141,108 the Government Auditing Code,109 and Section 3, Article
XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our legal system. Foreshore and
submerged areas form part of the public domain and are inalienable. Lands reclaimed
from foreshore and submerged areas also form part of the public domain and are also
inalienable, unless converted pursuant to law into alienable or disposable lands of the
public domain. Historically, lands reclaimed by the government are sui generis, not
available for sale to private parties unlike other alienable public lands. Reclaimed lands
retain their inherent potential as areas for public use or public service. Alienable lands
of the public domain, increasingly becoming scarce natural resources, are to be
distributed equitably among our ever-growing population. To insure such equitable
distribution, the 1973 and 1987 Constitutions have barred private corporations from
acquiring any kind of alienable land of the public domain. Those who attempt to dispose
of inalienable natural resources of the State, or seek to circumvent the constitutional
ban on alienation of lands of the public domain to private corporations, do so at their
own risk.
We can now summarize our conclusions as follows:
1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now
covered by certificates of title in the name of PEA, are alienable lands of the
public domain. PEA may lease these lands to private corporations but may not
sell or transfer ownership of these lands to private corporations. PEA may only
sell these lands to Philippine citizens, subject to the ownership limitations in the
1987 Constitution and existing laws.
2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable
natural resources of the public domain until classified as alienable or disposable
lands open to disposition and declared no longer needed for public service. The
government can make such classification and declaration only after PEA has
reclaimed these submerged areas. Only then can these lands qualify as
agricultural lands of the public domain, which are the only natural resources the
government can alienate. In their present state, the 592.15 hectares of
submerged areas are inalienable and outside the commerce of man.
85

3. Since the Amended JVA seeks to transfer to AMARI, a private corporation,

ownership of 77.34 hectares110 of the Freedom Islands, such transfer is void for
being contrary to Section 3, Article XII of the 1987 Constitution which prohibits
private corporations from acquiring any kind of alienable land of the public
domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of
290.156 hectares111 of still submerged areas of Manila Bay, such transfer is void
for being contrary to Section 2, Article XII of the 1987 Constitution which prohibits
the alienation of natural resources other than agricultural lands of the public
domain. PEA may reclaim these submerged areas. Thereafter, the government
can classify the reclaimed lands as alienable or disposable, and further declare
them no longer needed for public service. Still, the transfer of such reclaimed
alienable lands of the public domain to AMARI will be void in view of Section 3,
Article XII of the 1987 Constitution which prohibits private corporations from
acquiring any kind of alienable land of the public domain.
Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987
Constitution. Under Article 1409112 of the Civil Code, contracts whose "object or
purpose is contrary to law," or whose "object is outside the commerce of men," are
"inexistent and void from the beginning." The Court must perform its duty to defend and
uphold the Constitution, and therefore declares the Amended JVA null and void ab
initio.
Seventh issue: whether the Court is the proper forum to raise the issue of
whether the Amended JVA is grossly disadvantageous to the government.
Considering that the Amended JVA is null and void ab initio, there is no necessity to
rule on this last issue. Besides, the Court is not a trier of facts, and this last issue
involves a determination of factual matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari
Coastal Bay Development Corporation are PERMANENTLY ENJOINED from
implementing the Amended Joint Venture Agreement which is hereby
declared NULL and VOID ab initio.
SO ORDERED.

[G.R. No. 100709. November 14, 1997]

REPUBLIC OF THE PHILIPPINES, represented by the DIRECTOR OF

LANDS, petitioner, vs. COURT OF APPEALS, JOSEFINA L. MORATO,
SPOUSES NENITA CO and ANTONIO QUILATAN AND THE REGISTER
OF DEEDS OF QUEZON PROVINCE, respondents.
DECISION
PANGANIBAN, J.:

Will the lease and/or mortgage of a portion of a realty acquired through free
patent constitute sufficient ground for the nullification of such land grant? Should
such property revert to the State once it is invaded by the sea and thus becomes
foreshore land?
86

The Case
These are the two questions raised in the petition before us assailing the Court
of Appeals Decision in CA-G.R. CV No. 02667 promulgated on June 13, 1991
which answered the said questions in the negative. Respondent Courts Decision
dismissed petitioners appeal and affirmed in toto the decision of the Regional Trial
Court of Calauag, Quezon, dated December 28, 1983 in Civil Case No. C-608. In
turn, the Regional Trial Courts decision dismissed petitioners complaint for
cancellation of the Torrens Certificate of Title of Respondent Morato and for
reversion of the parcel of land subject thereof to the public domain.
[1]

[2]

[3]

[4]

The Facts
The petition of the solicitor general, representing the Republic of the Philippines,
recites the following facts:
[5]

Sometime in December, 1972, respondent Morato filed a Free Patent Application No. III-38186-B on a parcel of land with an area of 1,265 square meters situated at Pinagtalleran,
Calauag, Quezon. On January 16, 1974, the patent was approved and the Register of Deeds
of Quezon at Lucena City issued on February 4, 1974 Original Certificate of Title No. P17789. Both the free patent and the title specifically mandate that the land shall not
be alienated nor encumbered within five (5) years from the date of the issuance of the patent
(Sections 118 and 124 of CA No. 141, as amended).
Subsequently, the District Land Officer in Lucena City, acting upon reports that respondent
Morato had encumbered the land in violation of the condition of the patent, conducted an
investigation. Thereafter, it was established that the subject land is a portion of the Calauag
Bay, five (5) to six (6) feet deep under water during high tide and two (2) feet deep at low
tide, and not suitable to vegetation. Moreover, on October 24, 1974, a portion of the land
was mortgaged by respondent Morato to respondents Nenita Co and Antonio Quilatan
for P10,000.00 (pp. 2, 25, Folder of Exhibits). The spouses Quilatan constructed a house on
the land. Another portion of the land was leased to Perfecto Advincula on February 2, 1976
at P100.00 a month, where a warehouse was constructed.
On November 5, 1978, petitioner filed an amended complaint against respondents Morato,
spouses Nenita Co and Antonio Quilatan, and the Register of Deeds of Quezon for the
cancellation of title and reversion of a parcel of land to the public domain, subject of a free
patent in favor of respondent Morato, on the grounds that the land is a foreshore land and
was mortgaged and leased within the five-year prohibitory period (p. 46, Records).
After trial, the lower court, on December 28, 1983, rendered a decision dismissing
petitioners complaint. In finding for private respondents, the lower court ruled that there
was no violation of the 5-year period ban against alienating or encumbering the land,
because the land was merely leased and not alienated. It also found that the mortgage to
Nenita Co and Antonio Quilatan covered only the improvement and not the land itself.
On appeal, the Court of Appeals affirmed the decision of the trial
court. Thereafter, the Republic of the Philippines filed the present petition.
[6]

The Issues
87

Petitioner alleges that the following errors were committed by Respondent

Court:
[7]

Respondent Court erred in holding that the patent granted and certificate of title issued to
Respondent Morato cannot be cancelled and annulled since the certificate of title becomes
indefeasible after one year from the issuance of the title.
II

Respondent Court erred in holding that the questioned land is part of a disposable public
land and not a foreshore land.
The Courts Ruling
The petition is meritorious.
First Issue: Indefeasibility of a Free Patent Title
In resolving the first issue against petitioner, Respondent Court held:

[8]

x x x. As ruled in Heirs of Gregorio Tengco vs. Heirs of Jose Alivalas, 168 SCRA 198. x
x. The rule is well-settled that an original certificate of title issued on the strength of a
homestead patent partakes of the nature of a certificate of title issued in a judicial
proceeding, as long as the land disposed of is really part of the disposable land of the public
domain, and becomes indefeasible and incontrovertible upon the expiration of one year from
the date of promulgation of the order of the Director of Lands for the issuance of the
patent. (Republic v. Heirs of Carle, 105 Phil. 1227 (1959); Ingaran v. Ramelo, 107 Phil. 498
(1960); Lopez v. Padilla, (G.R. No. L-27559, May 18, 1972, 45 SCRA 44). A homestead
patent, one registered under the Land Registration Act, becomes as indefeasible as a Torrens
Title. (Pamintuan v. San Agustin, 43 Phil. 558 (1982); El Hogar Filipino v. Olviga, 60 Phil.
17 (1934); Duran v. Oliva, 113 Phil. 144 (1961); Pajomayo v. Manipon, G.R. No. L-33676,
June 30, 1971, 39 SCRA 676). (p. 203).
Again, in Lopez vs. Court of Appeals, 169 SCRA 271, citing Iglesia ni Cristo v. Hon. Judge,
CFI of Nueva Ecija, Branch I, (123 SCRA 516 (1983) and Pajomayo, et al. v. Manipon, et al.
(39 SCRA 676 (1971) held that once a homestead patent granted in accordance with the
Public Land Act is registered pursuant to Section 122 of Act 496, the certificate of title
issued in virtue of said patent has the force and effect of a Torrens Title issued under the
Land Registration Act.
Indefeasibility of the title, however, may not bar the State, thru the Solicitor General, from
filing an action for reversion, as ruled in Heirs of Gregorio Tengo v. Heirs of Jose Aliwalas,
(supra), as follows:
But, as correctly pointed out by the respondent Court of Appeals, Dr. Aliwalas title to the
property having become incontrovertible, such may no longer be collaterally attacked. If
indeed there had been any fraud or misrepresentation in obtaining the title, an action for
reversion instituted by the Solicitor General would be the proper remedy (Sec. 101, C.A. No.
141; Director of Lands v. Jugado, G.R. No. L-14702, May 21, 1961, 2 SCRA 32;
Lopez v. Padilla, supra). (p. 204).
88

Petitioner contends that the grant of Free Patent (IV-3) 275 and the subsequent
issuance of Original Certificate of Title No. P-17789 to Respondent Josefina L.
Morato were subject to the conditions provided for in Commonwealth Act (CA) No.
141. It alleges that on October 24, 1974, or nine (9) months and eight (8) days after
the grant of the patent, Respondent Morato, in violation of the terms of the patent,
mortgaged a portion of the land to Respondent Nenita Co, who thereafter
constructed a house thereon. Likewise, on February 2, 1976 and within the fiveyear prohibitory period, Respondent Morato leased a portion of the land to
Perfecto Advincula at a monthly rent of P100.00 who, shortly thereafter, constructed
a house of concrete materials on the subject land. Further, petitioner argues that
the defense of indefeasibility of title is inaccurate. The original certificate of title
issued to Respondent Morato contains the seeds of its own cancellation: such
certificate specifically states on its face that it is subject to the provisions of
Sections 118, 119, 121, 122, 124 of CA No. 141, as amended.
[9]

[10]

Respondent Morato counters by stating that although a portion of the land was
previously leased, it resulted from the fact that Perfecto Advincula built a
warehouse in the subject land without [her] prior consent. The mortgage executed
over the improvement cannot be considered a violation of the said grant since it
can never affect the ownership. She states further:
[11]

x x x. the appeal of the petitioner was dismissed not because of the principle of
indefeasibility of title but mainly due to failure of the latter to support and prove the alleged
violations of respondent Morato. The records of this case will readily show that although
petitioner was able to establish that Morato committed some acts during the prohibitory
period of 5 years, a perusal thereof will also show that what petitioner was able to prove
never constituted a violation of the grant.
[12]

Respondent-Spouses Quilatan, on the other hand, state that the mortgage

contract they entered into with Respondent Morato can never be considered as [an]
alienation inasmuch as the ownership over the property remains with the
owner. Besides, it is the director of lands and not the Republic of the Philippines
who is the real party in interest in this case, contrary to the provision of the Public
Land Act which states that actions for reversion should be instituted by the solicitor
general in the name of Republic of the Philippines.
[13]

[14]

We find for petitioner.

Quoted below are relevant sections of Commonwealth Act No. 141, otherwise
known as the Public Land Act:
Sec. 118. Except in favor of the Government or any of its branches, units or institutions, or
legally constituted banking corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from the date of the approval of
the application and for a term of five years from and after the date of issuance of the patent
or grant nor shall they become liable to the satisfaction of any debt contracted prior to the
expiration of said period; but the improvements or crops on the land may be mortgaged or
pledged to qualified persons, associations, or corporations.
No alienation, transfer, or conveyance of any homestead after five years and before twentyfive years after issuance of title shall be valid without the approval of the Secretary of
Agriculture and Natural Resources, which approval shall not be denied except on
constitutional and legal grounds. (As amended by Com. Act No. 456, approved June 8,
1939.)
xxx

xxx

xxx
89

Sec. 121. Except with the consent of the grantee and the approval of the Secretary of
Agriculture and Natural Resources, and solely for educational, religious, or charitable
purposes or for a right of way, no corporation, association, or partnership may acquire or
have any right, title, interest, or property right whatsoever to any land granted under the free
patent, homestead, or individual sale provisions of this Act or to any permanent
improvement on such land. (As amended by Com. Act No. 615, approved May 5, 1941)
Sec. 122. No land originally acquired in any manner under the provisions of this Act, nor
any permanent improvement on such land, shall be encumbered, alienated or transferred,
except to persons, corporations, association, or partnerships who may acquire lands of the
public domain under this Act or to corporations organized in the Philippines authorized
therefore by their charters.
Except in cases of hereditary successions, no land or any portion thereof originally acquired
under the free patent, homestead, or individual sale provisions of this Act, or any permanent
improvement on such land, shall be transferred or assigned to any individual, nor shall such
land or any permanent improvement thereon be leased to such individual, when the area of
said land, added to that of his own, shall exceed one hundred and forty-four hectares. Any
transfer, assignment, or lease made in violation hereto shall be null and void. (As amended
by Com. Act No. 615, Id.)
xxx

xxx

xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or
executed in violation of any of the provisions of sections one hundred and eighteen, one
hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one
hundred and twenty-three of this Act shall be unlawful and null and void from its execution
and shall produce the effect of annulling and cancelling the grant, title, patent, or permit
originally issued, recognized or confirmed, actually or presumptively, and cause the
reversion of the property and its improvements to the State. (Underscoring supplied.)
The foregoing legal provisions clearly proscribe the encumbrance of a parcel of
land acquired under a free patent or homestead within five years from the grant of
such patent. Furthermore, such encumbrance results in the cancellation of the grant
and the reversion of the land to the public domain. Encumbrance has been defined
as [a]nything that impairs the use or transfer of property; anything which constitutes
a burden on the title; a burden or charge upon property; a claim or lien upon
property. It may be a legal claim on an estate for the discharge of which the estate
is liable; an embarrassment of the estate or property so that it cannot be disposed of
without being subject to it; an estate, interest, or right in lands, diminishing their
value to the general owner; a liability resting upon an estate. Do the contracts of
lease and mortgage executed within five (5) years from the issuance of the patent
constitute an encumbrance and violate the terms and conditions of such patent?
Respondent Court answered in the negative:
[15]

[16]

From the evidence adduced by both parties, it has been proved that the area of the portion
of the land, subject matter of the lease contract (Exh. B) executed by and between Perfecto
Advincula and Josefina L. Morato is only 10 x 12 square meters, whereas the total area of
the land granted to Morato is 1,265 square meters. It is clear from this that the portion of the
land leased by Advincula does not significantly affect Moratos ownership and
possession. Above all, the circumstances under which the lease was executed do not reflect
a voluntary and blatant intent to violate the conditions provided for in the patent issued in her
favor. On the contrary, Morato was compelled to enter into that contract of lease out of
sympathy and the goodness of her heart to accommodate a fellow man. x x x
90

It is indisputable, however, that Respondent Morato cannot fully use or enjoy the
land during the duration of the lease contract. This restriction on the enjoyment of
her property sufficiently meets the definition of an encumbrance under Section 118
of the Public Land Act, because such contract impairs the use of the property by
the grantee. In a contract of lease which is consensual, bilateral, onerous and
commutative, the owner temporarily grants the use of his or her property to another
who undertakes to pay rent therefor. During the term of the lease, the grantee of
the patent cannot enjoy the beneficial use of the land leased. As already observed,
the Public Land Act does not permit a grantee of a free patent from encumbering
any portion of such land. Such encumbrance is a ground for the nullification of the
award.
[17]

Moratos resort to equity, i.e. that the lease was executed allegedly out of the
goodness of her heart without any intention of violating the law, cannot help
her. Equity, which has been aptly described as justice outside legality, is applied
only in the absence of, and never against, statutory law or judicial rules of
procedure. Positive rules prevail over all abstract arguments based on equity contra
legem.
[18]

Respondents failed to justify their position that the mortgage should not be
considered an encumbrance. Indeed, we do not find any support for such
contention. The questioned mortgage falls squarely within the term encumbrance
proscribed by Section 118 of the Public Land Act. Verily, a mortgage constitutes a
legal limitation on the estate, and the foreclosure of such mortgage would
necessarily result in the auction of the property.
[19]

[20]

Even if only part of the property has been sold or alienated within the prohibited
period of five years from the issuance of the patent, such alienation is a sufficient
cause for the reversion of the whole estate to the State. As a condition for the grant
of a free patent to an applicant, the law requires that the land should not be
encumbered, sold or alienated within five years from the issuance of the
patent. The sale or the alienation of part of the homestead violates that condition.
[21]

The prohibition against the encumbrance -- lease and mortgage included -- of a

homestead which, by analogy applies to a free patent, is mandated by the rationale
for the grant, viz.:
[22]

It is well-known that the homestead laws were designed to distribute disposable agricultural
lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such
benevolent intention the State prohibits the sale or encumbrance of the homestead (Section
116) within five years after the grant of the patent. After that five-year period the law
impliedly permits alienation of the homestead; but in line with the primordial purpose to
favor the homesteader and his family the statute provides that such alienation or conveyance
(Section 117) shall be subject to the right of repurchase by the homesteader, his widow or
heirs within five years. This section 117 is undoubtedly a complement of section 116. It
aims to preserve and keep in the family of the homesteader that portion of public land which
the State had gratuitously given to him. It would, therefore, be in keeping with this
fundamental idea to hold, as we hold, that the right to repurchase exists not only when the
original homesteader makes the conveyance, but also when it is made by his widow or
heirs. This construction is clearly deducible from the terms of the statute.
By express provision of Section 118 of Commonwealth Act 141 and in
conformity with the policy of the law, any transfer or alienation of a free patent or
homestead within five years from the issuance of the patent is proscribed. Such
transfer nullifies said alienation and constitutes a cause for the reversion of the
property to the State.
91

The prohibition against any alienation or encumbrance of the land grant is a

proviso attached to the approval of every application. Prior to the fulfillment of the
requirements of law, Respondent Morato had only an inchoate right to the property;
such property remained part of the public domain and, therefore, not susceptible to
alienation or encumbrance. Conversely, when a homesteader has complied with
all the terms and conditions which entitled him to a patent for [a] particular tract of
public land, he acquires a vested interest therein and has to be regarded an
equitable owner thereof. However, for Respondent Moratos title of ownership
over the patented land to be perfected, she should have complied with the
requirements of the law, one of which was to keep the property for herself and her
family within the prescribed period of five (5) years. Prior to the fulfillment of all
requirements of the law, Respondent Moratos title over the property was
incomplete. Accordingly, if the requirements are not complied with, the State as the
grantor could petition for the annulment of the patent and the cancellation of the title.
[23]

[24]

Respondent Morato cannot use the doctrine of the indefeasibility of her Torrens
title to bar the state from questioning its transfer or encumbrance. The certificate of
title issued to her clearly stipulated that its award was subject to the conditions
provided for in Sections 118, 119, 121, 122 and 124 of Commonwealth Act (CA) No.
141. Because she violated Section 118, the reversion of the property to the public
domain necessarily follows, pursuant to Section 124.
Second Issue: Foreshore Land Reverts to the Public Domain
There is yet another reason for granting this petition.
Although Respondent Court found that the subject land was foreshore land, it
nevertheless sustained the award thereof to Respondent Morato:
[25]

First of all, the issue here is whether the land in question, is really part of the foreshore
lands. The Supreme Court defines foreshore land in the case of Republic vs. Alagad, 169
SCRA 455, 464, as follows:
Otherwise, where the rise in water level is due to, the extraordinary action of nature,
rainful, for instance, the portions inundated thereby are not considered part of the bed or
basin of the body of water in question. It cannot therefore be said to be foreshore land but
land outside of the public dominion, and land capable of registration as private property.
A foreshore land, on the other hand has been defined as follows:
... that part of (the land) which is between high and low water and left dry by the flux and
reflux of the tides x x x x (Republic vs. C.A., Nos. L-43105, L-43190, August 31, 1984, 131
SCRA 532; Government vs.Colegio de San Jose, 53 Phil 423)
The strip of land that lies between the high and low water marks and that is alternatively wet
and dry according to the flow of the tide. (Rep. vs. CA, supra, 539).
The factual findings of the lower court regarding the nature of the parcel of land
in question reads:
Evidence disclose that the marginal area of the land radically changed sometime in 1937 up
to 1955 due to a strong earthquake followed by frequent storms eventually eroding the
land. From 1955 to 1968, however, gradual reclamation was undertaken by the lumber
company owned by the Moratos. Having thus restored the land thru mostly human hands
92

employed by the lumber company, the area continued to be utilized by the owner of the
sawmill up to the time of his death in 1965. On or about March 17, 1973, there again was a
strong earthquake unfortunately causing destruction to hundreds of residential houses
fronting the Calauag Bay including the Santiago Building, a cinema house constructed of
concrete materials. The catastrophe totally caused the sinking of a concrete bridge at
Sumulong river also in the municipality of Calauag, Quezon.
On November 13, 1977 a typhoon code named Unding wrought havoc as it lashed the main
land of Calauag, Quezon causing again great erosion this time than that which the area
suffered in 1937. The Court noted with the significance of the newspaper clipping entitled
Baryo ng Mangingisda Kinain ng Dagat (Exh. 11).
xxx

xxx

xxx

Evidently this was the condition of the land when on or about December 5, 1972 defendant
Josefina L. Morato filed with the Bureau of Lands her free patent application. The defendant
Josefina Morato having taken possession of the land after the demise of Don Tomas Morato,
she introduced improvement and continued developing the area, planted it to coconut
trees. Having applied for a free patent, defendant had the land area surveyed and an
approved plan (Exh. 9) based on the cadastral survey as early as 1927 (Exh. 10) was
secured. The area was declared for taxation purposes in the name of defendant Josefina
Morato denominated as Tax Declaration No. 4115 (Exh. 8) and the corresponding realty
taxes religiously paid as shown by Exh. 8-A). (pp. 12-14, DECISION).
Being supported by substantial evidence and for failure of the appellant to show cause which
would warrant disturbance, the afore-cited findings of the lower court, must be respected.
Petitioner correctly contends, however, that Private Respondent Morato cannot
own foreshore land:
Through the encroachment or erosion by the ebb and flow of the tide, a portion of the
subject land was invaded by the waves and sea advances. During high tide, at least half of
the land (632.5 square meters) is 6 feet deep under water and three (3) feet deep during low
tide. The Calauag Bay shore has extended up to a portion of the questioned land.
While at the time of the grant of free patent to respondent Morato, the land was not reached
by the water, however, due to gradual sinking of the land caused by natural calamities, the
sea advances had permanently invaded a portion of subject land. As disclosed at the trial,
through the testimony of the court-appointed commissioner, Engr. Abraham B. Pili, the land
was under water during high tide in the month of August 1978. The water margin covers
half of the property, but during low tide, the water is about a kilometer (TSN, July 19, 1979,
p. 12). Also, in 1974, after the grant of the patent, the land was covered with vegetation, but
it disappeared in 1978 when the land was reached by the tides (Exhs. E-1; E-14). In fact,
in its decision dated December 28, 1983, the lower court observed that the erosion of the
land was caused by natural calamities that struck the place in 1977 (Cf. Decision, pp. 1718).
[26]

Respondent-Spouses Quilatan argue, however, that it is unfair and unjust if

Josefina Morato will be deprived of the whole property just because a portion
thereof was immersed in water for reasons not her own doing.
[27]

As a general rule, findings of facts of the Court of Appeals are binding and
conclusive upon this Court, unless such factual findings are palpably unsupported
by the evidence on record or unless the judgment itself is based on a
misapprehension of facts. The application for a free patent was made in
[28]

93

1972. From the undisputed factual findings of the Court of Appeals, however, the
land has since become foreshore. Accordingly, it can no longer be subject of a free
patent under the Public Land Act. Government of the Philippine Islands vs.
Cabagis explained the rationale for this proscription:
[29]

Article 339, subsection 1, of the Civil Code, reads:

Art. 339. Property of public ownership is
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads, and that of a similar character.
**

Article 1, case 3, of the Law of Waters of August 3, 1866, provides as follows:

ARTICLE 1.

The following are part of the national domain open to public use:
**

3. The Shores. By the shore is understood that space covered and uncovered by the
movement of the tide. Its interior or terrestrial limit is the line reached by the highest
equinoctal tides. Where the tides are not appreciable, the shore begins on the land side at the
line reached by the sea during ordinary storms or tempests.
In the case of Aragon vs. Insular Government (19 Phil. 223), with reference to article 339 of
the Civil Code just quoted, this Court said:
We should not be understood, by this decision, to hold that in a case of gradual
encroachment or erosion by the ebb and flow of the tide, private property may not become
property of public ownership. as defined in article 339 of the code, where it appear that the
owner has to all intents and purposes abandoned it and permitted it to be totally destroyed, so
as to become a part of the playa (shore of the sea), rada (roadstead), or the like. * * *
In the Enciclopedia Jurdica Espaola, volume XII, page 558, we read the following:
With relative frequency the opposite phenomenon occurs; that is, the sea advances and
private properties are permanently invaded by the waves, and in this case they become part
of the shore or beach. They then pass to the public domain, but the owner thus dispossessed
does not retain any right to the natural products resulting from their new nature; it is a de
facto case of eminent domain, and not subject to indemnity.
In comparison, Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.

When the sea moved towards the estate and the tide invaded it, the invaded
property became foreshore land and passed to the realm of the public domain. In
fact, the Court in Government vs. Cabangis annulled the registration of land
subject of cadastral proceedings when the parcel subsequently became foreshore
land. In another case, the Court voided the registration decree of a trial court and
[30]

[31]

94

held that said court had no jurisdiction to award foreshore land to any private person
or entity. The subject land in this case, being foreshore land, should therefore be
returned to the public domain.
[32]

WHEREFORE,
the
petition
is
GRANTED. This
Court
hereby REVERSES and SETS ASIDE the assailed Decision of Respondent Court
and ORDERS the CANCELLATION of Free Patent No. (IV-3) 275 issued to
Respondent Morato and the subsequent Original Certificate of Title No. P17789. The subject land therefore REVERTS to the State. No costs.
SO ORDERED.

G.R. No. 93654 May 6, 1992

FRANCISCO U. DACANAY, petitioner,
vs.
MAYOR MACARIO ASISTIO, JR., CITY ENGR. LUCIANO SARNE, JR. of Kalookan
City, Metro Manila, MILA PASTRANA AND/OR RODOLFO TEOFE,
STALLHOLDERS AND REPRESENTING CO-STALLHOLDERS,respondents.
David D. Advincula, Jr. for petitioner.
Juan P. Banaga for private respondents.

GRIO-AQUINO, J.:
May public streets or thoroughfares be leased or licensed to market stallholders by
virtue of a city ordinance or resolution of the Metro Manila Commission? This issue is
posed by the petitioner, an aggrieved Caloocan City resident who filed a special civil
action of mandamus against the incumbent city mayor and city engineer, to compel
these city officials to remove the market stalls from certain city streets which the
aforementioned city officials have designated as flea markets, and the private
respondents (stallholders) to vacate the streets.
On January 5, 1979, MMC Ordinance No. 79-02 was enacted by the Metropolitan
Manila Commission, designating certain city and municipal streets, roads and open
spaces as sites for flea markets. Pursuant, thereto, the Caloocan City mayor opened up
seven (7) flea markets in that city. One of those streets was the "Heroes del '96" where
the petitioner lives. Upon application of vendors Rodolfo Teope, Mila Pastrana, Carmen
Barbosa, Merle Castillo, Bienvenido Menes, Nancy Bugarin, Jose Manuel, Crisaldo
Paguirigan, Alejandro Castron, Ruben Araneta, Juanita and Rafael Malibaran, and
others, the respondents city mayor and city engineer, issued them licenses to conduct
vending activities on said street.
In 1987, Antonio Martinez, as OIC city mayor of Caloocan City, caused the demolition
of the market stalls on Heroes del '96, V. Gozon and Gonzales streets. To stop Mayor
Martinez' efforts to clear the city streets, Rodolfo Teope, Mila Pastrana and other
stallowners filed an action for prohibition against the City of Caloocan, the OIC City
Mayor and the City Engineer and/or their deputies (Civil Case No. C-12921) in the
Regional Trial Court of Caloocan City, Branch 122, praying the court to issue a writ of
preliminary injunction ordering these city officials to discontinue the demolition of their
stalls during the pendency of the action.
95

The court issued the writ prayed for. However, on December 20, 1987, it dismissed the
petition and lifted the writ of preliminary injunction which it had earlier issued. The trial
court observed that:
A perusal of Ordinance 2, series of 1979 of the Metropolitan Manila
Commission will show on the title itself that it is an ordinance
Authorizing and regulating the use of certain city and/or
municipal streets, roads and open spaces within Metropolitan
Manila as sites for flea market and/or vending areas, under
certain terms and conditions, subject to the approval of the
Metropolitan Manila Commission, and for other purposes
which is further amplified in Section 2 of the said ordinance, quoted
hereunder:
Sec. 2. The streets, roads and open spaces to be used as sites for flea
markets (tiangge) or vending areas; the design, measurement or
specification of the structures, equipment and apparatuses to be used or
put up; the allowable distances; the days and time allowed for the conduct
of the businesses and/or activities herein authorized; the rates or fees or
charges to be imposed, levied and collected; the kinds of merchandise,
goods and commodities sold and services rendered; and other matters and
activities related to the establishment, maintenance and management and
operation of flea markets and vending areas, shall be determined and
prescribed by the mayors of the cities and municipalities in the
Metropolitan Manila where the same are located, subject to the approval of
the Metropolitan Manila Commission and consistent with the guidelines
hereby prescribed.
Further, it is so provided in the guidelines under the said Ordinance No. 2
of the MMC that
Sec. 6. In the establishment, operation, maintenance and management of
flea markets and vending areas, the following guidelines, among others,
shall be observed:
xxx xxx xxx
(m) That the permittee shall remove the equipment, facilities and other
appurtenances used by him in the conduct of his business after the close
or termination of business hours. (Emphasis ours; pp. 15-16, Rollo.)
The trial court found that Heroes del '96, Gozon and Gonzales streets are of public
dominion, hence, outside the commerce of man:
The Heroes del '96 street, V. Gozon street and Gonzales street, being of
public dominion must, therefore, be outside of the commerce of man.
Considering the nature of the subject premises, the following jurisprudence
co/principles are applicable on the matter:
1) They cannot be alienated or leased or otherwise be the
subject matter of contracts. (Municipality of Cavite vs. Rojas,
30 Phil. 602);

96

2) They cannot be acquired by prescription against the state

(Insular Government vs. Aldecoa, 19 Phil. 505). Even
municipalities can not acquire them for use as communal
lands against the state (City of Manila vs. Insular Government,
10 Phil. 327);
3) They are not subject to attachment and execution (Tan
Toco vs. Municipal Council of Iloilo, 49 Phil. 52);
4) They cannot be burdened by any voluntary easement (2-II
Colin & Capitant 520) (Tolentino, Civil Code of the Phils., Vol.
II, 1983 Ed. pp. 29-30).
In the aforecited case of Municipality of Cavite vs. Rojas, it
was held that properties for public use may not be leased to
private individuals. Such a lease is null and void for the reason
that a municipal council cannot withdraw part of the plaza from
public use. If possession has already been given, the lessee
must restore possession by vacating it and the municipality
must thereupon restore to him any sums it may have collected
as rent.
In the case of City of Manila vs. Gerardo Garcia, 19 SCRA
413, the Supreme Court held:
The property being a public one, the Manila
Mayors did not have the authority to give permits,
written or oral, to the squatters, and that the
permits granted are therefore considered null and
void.
This doctrine was reiterated in the case of Baguio
Citizens Action Inc. vs. The City Council, 121
SCRA 368, where it was held that:
An ordinance legalizing the occupancy by
squatters of public land is null and void.
The authority of respondent Municipality of Makati to demolish
the shanties of the petitioner's members is mandated by
P.D. 772, and Sec. 1 of Letter of Instruction No. 19 orders
certain public officials, one of whom is the Municipal Mayor to
remove all illegal constructions including buildings on and
along esteros and river banks, those along railroad tracks and
those built without permits on public or private property
(Zansibarian Residents Association vs. Mun. of Makati, 135
SCRA 235). The City Engineer is also among those required
to comply with said Letter of Instruction.
The occupation and use of private individuals of sidewalks
and other public places devoted for public use constitute both
public and private nuisances and nuisance per se, and this
applies to even case involving the use or lease of public
places under permits and licenses issued by competent
authority, upon the theory that such holders could not take
advantage of their unlawful permits and license and claim that
97

the land in question is a part of a public street or a public place

devoted to public use, hence, beyond the commerce of man.
(Padilla, Civil Code Annotated, Vol. II, p. 59, 6th Ed., citing
Umali vs. Aquino, IC. A. Rep. 339.)
From the aforequoted jurisprudence/principles, the Court opines that
defendants have the right to demolish the subject stalls of the plaintiffs,
more so when Section 185, par. 4 of Batas Pambansa Blg. 337, otherwise
known as the Local Government Code provides that the City Engineer
shall:
(4) . . .
(c) Prevent the encroachment of private buildings
and fences on the streets and public places;
xxx xxx xxx
(j) Inspect and supervise the construction, repair,
removal and safety of private buildings;
xxx xxx xxx
(k) With the previous approval of the City Mayor
in each case, order the removal of materials
employed in the construction or repair of any
building or structures made in violation of law or
ordinance, and cause buildings and structures
dangerous to the public to made secure or torn
down;
xxx xxx xxx
Further, the Charter of the City of Caloocan, Republic Act No. 5502, Art.
VII, Sec. 27, par. g, 1 and m, grants the City Engineer similar powers.
(Emphasis supplied; pp. 17-20, Rollo.)
However, shortly after the decision came out, the city administration in Caloocan City
changed hands. City Mayor Macario Asistio, Jr., as successor of Mayor Martinez, did
not pursue the latter's policy of clearing and cleaning up the city streets.
Invoking the trial court's decision in Civil Case No. C-12921, Francisco U. Dacanay, a
concerned citizen, taxpayer and registered voter of Barangay 74, Zone 7, District II of
Caloocan City, who resides on Heroes del '96 Street, one of the affected streets, wrote
a letter dated March 7, 1988 to Mayor Asistio, Jr., calling his attention to the illegallyconstructed stalls on Heroes del '96 Street and asked for their demolition.
Dacanay followed up that letter with another one dated April 7, 1988 addressed to the
mayor and the city engineer, Luciano Sarne, Jr. (who replaced Engineer Arturo
Samonte), inviting their attention to the Regional Trial Court's decision in Civil Case No.
12921. There was still no response.
Dacanay sought President Corazon C. Aquino's intervention by writing her a letter on
the matter. His letter was referred to the city mayor for appropriate action. The acting
Caloocan City secretary, Asuncion Manalo, in a letter dated August 1, 1988, informed
98

the Presidential Staff Director that the city officials were still studying the issue of
whether or not to proceed with the demolition of the market stalls.
Dacanay filed a complaint against Mayor Asistio and Engineer Sarne (OMB-0-89-0146)
in the Office of the OMBUDSMAN. In their letter-comment dated April 3, 1989, said city
officials explained that in view of the huge number of stallholders involved, not to
mention their dependents, it would be harsh and inhuman to eject them from the area in
question, for their relocation would not be an easy task.
In reply, Dacanay maintained that respondents have been derelict in the performance
of their duties and through manifest partiality constituting a violation of Section 3(e) of
R.A. 3019, have caused undue injury to the Government and given unwarranted
benefits to the stallholders.
After conducting a preliminary investigation, the OMBUDSMAN rendered a final
evaluation and report on August 28, 1989, finding that the respondents' inaction is
purely motivated by their perceived moral and social responsibility toward their
constituents, but "the fact remains that there is an omission of an act which ought to be
performed, in clear violation of Sections 3(e) and (f) of Republic Act 3019." (pp. 8384, Rollo.) The OMBUDSMAN recommended the filing of the corresponding information
in court.
As the stallholders continued to occupy Heroes del '96 Street, through the tolerance of
the public respondents, and in clear violation of the decision it Civil Case No. C-12921,
Dacanay filed the present petition for mandamuson June 19, 1990, praying that the
public respondents be ordered to enforce the final decision in Civil Case No. C-12921
which upheld the city mayor's authority to order the demolition of market stalls on V.
Gozon, Gonzales and Heroes del '96 Streets and to enforce P.D. No. 772 and other
pertinent laws.
On August 16, 1990, the public respondents, through the City Legal Officer, filed their
Comment' on the petition. The Office of the Solicitor General asked to be excused from
filing a separate Comment in behalf of the public respondents. The City Legal Officer
alleged that the vending area was transferred to Heroes del '96 Street to decongest
Malonzo Street, which is comparatively a busier thoroughfare; that the transfer was
made by virtue of Barangay Resolution No. 30 s'78 dated January 15, 1978; that while
the resolution was awaiting approval by the Metropolitan Manila Commission, the latter
passed Ordinance No. 79-2, authorizing the use of certain streets and open spaces as
sites for flea markets and/or vending areas; that pursuant thereto, Acting MMC Mayor
Virgilio P. Robles issued Executive Order No. 135 dated January 10, 1979, ordering the
establishment and operation of flea markets in specified areas and created the
Caloocan City Flea Market Authority as a regulatory body; and that among the sites
chosen and approved by the Metro Manila Commission, Heroes del '96 Street has
considered "most viable and progressive, lessening unemployment in the city and
servicing the residents with affordable basic necessities."
The petition for mandamus is meritorious.
There is no doubt that the disputed areas from which the private respondents' market
stalls are sought to be evicted are public streets, as found by the trial court in Civil Case
No. C-12921. A public street is property for public use hence outside the commerce of
man (Arts. 420, 424, Civil Code). Being outside the commerce of man, it may not be the
subject of lease or other contract (Villanueva et al. vs. Castaeda and Macalino, 15
SCRA 142, citing the Municipality of Cavite vs. Rojas, 30 SCRA 602; Espiritu vs.
Municipal Council of Pozorrubio, 102 Phil. 869; and Muyot vs. De la Fuente, 48 O.G.
4860).
99

As the stallholders pay fees to the City Government for the right to occupy portions of
the public street, the City Government, contrary to law, has been leasing portions of the
streets to them. Such leases or licenses are null and void for being contrary to law. The
right of the public to use the city streets may not be bargained away through contract.
The interests of a few should not prevail over the good of the greater number in the
community whose health, peace, safety, good order and general welfare, the
respondent city officials are under legal obligation to protect.
The Executive Order issued by Acting Mayor Robles authorizing the use of Heroes del
'96 Street as a vending area for stallholders who were granted licenses by the city
government contravenes the general law that reserves city streets and roads for public
use. Mayor Robles' Executive Order may not infringe upon the vested right of the public
to use city streets for the purpose they were intended to serve: i.e., as arteries of travel
for vehicles and pedestrians. As early as 1989, the public respondents bad started to
look for feasible alternative sites for flea markets. They have had more than ample time
to relocate the street vendors.
WHEREFORE, it having been established that the petitioner and the general public
have a legal right to the relief demanded and that the public respondents have the
corresponding duty, arising from public office, to clear the city streets and restore them
to their specific public purpose (Enriquez vs. Bidin, 47 SCRA 183; City of Manila vs.
Garcia et al., 19 SCRA, 413 citing Unson vs. Lacson, 100 Phil. 695), the respondents
City Mayor and City Engineer of Caloocan City or their successors in office are hereby
ordered to immediately enforce and implement the decision in Civil Case No. C-1292
declaring that Heroes del '96, V. Gozon, and Gonzales Streets are public streets for
public use, and they are ordered to remove or demolish, or cause to be removed or
demolished, the market stalls occupying said city streets with utmost dispatch within
thirty (30)days from notice of this decision. This decision is immediately executory.
SO ORDERED.

G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,
vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS,
as Secretary of Foreign Affairs, and CATALINO MACARAIG, as Executive
Secretary, respondents.
G.R. No. 92047 July 25, 1990
DIONISIO S. OJEDA, petitioner,
vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST
CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as
members of the PRINCIPAL AND BIDDING COMMITTEES ON THE
UTILIZATION/DISPOSITION PETITION OF PHILIPPINE GOVERNMENT
PROPERTIES IN JAPAN,respondents.
Arturo M. Tolentino for petitioner in 92013.

100

GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their
representatives and agents from proceeding with the bidding for the sale of the
3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan
scheduled on February 21, 1990. We granted the prayer for a temporary
restraining order effective February 20, 1990. One of the petitioners (in G.R. No.
92047) likewise prayes for a writ of mandamus to compel the respondents to fully
disclose to the public the basis of their decision to push through with the sale of
the Roppongi property inspire of strong public opposition and to explain the
proceedings which effectively prevent the participation of Filipino citizens and
entities in the bidding process.
The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the
Court on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et
al. was filed, the respondents were required to file a comment by the Court's
resolution dated February 22, 1990. The two petitions were consolidated on
March 27, 1990 when the memoranda of the parties in the Laurel case were
deliberated upon.
The Court could not act on these cases immediately because the respondents
filed a motion for an extension of thirty (30) days to file comment in G.R. No.
92047, followed by a second motion for an extension of another thirty (30) days
which we granted on May 8, 1990, a third motion for extension of time granted on
May 24, 1990 and a fourth motion for extension of time which we granted on June
5, 1990 but calling the attention of the respondents to the length of time the
petitions have been pending. After the comment was filed, the petitioner in G.R.
No. 92047 asked for thirty (30) days to file a reply. We noted his motion and
resolved to decide the two (2) cases.
I
The subject property in this case is one of the four (4) properties in Japan
acquired by the Philippine government under the Reparations Agreement entered
into with Japan on May 9, 1956, the other lots being:
(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which
has an area of approximately 2,489.96 square meters, and is at present the site of
the Philippine Embassy Chancery;
(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of
around 764.72 square meters and categorized as a commercial lot now being
used as a warehouse and parking lot for the consulate staff; and
(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nadaku, Kobe, a residential lot which is now vacant.
The properties and the capital goods and services procured from the Japanese
government for national development projects are part of the indemnification to
the Filipino people for their losses in life and property and their suffering during
World War II.
The Reparations Agreement provides that reparations valued at $550 million
would be payable in twenty (20) years in accordance with annual schedules of
procurements to be fixed by the Philippine and Japanese governments (Article 2,
Reparations Agreement). Rep. Act No. 1789, the Reparations Law, prescribes the
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national policy on procurement and utilization of reparations and development

loans. The procurements are divided into those for use by the government
sector and those for private parties in projects as the then National Economic
Council shall determine. Those intended for the private sector shall be made
available by sale to Filipino citizens or to one hundred (100%) percent Filipinoowned entities in national development projects.
The Roppongi property was acquired from the Japanese government under the
Second Year Schedule and listed under the heading "Government Sector",
through Reparations Contract No. 300 dated June 27, 1958. The Roppongi
property consists of the land and building "for the Chancery of the Philippine
Embassy" (Annex M-D to Memorandum for Petitioner, p. 503). As intended, it
became the site of the Philippine Embassy until the latter was transferred to
Nampeidai on July 22, 1976 when the Roppongi building needed major repairs.
Due to the failure of our government to provide necessary funds, the Roppongi
property has remained undeveloped since that time.
A proposal was presented to President Corazon C. Aquino by former Philippine
Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a
lease agreement with a Japanese firm - Kajima Corporation which shall
construct two (2) buildings in Roppongi and one (1) building in Nampeidai and
renovate the present Philippine Chancery in Nampeidai. The consideration of the
construction would be the lease to the foreign corporation of one (1) of the
buildings to be constructed in Roppongi and the two (2) buildings in Nampeidai.
The other building in Roppongi shall then be used as the Philippine Embassy
Chancery. At the end of the lease period, all the three leased buildings shall be
occupied and used by the Philippine government. No change of ownership or
title shall occur. (See Annex "B" to Reply to Comment) The Philippine
government retains the title all throughout the lease period and thereafter.
However, the government has not acted favorably on this proposal which is
pending approval and ratification between the parties. Instead, on August 11,
1986, President Aquino created a committee to study the disposition/utilization of
Philippine government properties in Tokyo and Kobe, Japan through
Administrative Order No. 3, followed by Administrative Orders Numbered 3-A, B,
C and D.
On July 25, 1987, the President issued Executive Order No. 296 entitling nonFilipino citizens or entities to avail of separations' capital goods and services in
the event of sale, lease or disposition. The four properties in Japan including the
Roppongi were specifically mentioned in the first "Whereas" clause.
Amidst opposition by various sectors, the Executive branch of the government
has been pushing, with great vigor, its decision to sell the reparations properties
starting with the Roppongi lot. The property has twice been set for bidding at a
minimum floor price of $225 million. The first bidding was a failure since only one
bidder qualified. The second one, after postponements, has not yet materialized.
The last scheduled bidding on February 21, 1990 was restrained by his Court.
Later, the rules on bidding were changed such that the $225 million floor price
became merely a suggested floor price.
The Court finds that each of the herein petitions raises distinct issues. The
petitioner in G.R. No. 92013 objects to the alienation of the Roppongi property to
anyone while the petitioner in G.R. No. 92047 adds as a principal objection the
alleged unjustified bias of the Philippine government in favor of selling the
property to non-Filipino citizens and entities. These petitions have been
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consolidated and are resolved at the same time for the objective is the same - to
stop the sale of the Roppongi property.
The petitioner in G.R. No. 92013 raises the following issues:
(1) Can the Roppongi property and others of its kind be alienated by the
Philippine Government?; and
(2) Does the Chief Executive, her officers and agents, have the authority and
jurisdiction, to sell the Roppongi property?
Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority
of the government to alienate the Roppongi property assails the constitutionality
of Executive Order No. 296 in making the property available for sale to nonFilipino citizens and entities. He also questions the bidding procedures of the
Committee on the Utilization or Disposition of Philippine Government Properties
in Japan for being discriminatory against Filipino citizens and Filipino-owned
entities by denying them the right to be informed about the bidding
requirements.
II
In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the
related lots were acquired as part of the reparations from the Japanese
government for diplomatic and consular use by the Philippine government. VicePresident Laurel states that the Roppongi property is classified as one of public
dominion, and not of private ownership under Article 420 of the Civil Code (See
infra).
The petitioner submits that the Roppongi property comes under "property
intended for public service" in paragraph 2 of the above provision. He states that
being one of public dominion, no ownership by any one can attach to it, not even
by the State. The Roppongi and related properties were acquired for "sites for
chancery, diplomatic, and consular quarters, buildings and other improvements"
(Second Year Reparations Schedule). The petitioner states that they continue to
be intended for a necessary service. They are held by the State in anticipation of
an opportune use. (Citing 3 Manresa 65-66). Hence, it cannot be appropriated, is
outside the commerce of man, or to put it in more simple terms, it cannot be
alienated nor be the subject matter of contracts (Citing Municipality of Cavite v.
Rojas, 30 Phil. 20 [1915]). Noting the non-use of the Roppongi property at the
moment, the petitioner avers that the same remains property of public dominion
so long as the government has not used it for other purposes nor adopted any
measure constituting a removal of its original purpose or use.
The respondents, for their part, refute the petitioner's contention by saying that
the subject property is not governed by our Civil Code but by the laws of Japan
where the property is located. They rely upon the rule of lex situs which is used
in determining the applicable law regarding the acquisition, transfer and
devolution of the title to a property. They also invoke Opinion No. 21, Series of
1988, dated January 27, 1988 of the Secretary of Justice which used the lex
situs in explaining the inapplicability of Philippine law regarding a property
situated in Japan.
The respondents add that even assuming for the sake of argument that the Civil
Code is applicable, the Roppongi property has ceased to become property of
public dominion. It has become patrimonial property because it has not been
103

used for public service or for diplomatic purposes for over thirteen (13) years
now (Citing Article 422, Civil Code) and because the intention by the Executive
Department and the Congress to convert it to private use has been manifested by
overt acts, such as, among others: (1) the transfer of the Philippine Embassy to
Nampeidai (2) the issuance of administrative orders for the possibility of
alienating the four government properties in Japan; (3) the issuance of Executive
Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a
provision stating that funds may be taken from the sale of Philippine properties
in foreign countries; (5) the holding of the public bidding of the Roppongi
property but which failed; (6) the deferment by the Senate in Resolution No. 55 of
the bidding to a future date; thus an acknowledgment by the Senate of the
government's intention to remove the Roppongi property from the public service
purpose; and (7) the resolution of this Court dismissing the petition in Ojeda v.
Bidding Committee, et al., G.R. No. 87478 which sought to enjoin the second
bidding of the Roppongi property scheduled on March 30, 1989.
III
In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the
constitutionality of Executive Order No. 296. He had earlier filed a petition in G.R.
No. 87478 which the Court dismissed on August 1, 1989. He now avers that the
executive order contravenes the constitutional mandate to conserve and develop
the national patrimony stated in the Preamble of the 1987 Constitution. It also
allegedly violates:
(1) The reservation of the ownership and acquisition of alienable lands of the
public domain to Filipino citizens. (Sections 2 and 3, Article XII, Constitution;
Sections 22 and 23 of Commonwealth Act 141).
itc- asl

(2) The preference for Filipino citizens in the grant of rights, privileges and
concessions covering the national economy and patrimony (Section 10, Article
VI, Constitution);
(3) The protection given to Filipino enterprises against unfair competition and
trade practices;
(4) The guarantee of the right of the people to information on all matters of public
concern (Section 7, Article III, Constitution);
(5) The prohibition against the sale to non-Filipino citizens or entities not wholly
owned by Filipino citizens of capital goods received by the Philippines under the
Reparations Act (Sections 2 and 12 of Rep. Act No. 1789); and
(6) The declaration of the state policy of full public disclosure of all transactions
involving public interest (Section 28, Article III, Constitution).
Petitioner Ojeda warns that the use of public funds in the execution of an
unconstitutional executive order is a misapplication of public funds He states
that since the details of the bidding for the Roppongi property were never
publicly disclosed until February 15, 1990 (or a few days before the scheduled
bidding), the bidding guidelines are available only in Tokyo, and the
accomplishment of requirements and the selection of qualified bidders should be
done in Tokyo, interested Filipino citizens or entities owned by them did not have
the chance to comply with Purchase Offer Requirements on the Roppongi.
Worse, the Roppongi shall be sold for a minimum price of $225 million from
104

which price capital gains tax under Japanese law of about 50 to 70% of the floor
price would still be deducted.
IV
The petitioners and respondents in both cases do not dispute the fact that the
Roppongi site and the three related properties were through reparations
agreements, that these were assigned to the government sector and that the
Roppongi property itself was specifically designated under the Reparations
Agreement to house the Philippine Embassy.
The nature of the Roppongi lot as property for public service is expressly spelled
out. It is dictated by the terms of the Reparations Agreement and the
corresponding contract of procurement which bind both the Philippine
government and the Japanese government.
There can be no doubt that it is of public dominion unless it is convincingly
shown that the property has become patrimonial. This, the respondents have
failed to do.
As property of public dominion, the Roppongi lot is outside the commerce of
man. It cannot be alienated. Its ownership is a special collective ownership for
general use and enjoyment, an application to the satisfaction of collective needs,
and resides in the social group. The purpose is not to serve the State as a
juridical person, but the citizens; it is intended for the common and public
welfare and cannot be the object of appropration. (Taken from 3 Manresa, 66-69;
cited in Tolentino, Commentaries on the Civil Code of the Philippines, 1963
Edition, Vol. II, p. 26).
The applicable provisions of the Civil Code are:
ART. 419. Property is either of public dominion or of private
ownership.
ART. 420. The following things are property of public dominion
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks shores
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth.
ART. 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
The Roppongi property is correctly classified under paragraph 2 of Article 420 of
the Civil Code as property belonging to the State and intended for some public
service.
Has the intention of the government regarding the use of the property been
changed because the lot has been Idle for some years? Has it become
patrimonial?

105

The fact that the Roppongi site has not been used for a long time for actual
Embassy service does not automatically convert it to patrimonial property. Any
such conversion happens only if the property is withdrawn from public use
(Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A property
continues to be part of the public domain, not available for private appropriation
or ownership until there is a formal declaration on the part of the government to
withdraw it from being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]).
The respondents enumerate various pronouncements by concerned public
officials insinuating a change of intention. We emphasize, however, that an
abandonment of the intention to use the Roppongi property for public service
and to make it patrimonial property under Article 422 of the Civil Code must be
definite Abandonment cannot be inferred from the non-use alone specially if the
non-use was attributable not to the government's own deliberate and indubitable
will but to a lack of financial support to repair and improve the property (See
Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must be
a certain and positive act based on correct legal premises.
A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not
relinquishment of the Roppongi property's original purpose. Even the failure by
the government to repair the building in Roppongi is not abandonment since as
earlier stated, there simply was a shortage of government funds. The recent
Administrative Orders authorizing a study of the status and conditions of
government properties in Japan were merely directives for investigation but did
not in any way signify a clear intention to dispose of the properties.
Executive Order No. 296, though its title declares an "authority to sell", does not
have a provision in its text expressly authorizing the sale of the four properties
procured from Japan for the government sector. The executive order does not
declare that the properties lost their public character. It merely intends to make
the properties available to foreigners and not to Filipinos alone in case of a sale,
lease or other disposition. It merely eliminates the restriction under Rep. Act No.
1789 that reparations goods may be sold only to Filipino citizens and one
hundred (100%) percent Filipino-owned entities. The text of Executive Order No.
296 provides:
Section 1. The provisions of Republic Act No. 1789, as amended, and
of other laws to the contrary notwithstanding, the above-mentioned
properties can be made available for sale, lease or any other manner
of disposition to non-Filipino citizens or to entities owned by nonFilipino citizens.
Executive Order No. 296 is based on the wrong premise or assumption that the
Roppongi and the three other properties were earlier converted into alienable
real properties. As earlier stated, Rep. Act No. 1789 differentiates the
procurements for the government sector and the private sector (Sections 2 and
12, Rep. Act No. 1789). Only the private sector properties can be sold to endusers who must be Filipinos or entities owned by Filipinos. It is this nationality
provision which was amended by Executive Order No. 296.
Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the
sources of funds for its implementation, the proceeds of the disposition of the
properties of the Government in foreign countries, did not withdraw the
Roppongi property from being classified as one of public dominion when it
mentions Philippine properties abroad. Section 63 (c) refers to properties which
are alienable and not to those reserved for public use or service. Rep Act No.
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6657, therefore, does not authorize the Executive Department to sell the
Roppongi property. It merely enumerates possible sources of future funding to
augment (as and when needed) the Agrarian Reform Fund created under
Executive Order No. 299. Obviously any property outside of the commerce of
man cannot be tapped as a source of funds.
The respondents try to get around the public dominion character of the
Roppongi property by insisting that Japanese law and not our Civil Code should
apply.
It is exceedingly strange why our top government officials, of all people, should
be the ones to insist that in the sale of extremely valuable government property,
Japanese law and not Philippine law should prevail. The Japanese law - its
coverage and effects, when enacted, and exceptions to its provision is not
presented to the Court It is simply asserted that the lex loci rei sitae or Japanese
law should apply without stating what that law provides. It is a ed on faith that
Japanese law would allow the sale.
We see no reason why a conflict of law rule should apply when no conflict of law
situation exists. A conflict of law situation arises only when: (1) There is a
dispute over the title or ownership of an immovable, such that the capacity to
take and transfer immovables, the formalities of conveyance, the essential
validity and effect of the transfer, or the interpretation and effect of a
conveyance, are to be determined (See Salonga, Private International Law, 1981
ed., pp. 377-383); and (2) A foreign law on land ownership and its conveyance is
asserted to conflict with a domestic law on the same matters. Hence, the need to
determine which law should apply.
In the instant case, none of the above elements exists.
The issues are not concerned with validity of ownership or title. There is no
question that the property belongs to the Philippines. The issue is the authority
of the respondent officials to validly dispose of property belonging to the State.
And the validity of the procedures adopted to effect its sale. This is governed by
Philippine Law. The rule of lex situs does not apply.
The assertion that the opinion of the Secretary of Justice sheds light on the
relevance of the lex situsrule is misplaced. The opinion does not tackle
the alienability of the real properties procured through reparations nor the
existence in what body of the authority to sell them. In discussing who are
capableof acquiring the lots, the Secretary merely explains that it is the foreign
law which should determinewho can acquire the properties so that the
constitutional limitation on acquisition of lands of the public domain to Filipino
citizens and entities wholly owned by Filipinos is inapplicable. We see no point in
belaboring whether or not this opinion is correct. Why should we discuss who
can acquire the Roppongi lot when there is no showing that it can be sold?
The subsequent approval on October 4, 1988 by President Aquino of the
recommendation by the investigating committee to sell the Roppongi property
was premature or, at the very least, conditioned on a valid change in the public
character of the Roppongi property. Moreover, the approval does not have the
force and effect of law since the President already lost her legislative powers.
The Congress had already convened for more than a year.

107

Assuming for the sake of argument, however, that the Roppongi property is no
longer of public dominion, there is another obstacle to its sale by the
respondents.
There is no law authorizing its conveyance.
Section 79 (f) of the Revised Administrative Code of 1917 provides
Section 79 (f ) Conveyances and contracts to which the Government
is a party. In cases in which the Government of the Republic of the
Philippines is a party to any deed or other instrument conveying the
title to real estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective Department
Secretary shall prepare the necessary papers which, together with
the proper recommendations, shall be submitted to the Congress of
the Philippines for approval by the same. Such deed, instrument, or
contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the
Government of the Philippines unless the authority therefor be
expressly vested by law in another officer. (Emphasis supplied)
The requirement has been retained in Section 48, Book I of the Administrative
Code of 1987 (Executive Order No. 292).
SEC. 48. Official Authorized to Convey Real Property. Whenever
real property of the Government is authorized by law to be
conveyed, the deed of conveyance shall be executed in behalf of the
government by the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
It is not for the President to convey valuable real property of the government on
his or her own sole will. Any such conveyance must be authorized and approved
by a law enacted by the Congress. It requires executive and legislative
concurrence.
Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of
the sale of the Roppongi property does not withdraw the property from public
domain much less authorize its sale. It is a mere resolution; it is not a formal
declaration abandoning the public character of the Roppongi property. In fact,
the Senate Committee on Foreign Relations is conducting hearings on Senate
Resolution No. 734 which raises serious policy considerations and calls for a
fact-finding investigation of the circumstances behind the decision to sell the
Philippine government properties in Japan.
The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not
pass upon the constitutionality of Executive Order No. 296. Contrary to
respondents' assertion, we did not uphold the authority of the President to sell
the Roppongi property. The Court stated that the constitutionality of the
108

executive order was not the real issue and that resolving the constitutional
question was "neither necessary nor finally determinative of the case." The Court
noted that "[W]hat petitioner ultimately questions is the use of the proceeds of
the disposition of the Roppongi property." In emphasizing that "the decision of
the Executive to dispose of the Roppongi property to finance the CARP ... cannot
be questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did not
acknowledge the fact that the property became alienable nor did it indicate that
the President was authorized to dispose of the Roppongi property. The
resolution should be read to mean that in case the Roppongi property is reclassified to be patrimonial and alienable by authority of law, the proceeds of a
sale may be used for national economic development projects including the
CARP.
Moreover, the sale in 1989 did not materialize. The petitions before us question
the proposed 1990 sale of the Roppongi property. We are resolving the issues
raised in these petitions, not the issues raised in 1989.
Having declared a need for a law or formal declaration to withdraw the Roppongi
property from public domain to make it alienable and a need for legislative
authority to allow the sale of the property, we see no compelling reason to tackle
the constitutional issues raised by petitioner Ojeda.
The Court does not ordinarily pass upon constitutional questions unless these
questions are properly raised in appropriate cases and their resolution is
necessary for the determination of the case (People v. Vera, 65 Phil. 56 [1937]).
The Court will not pass upon a constitutional question although properly
presented by the record if the case can be disposed of on some other ground
such as the application of a statute or general law (Siler v. Louisville and
Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312
U.S. 496 [1941]).
The petitioner in G.R. No. 92013 states why the Roppongi property should not be
sold:
The Roppongi property is not just like any piece of property. It was
given to the Filipino people in reparation for the lives and blood of
Filipinos who died and suffered during the Japanese military
occupation, for the suffering of widows and orphans who lost their
loved ones and kindred, for the homes and other properties lost by
countless Filipinos during the war. The Tokyo properties are a
monument to the bravery and sacrifice of the Filipino people in the
face of an invader; like the monuments of Rizal, Quezon, and other
Filipino heroes, we do not expect economic or financial benefits from
them. But who would think of selling these monuments? Filipino
honor and national dignity dictate that we keep our properties in
Japan as memorials to the countless Filipinos who died and suffered.
Even if we should become paupers we should not think of selling
them. For it would be as if we sold the lives and blood and tears of
our countrymen. (Rollo- G.R. No. 92013, p.147)
The petitioner in G.R. No. 92047 also states:
Roppongi is no ordinary property. It is one ceded by the Japanese
government in atonement for its past belligerence for the valiant
sacrifice of life and limb and for deaths, physical dislocation and
109

economic devastation the whole Filipino people endured in World

War II.
It is for what it stands for, and for what it could never bring back to
life, that its significance today remains undimmed, inspire of the
lapse of 45 years since the war ended, inspire of the passage of 32
years since the property passed on to the Philippine government.
Roppongi is a reminder that cannot should not be dissipated ...
(Rollo-92047, p. 9)
It is indeed true that the Roppongi property is valuable not so much because of
the inflated prices fetched by real property in Tokyo but more so because of its
symbolic value to all Filipinos veterans and civilians alike. Whether or not the
Roppongi and related properties will eventually be sold is a policy determination
where both the President and Congress must concur. Considering the properties'
importance and value, the laws on conversion and disposition of property of
public dominion must be faithfully followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ
of prohibition is issued enjoining the respondents from proceeding with the sale
of the Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary
Restraining Order is made PERMANENT.
SO ORDERED.
Melencio-Herrera, Paras, Bidin, Grio-Aquino and Regalado, JJ., concur.

Separate Opinions

CRUZ, J., concurring:

I concur completely with the excellent ponencia of Mr. Justice Gutierrez and will
add the following observations only for emphasis.
It is clear that the respondents have failed to show the President's legal authority
to sell the Roppongi property. When asked to do so at the hearing on these
petitions, the Solicitor General was at best ambiguous, although I must add in
fairness that this was not his fault. The fact is that there is -no such authority.
Legal expertise alone cannot conjure that statutory permission out of thin air.
Exec. Order No. 296, which reads like so much legislative, double talk, does not
contain such authority. Neither does Rep. Act No. 6657, which simply allows the
proceeds of the sale of our properties abroad to be used for the comprehensive
agrarian reform program. Senate Res. No. 55 was a mere request for the
deferment of the scheduled sale of tile Roppongi property, possibly to stop the
transaction altogether; and ill any case it is not a law. The sale of the said
property may be authorized only by Congress through a duly enacted statute,
and there is no such law.
110

Once again, we have affirmed the principle that ours is a government of laws and
not of men, where every public official, from the lowest to the highest, can act
only by virtue of a valid authorization. I am happy to note that in the several
cases where this Court has ruled against her, the President of the Philippines
has submitted to this principle with becoming grace.

PADILLA, J., concurring:

I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to make
a few observations which could help in further clarifying the issues.
Under our tripartite system of government ordained by the Constitution, it is
Congress that lays down or determines policies. The President executes such
policies. The policies determined by Congress are embodied in legislative
enactments that have to be approved by the President to become law. The
President, of course, recommends to Congress the approval of policies but, in
the final analysis, it is Congress that is the policy - determining branch of
government.
The judiciary interprets the laws and, in appropriate cases, determines whether
the laws enacted by Congress and approved by the President, and presidential
acts implementing such laws, are in accordance with the Constitution.
The Roppongi property was acquired by the Philippine government pursuant to
the reparations agreement between the Philippine and Japanese governments.
Under such agreement, this property was acquired by the Philippine government
for a specific purpose, namely, to serve as the site of the Philippine Embassy in
Tokyo, Japan. Consequently, Roppongi is a property of public dominion and
intended for public service, squarely falling within that class of property under
Art. 420 of the Civil Code, which provides:
Art. 420. The following things are property of public dominion :
(1) ...
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (339a)
Public dominion property intended for public service cannot be alienated unless
the property is first transformed into private property of the state otherwise
known as patrimonial property of the state. 1The transformation of public dominion property
to state patrimonial property involves, to my mind, a policy decision. It is a policy decision because the
treatment of the property varies according to its classification. Consequently, it is Congress which can
decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial
property. Congress has made no such decision or declaration.

Moreover, the sale of public property (once converted from public dominion to
state patrimonial property) must be approved by Congress, for this again is a
matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book 1 of the
Administrative Code of 1987 provides:
SEC. 48. Official Authorized to Convey Real Property. Whenever
real property of the Government is authorized by law to be conveyed,
111

the deed of conveyance shall be executed in behalf of the

government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the
Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality.
(Emphasis supplied)
But the record is bare of any congressional decision or approval to sell
Roppongi. The record is likewise bare of any congressional authority extended to
the President to sell Roppongi thru public bidding or otherwise.
It is therefore, clear that the President cannot sell or order the sale of Roppongi
thru public bidding or otherwise without a prior congressional approval, first,
converting Roppongi from a public dominion property to a state patrimonial
property, and, second, authorizing the President to sell the same.
ACCORDINGLY, my vote is to GRANT the petition and to make PERMANENT the
temporary restraining order earlier issued by this Court.

SARMIENTO, J., concurring:

The central question, as I see it, is whether or not the so-called "Roppongi
property' has lost its nature as property of public dominion, and hence, has
become patrimonial property of the State. I understand that the parties are
agreed that it was property intended for "public service" within the
contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly,
land of State dominion, and beyond human commerce. The lone issue is, in the
light of supervening developments, that is non-user thereof by the National
Government (for diplomatic purposes) for the last thirteen years; the issuance of
Executive Order No. 296 making it available for sale to any interested buyer; the
promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform
Law, making available for the program's financing, State assets sold; the
approval by the President of the recommendation of the investigating committee
formed to study the property's utilization; and the issuance of Resolution No. 55
of the Philippine Senate requesting for the deferment of its disposition it,
"Roppongi", is still property of the public dominion, and if it is not, how it lost
that character.
When land of the public dominion ceases to be one, or when the change takes
place, is a question our courts have debated early. In a 1906 decision, 1 it was held
that property of the public dominion, a public plaza in this instance, becomes patrimonial upon use
2
thereof for purposes other than a plaza. In a later case, this ruling was reiterated. Likewise, it has been
held that land, originally private property, has become of public dominion upon its donation to the town
3
and its conversion and use as a public plaza. It is notable that under these three cases, the character of
4
the property, and any change occurring therein, depends on the actual use to which it is dedicated.

Much later, however, the Court held that "until a formal declaration on the part of
the Government, through the executive department or the Legislative, to the
112

effect that the land . . . is no longer needed for [public] service- for public use or
for special industries, [it] continue[s] to be part of the public [dominion], not
available for private expropriation or ownership." 5 So also, it was ruled that a political
subdivision (the City of Cebu in this case) alone may declare (under its charter) a city road abandoned
6
and thereafter, to dispose of it.

In holding that there is "a need for a law or formal declaration to withdraw the
Roppongi property from public domain to make it alienable and a land for
legislative authority to allow the sale of the property"7 the majority lays stress to the fact
that: (1) An affirmative act executive or legislative is necessary to reclassify property of the public
dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties
brought about by earlier interpretations that the nature of property-whether public or patrimonial is
predicated on the manner it is actually used, or not used, and in the same breath, repudiates the
Government's position that the continuous non-use of "Roppongi", among other arguments, for
"diplomatic purposes", has turned it into State patrimonial property.

I feel that this view corresponds to existing pronouncements of this Court,

among other things, that: (1) Property is presumed to be State property in the
absence of any showing to the contrary; 8 (2) With respect to forest lands, the same continue
to be lands of the public dominion unless and until reclassified by the Executive Branch of the
9
Government; and (3) All natural resources, under the Constitution, and subject to exceptional cases,
10
belong to the State.

I am elated that the Court has banished previous uncertainties.

FELICIANO, J., dissenting

With regret, I find myself unable to share the conclusions reached by Mr. Justice
Hugo E. Gutierrez, Jr.
For purposes of this separate opinion, I assume that the piece of land located in
306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter referred to as the
"Roppongi property") may be characterized as property of public dominion,
within the meaning of Article 420 (2) of the Civil Code:
[Property] which belong[s] to the State, without being for public use,
and are intended for some public service -.
It might not be amiss however, to note that the appropriateness of trying to bring
within the confines of the simple threefold classification found in Article 420 of
the Civil Code ("property for public use property "intended for some public
service" and property intended "for the development of the national wealth") all
property owned by the Republic of the Philippines whether found within the
territorial boundaries of the Republic or located within the territory of another
sovereign State, is notself-evident. The first item of the classification property
intended for public use can scarcely be properly applied to property belonging
to the Republic but found within the territory of another State. The third item of
the classification property intended for the development of the national wealth is
illustrated, in Article 339 of the Spanish Civil Code of 1889, by mines or mineral
properties. Again, mineral lands owned by a sovereign State are rarely, if ever,
found within the territorial base of another sovereign State. The task of
examining in detail the applicability of the classification set out in Article 420 of
our Civil Code to property that the Philippines happens to own outside its own
boundaries must, however, be left to academicians.

113

For present purposes, too, I agree that there is no question of conflict of laws
that is, at the present time, before this Court. The issues before us relate
essentially to authority to sell the Roppongi property so far as Philippine law is
concerned.
The majority opinion raises two (2) issues: (a) whether or not the Roppongi
property has been converted into patrimonial property or property of the private
domain of the State; and (b) assuming an affirmative answer to (a), whether or
not there is legal authority to dispose of the Roppongi property.
I
Addressing the first issue of conversion of property of public dominion intended
for some public service, into property of the private domain of the Republic, it
should be noted that the Civil Code does not address the question of who has
authority to effect such conversion. Neither does the Civil Code set out or refer
to any procedure for such conversion.
Our case law, however, contains some fairly explicit pronouncements on this
point, as Justice Sarmiento has pointed out in his concurring opinion. In Ignacio
v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued that if the
land in question formed part of the public domain, the trial court should have
declared the same no longer necessary for public use or public purposes and
which would, therefore, have become disposable and available for private
ownership. Mr. Justice Montemayor, speaking for the Court, said:
Article 4 of the Law of Waters of 1866 provides that when a portion of
the shore is no longer washed by the waters of the sea and is not
necessary for purposes of public utility, or for the establishment of
special industries, or for coast-guard service, the government shall
declare it to be the property of the owners of the estates adjacent
thereto and as an increment thereof. We believe that only the
executive and possibly the legislative departments have the authority
and the power to make the declaration that any land so gained by the
sea, is not necessary for purposes of public utility, or for the
establishment of special industries, or for coast-guard service. If no
such declaration has been made by said departments, the lot in
question forms part of the public domain. (Natividad v. Director of
Lands, supra.)
The reason for this pronouncement, according to this Tribunal in the
case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134
(cited in Velayo's Digest, Vol. 1, p. 52).
... is undoubtedly that the courts are neither primarily called upon,
nor indeed in a position to determine whether any public land are to
be used for the purposes specified in Article 4 of the Law of Waters.
Consequently, until a formal declaration on the part of the
Government, through the executive department or the Legislature, to
the effect that the land in question is no longer needed for coastguard service, for public use or for special industries, they continue
to be part of the public domain not available for private appropriation
or ownership.(108 Phil. at 338-339; emphasis supplied)
Thus, under Ignacio, either the Executive Department or the Legislative
Department may convert property of the State of public dominion into
114

patrimonial property of the State. No particular formula or procedure of

conversion is specified either in statute law or in case law. Article 422 of the Civil
Code simply states that: "Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial property of
the State". I respectfully submit, therefore, that the only requirement which is
legitimately imposable is that the intent to convert must be reasonably clear from
a consideration of the acts or acts of the Executive Department or of the
Legislative Department which are said to have effected such conversion.
The same legal situation exists in respect of conversion of property of public
dominion belonging to municipal corporations, i.e., local governmental units,
into patrimonial property of such entities. InCebu Oxygen Acetylene v.
Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a
certain portion of an existing street as an abandoned road, "the same not being
included in the city development plan". Subsequently, by another resolution, the
City Council of Cebu authorized the acting City Mayor to sell the land through
public bidding. Although there was no formal and explicit declaration of
conversion of property for public use into patrimonial property, the Supreme
Court said:
xxx xxx xxx
(2) Since that portion of the city street subject of petitioner's
application for registration of title was withdrawn from public use, it
follows that such withdrawn portion becomes patrimonial property
which can be the object of an ordinary contract.
Article 422 of the Civil Code expressly provides that "Property of
public dominion, when no longer intended for public use of for public
service, shall form part of the patrimonial property of the State."
Besides, the Revised Charter of the City of Cebu heretofore quoted,
in very clear and unequivocal terms, states that "Property thus
withdrawn from public servitude may be used or conveyed for any
purpose for which other real property belonging to the City may be
lawfully used or conveyed."
Accordingly, the withdrawal of the property in question from public
use and its subsequent sale to the petitioner is valid. Hence, the
petitioner has a registrable title over the lot in question. (66 SCRA at
484-; emphasis supplied)
Thus, again as pointed out by Sarmiento J., in his separate opinion, in the case
of property owned by municipal corporations simple non-use or the actual
dedication of public property to some use other than "public use" or some
"public service", was sufficient legally to convert such property into patrimonial
property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]- Municipality of
Hinunganan v. Director of Lands 24 Phil. 124 [1913]; Province of Zamboanga del
Norte v. City of Zamboanga, 22 SCRA 1334 (1968).
I would also add that such was the case not only in respect of' property of
municipal corporations but also in respect of property of the State itself. Manresa
in commenting on Article 341 of the 1889 Spanish Civil Code which has been
carried over verbatim into our Civil Code by Article 422 thereof, wrote:

115

La dificultad mayor en todo esto estriba, naturalmente, en fijar el

momento en que los bienes de dominio publico dejan de serlo. Si la
Administracion o la autoridad competente legislative realizan qun
acto en virtud del cual cesa el destino o uso publico de los bienes de
que se trata naturalmente la dificultad queda desde el primer
momento resuelta. Hay un punto de partida cierto para iniciar las
relaciones juridicas a que pudiera haber lugar Pero puede ocurrir que
no haya taldeclaracion expresa, legislativa or administrativa, y, sin
embargo, cesar de hecho el destino publico de los bienes; ahora
bien, en este caso, y para los efectos juridicos que resultan de entrar
la cosa en el comercio de los hombres,' se entedera que se ha
verificado la conversion de los bienes patrimoniales?
El citado tratadista Ricci opina, respecto del antiguo Codigo italiano,
por la afirmativa, y por nuestra parte creemos que tal debe ser la
soluciion. El destino de las cosas no depende tanto de una
declaracion expresa como del uso publico de las mismas, y cuanda
el uso publico cese con respecto de determinados bienes, cesa
tambien su situacion en el dominio publico. Si una fortaleza en ruina
se abandona y no se repara, si un trozo de la via publica se abandona
tambien por constituir otro nuevo an mejores condiciones....ambos
bienes cesan de estar Codigo, y leyes especiales mas o memos
administrativas. (3 Manresa, Comentarios al Codigo Civil Espanol, p.
128 [7a ed.; 1952) (Emphasis supplied)
The majority opinion says that none of the executive acts pointed to by the
Government purported, expressly or definitely, to convert the Roppongi property
into patrimonial property of the Republic. Assuming that to be the case, it is
respectfully submitted that cumulative effect of the executive acts here involved
was to convert property originally intended for and devoted to public service into
patrimonial property of the State, that is, property susceptible of disposition to
and appropration by private persons. These executive acts, in their totality if not
each individual act, make crystal clear the intent of the Executive Department to
effect such conversion. These executive acts include:
(a) Administrative Order No. 3 dated 11 August 1985, which created a Committee
to study the disposition/utilization of the Government's property in Japan, The
Committee was composed of officials of the Executive Department: the Executive
Secretary; the Philippine Ambassador to Japan; and representatives of the
Department of Foreign Affairs and the Asset Privatization Trust. On 19
September 1988, the Committee recommended to the President the sale of one of
the lots (the lot specifically in Roppongi) through public bidding. On 4 October
1988, the President approved the recommendation of the Committee.
On 14 December 1988, the Philippine Government by diplomatic note informed
the Japanese Ministry of Foreign Affairs of the Republic's intention to dispose of
the property in Roppongi. The Japanese Government through its Ministry of
Foreign Affairs replied that it interposed no objection to such disposition by the
Republic. Subsequently, the President and the Committee informed the leaders
of the House of Representatives and of the Senate of the Philippines of the
proposed disposition of the Roppongi property.
(b) Executive Order No. 296, which was issued by the President on 25 July 1987.
Assuming that the majority opinion is right in saying that Executive Order No.
296 is insufficient to authorize the sale of the Roppongi property, it is here
submitted with respect that Executive Order No. 296 is more than sufficient to
116

indicate an intention to convert the property previously devoted to public service

into patrimonial property that is capable of being sold or otherwise disposed of
(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for any
other public purposes. Assuming (but only arguendo) that non-use does not, by
itself, automatically convert the property into patrimonial property. I respectfully
urge that prolonged non-use, conjoined with the other factors here listed, was
legally effective to convert the lot in Roppongi into patrimonial property of the
State. Actually, as already pointed out, case law involving property of municipal
corporations is to the effect that simple non-use or the actual dedication of
public property to some use other than public use or public service, was
sufficient to convert such property into patrimonial property of the local
governmental entity concerned. Also as pointed out above, Manresa reached the
same conclusion in respect of conversion of property of the public domain of the
State into property of the private domain of the State.
The majority opinion states that "abandonment cannot be inferred from the nonuse alone especially if the non-use was attributable not to the Government's own
deliberate and indubitable will but to lack of financial support to repair and
improve the property" (Majority Opinion, p. 13). With respect, it may be stressed
that there is no abandonment involved here, certainly no abandonment of
property or of property rights. What is involved is the charge of the classification
of the property from property of the public domain into property of the private
domain of the State. Moreover, if for fourteen (14) years, the Government did not
see fit to appropriate whatever funds were necessary to maintain the property in
Roppongi in a condition suitable for diplomatic representation purposes, such
circumstance may, with equal logic, be construed as a manifestation of the
crystalizing intent to change the character of the property.
(d) On 30 March 1989, a public bidding was in fact held by the Executive
Department for the sale of the lot in Roppongi. The circumstance that this
bidding was not successful certainly does not argue against an intent to convert
the property involved into property that is disposable by bidding.
The above set of events and circumstances makes no sense at all if it does
not, as a whole, show at least the intent on the part of the Executive Department
(with the knowledge of the Legislative Department) to convert the property
involved into patrimonial property that is susceptible of being sold.
II
Having reached an affirmative answer in respect of the first issue, it is necessary
to address the second issue of whether or not there exists legal authority for the
sale or disposition of the Roppongi property.
The majority opinion refers to Section 79(f) of the Revised Administrative Code of
1917 which reads as follows:
SEC. 79 (f). Conveyances and contracts to which the Government is a
party. In cases in which the Government of the Republic of the
Philippines is a party to any deed or other instrument conveying the
title to real estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective Department
Secretary shall prepare the necessary papers which, together with
the proper recommendations, shall besubmitted to the Congress of
the Philippines for approval by the same. Such deed, instrument, or
117

contract shall be executed and signed by the President of the

Philippines on behalf of the Government of the Philippines unless the
authority therefor be expressly vested by law in another officer.
(Emphasis supplied)
The majority opinion then goes on to state that: "[T]he requirement has been
retained in Section 4, Book I of the Administrative Code of 1987 (Executive Order
No. 292)" which reads:
SEC. 48. Official Authorized to Convey Real Property. Whenever
real property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the
government by the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
Two points need to be made in this connection. Firstly, the requirement of
obtaining specific approval of Congress when the price of the real property being
disposed of is in excess of One Hundred Thousand Pesos (P100,000.00) under
the Revised Administrative Code of 1917, has been deleted from Section 48 of
the 1987 Administrative Code. What Section 48 of the present Administrative
Code refers to isauthorization by law for the conveyance. Section 48 does not
purport to be itself a source of legal authority for conveyance of real property of
the Government. For Section 48 merely specifies the official authorized to
execute and sign on behalf of the Government the deed of conveyance in case of
such a conveyance.
Secondly, examination of our statute books shows that authorization by law for
disposition of real property of the private domain of the Government, has been
granted by Congress both in the form of (a) a general, standing authorization for
disposition of patrimonial property of the Government; and (b) specific
legislation authorizing the disposition of particular pieces of the Government's
patrimonial property.
Standing legislative authority for the disposition of land of the private domain of
the Philippines is provided by Act No. 3038, entitled "An Act Authorizing the
Secretary of Agriculture and Natural Resources to Sell or Lease Land of the
Private Domain of the Government of the Philippine Islands (now Republic of the
Philippines)", enacted on 9 March 1922. The full text of this statute is as follows:
Be it enacted by the Senate and House of Representatives of the
Philippines in Legislature assembled and by the authority of the
same:
SECTION 1. The Secretary of Agriculture and Natural Resources (now
Secretary of the Environment and Natural Resources) is hereby
authorized to sell or lease land of the private domain of the
Government of the Philippine Islands, or any part thereof, to such
persons, corporations or associations as are, under the provisions of
118

Act Numbered Twenty-eight hundred and seventy-four, (now

Commonwealth Act No. 141, as amended) known as the Public Land
Act, entitled to apply for the purchase or lease or agricultural public
land.
SECTION 2. The sale of the land referred to in the preceding
section shall, if such land is agricultural, be made in the manner and
subject to the limitations prescribed in chapters five and six,
respectively, of said Public Land Act, and if it be classified differently,
in conformity with the provisions of chapter nine of said Act:
Provided, however, That the land necessary for the public service
shall be exempt from the provisions of this Act.
SECTION 3. This Act shall take effect on its approval.
Approved, March 9, 1922. (Emphasis supplied)
Lest it be assumed that Act No. 3038 refers only to agricultural lands of the
private domain of the State, it must be noted that Chapter 9 of the old Public
Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act
(Commonwealth Act No. 141, as amended) and that both statutes refer to: "any
tract of land of the public domain which being neither timber nor mineral land, is
intended to be used for residential purposes or for commercial or industrial
purposes other than agricultural" (Emphasis supplied). In other words, the
statute covers the sale or lease or residential, commercial or industrial land of
the private domain of the State.
itc- a sl

Implementing regulations have been issued for the carrying out of the provisions
of Act No. 3038. On 21 December 1954, the then Secretary of Agriculture and
Natural Resources promulgated Lands Administrative Orders Nos. 7-6 and 7-7
which were entitled, respectively: "Supplementary Regulations Governing the
Sale of the Lands of the Private Domain of the Republic of the Philippines"; and
"Supplementary Regulations Governing the Lease of Lands of Private Domain of
the Republic of the Philippines" (text in 51 O.G. 28-29 [1955]).
It is perhaps well to add that Act No. 3038, although now sixty-eight (68) years
old, is still in effect and has not been repealed. 1
Specific legislative authorization for disposition of particular patrimonial
properties of the State is illustrated by certain earlier statutes. The first of these
was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of
the friar lands, purchased by the Government from the Roman Catholic Church,
to bona fide settlers and occupants thereof or to other persons. In Jacinto v.
Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private
and patrimonial properties of the State. Act No. 2360, enacted on -28 February
1914, authorized the sale of the San Lazaro Estatelocated in the City of Manila,
which had also been purchased by the Government from the Roman Catholic
Church. In January 1916, Act No. 2555 amended Act No. 2360 by including
therein all lands and buildings owned by the Hospital and the Foundation of San
Lazaro theretofor leased by private persons, and which were also acquired by the
Philippine Government.
After the enactment in 1922 of Act No. 3038, there appears, to my knowledge, to
be only one statute authorizing the President to dispose of a specific piece of
property. This statute is Republic Act No. 905, enacted on 20 June 1953, which
authorized the
119

President to sell an Identified parcel of land of the private domain of the National
Government to the National Press Club of the Philippines, and to other
recognized national associations of professionals with academic standing, for
the nominal price of P1.00. It appears relevant to note that Republic Act No. 905
was not an outright disposition in perpetuity of the property involved- it provided
for reversion of the property to the National Government in case the National
Press Club stopped using it for its headquarters. What Republic Act No. 905
authorized was really a donation, and not a sale.
The basic submission here made is that Act No. 3038 provides standing
legislative authorization for disposition of the Roppongi property which, in my
view, has been converted into patrimonial property of the Republic. 2
To some, the submission that Act No. 3038 applies not only to lands of the
private domain of the State located in the Philippines but also to patrimonial
property found outside the Philippines, may appear strange or unusual. I
respectfully submit that such position is not any more unusual or strange than
the assumption that Article 420 of the Civil Code applies not only to property of
the Republic located within Philippine territory but also to property found outside
the boundaries of the Republic.
It remains to note that under the well-settled doctrine that heads of Executive
Departments are alter egos of the President (Villena v. Secretary of the Interior,
67 Phil. 451 [1939]), and in view of the constitutional power of control exercised
by the President over department heads (Article VII, Section 17,1987
Constitution), the President herself may carry out the function or duty that is
specifically lodged in the Secretary of the Department of Environment and
Natural Resources (Araneta v. Gatmaitan 101 Phil. 328 [1957]). At the very least,
the President retains the power to approve or disapprove the exercise of that
function or duty when done by the Secretary of Environment and Natural
Resources.
It is hardly necessary to add that the foregoing analyses and submissions relate
only to the austere question of existence of legal power or authority. They have
nothing to do with much debated questions of wisdom or propriety or relative
desirability either of the proposed disposition itself or of the proposed utilization
of the anticipated proceeds of the property involved. These latter types of
considerations He within the sphere of responsibility of the political departments
of government the Executive and the Legislative authorities.
For all the foregoing, I vote to dismiss the Petitions for Prohibition in both G.R.
Nos. 92013 and 92047.
Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

Separate Opinions
CRUZ, J., concurring:
I concur completely with the excellent ponencia of Mr. Justice Gutierrez and will
add the following observations only for emphasis.
120

It is clear that the respondents have failed to show the President's legal authority
to sell the Roppongi property. When asked to do so at the hearing on these
petitions, the Solicitor General was at best ambiguous, although I must add in
fairness that this was not his fault. The fact is that there is -no such authority.
Legal expertise alone cannot conjure that statutory permission out of thin air.
Exec. Order No. 296, which reads like so much legislative, double talk, does not
contain such authority. Neither does Rep. Act No. 6657, which simply allows the
proceeds of the sale of our properties abroad to be used for the comprehensive
agrarian reform program. Senate Res. No. 55 was a mere request for the
deferment of the scheduled sale of tile Roppongi property, possibly to stop the
transaction altogether; and ill any case it is not a law. The sale of the said
property may be authorized only by Congress through a duly enacted statute,
and there is no such law.
Once again, we have affirmed the principle that ours is a government of laws and
not of men, where every public official, from the lowest to the highest, can act
only by virtue of a valid authorization. I am happy to note that in the several
cases where this Court has ruled against her, the President of the Philippines
has submitted to this principle with becoming grace.

PADILLA, J., concurring:

I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to make
a few observations which could help in further clarifying the issues.
Under our tripartite system of government ordained by the Constitution, it is
Congress that lays down or determines policies. The President executes such
policies. The policies determined by Congress are embodied in legislative
enactments that have to be approved by the President to become law. The
President, of course, recommends to Congress the approval of policies but, in
the final analysis, it is Congress that is the policy - determining branch of
government.
The judiciary interprets the laws and, in appropriate cases, determines whether
the laws enacted by Congress and approved by the President, and presidential
acts implementing such laws, are in accordance with the Constitution.
The Roppongi property was acquired by the Philippine government pursuant to
the reparations agreement between the Philippine and Japanese governments.
Under such agreement, this property was acquired by the Philippine government
for a specific purpose, namely, to serve as the site of the Philippine Embassy in
Tokyo, Japan. Consequently, Roppongi is a property of public dominion and
intended for public service, squarely falling within that class of property under
Art. 420 of the Civil Code, which provides:
Art. 420. The following things are property of public dominion :
(1) ...
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (339a)
121

Public dominion property intended for public service cannot be alienated unless
the property is first transformed into private property of the state otherwise
known as patrimonial property of the state. 1The transformation of public dominion property
to state patrimonial property involves, to my mind, a policy decision. It is a policy decision because the
treatment of the property varies according to its classification. Consequently, it is Congress which can
decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial
property. Congress has made no such decision or declaration.

Moreover, the sale of public property (once converted from public dominion to
state patrimonial property) must be approved by Congress, for this again is a
matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book 1 of the
Administrative Code of 1987 provides:
SEC. 48. Official Authorized to Convey Real Property. Whenever
real property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the
government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the
Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality.
(Emphasis supplied)
But the record is bare of any congressional decision or approval to sell
Roppongi. The record is likewise bare of any congressional authority extended to
the President to sell Roppongi thru public bidding or otherwise.
It is therefore, clear that the President cannot sell or order the sale of Roppongi
thru public bidding or otherwise without a prior congressional approval, first,
converting Roppongi from a public dominion property to a state patrimonial
property, and, second, authorizing the President to sell the same.
ACCORDINGLY, my vote is to GRANT the petition and to make PERMANENT the
temporary restraining order earlier issued by this Court.

SARMIENTO, J., concurring:

The central question, as I see it, is whether or not the so-called "Roppongi
property' has lost its nature as property of public dominion, and hence, has
become patrimonial property of the State. I understand that the parties are
agreed that it was property intended for "public service" within the
contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly,
land of State dominion, and beyond human commerce. The lone issue is, in the
light of supervening developments, that is non-user thereof by the National
Government (for diplomatic purposes) for the last thirteen years; the issuance of
Executive Order No. 296 making it available for sale to any interested buyer; the
promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform
Law, making available for the program's financing, State assets sold; the
approval by the President of the recommendation of the investigating committee
122

formed to study the property's utilization; and the issuance of Resolution No. 55
of the Philippine Senate requesting for the deferment of its disposition it,
"Roppongi", is still property of the public dominion, and if it is not, how it lost
that character.
When land of the public dominion ceases to be one, or when the change takes
place, is a question our courts have debated early. In a 1906 decision, 1 it was held
that property of the public dominion, a public plaza in this instance, becomes patrimonial upon use
2
thereof for purposes other than a plaza. In a later case, this ruling was reiterated. Likewise, it has been
held that land, originally private property, has become of public dominion upon its donation to the town
3
and its conversion and use as a public plaza. It is notable that under these three cases, the character of
4
the property, and any change occurring therein, depends on the actual use to which it is dedicated.

Much later, however, the Court held that "until a formal declaration on the part of
the Government, through the executive department or the Legislative, to the
effect that the land . . . is no longer needed for [public] service- for public use or
for special industries, [it] continue[s] to be part of the public [dominion], not
available for private expropriation or ownership." 5 So also, it was ruled that a political
subdivision (the City of Cebu in this case) alone may declare (under its charter) a city road abandoned
6
and thereafter, to dispose of it.

In holding that there is "a need for a law or formal declaration to withdraw the
Roppongi property from public domain to make it alienable and a land for
legislative authority to allow the sale of the property"7 the majority lays stress to the fact
that: (1) An affirmative act executive or legislative is necessary to reclassify property of the public
dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties
brought about by earlier interpretations that the nature of property-whether public or patrimonial is
predicated on the manner it is actually used, or not used, and in the same breath, repudiates the
Government's position that the continuous non-use of "Roppongi", among other arguments, for
"diplomatic purposes", has turned it into State patrimonial property.

I feel that this view corresponds to existing pronouncements of this Court,

among other things, that: (1) Property is presumed to be State property in the
absence of any showing to the contrary; 8 (2) With respect to forest lands, the same continue
to be lands of the public dominion unless and until reclassified by the Executive Branch of the
9
Government; and (3) All natural resources, under the Constitution, and subject to exceptional cases,
10
belong to the State.

I am elated that the Court has banished previous uncertainties.

FELICIANO, J., dissenting

With regret, I find myself unable to share the conclusions reached by Mr. Justice
Hugo E. Gutierrez, Jr.
For purposes of this separate opinion, I assume that the piece of land located in
306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter referred to as the
"Roppongi property") may be characterized as property of public dominion,
within the meaning of Article 420 (2) of the Civil Code:
[Property] which belong[s] to the State, without being for public use,
and are intended for some public service -.
It might not be amiss however, to note that the appropriateness of trying to bring
within the confines of the simple threefold classification found in Article 420 of
the Civil Code ("property for public use property "intended for some public
service" and property intended "for the development of the national wealth") all
123

property owned by the Republic of the Philippines whether found within the
territorial boundaries of the Republic or located within the territory of another
sovereign State, is notself-evident. The first item of the classification property
intended for public use can scarcely be properly applied to property belonging
to the Republic but found within the territory of another State. The third item of
the classification property intended for the development of the national wealth is
illustrated, in Article 339 of the Spanish Civil Code of 1889, by mines or mineral
properties. Again, mineral lands owned by a sovereign State are rarely, if ever,
found within the territorial base of another sovereign State. The task of
examining in detail the applicability of the classification set out in Article 420 of
our Civil Code to property that the Philippines happens to own outside its own
boundaries must, however, be left to academicians.
For present purposes, too, I agree that there is no question of conflict of laws
that is, at the present time, before this Court. The issues before us relate
essentially to authority to sell the Roppongi property so far as Philippine law is
concerned.
The majority opinion raises two (2) issues: (a) whether or not the Roppongi
property has been converted into patrimonial property or property of the private
domain of the State; and (b) assuming an affirmative answer to (a), whether or
not there is legal authority to dispose of the Roppongi property.
I
Addressing the first issue of conversion of property of public dominion intended
for some public service, into property of the private domain of the Republic, it
should be noted that the Civil Code does not address the question of who has
authority to effect such conversion. Neither does the Civil Code set out or refer
to any procedure for such conversion.
Our case law, however, contains some fairly explicit pronouncements on this
point, as Justice Sarmiento has pointed out in his concurring opinion. In Ignacio
v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued that if the
land in question formed part of the public domain, the trial court should have
declared the same no longer necessary for public use or public purposes and
which would, therefore, have become disposable and available for private
ownership. Mr. Justice Montemayor, speaking for the Court, said:
Article 4 of the Law of Waters of 1866 provides that when a portion of
the shore is no longer washed by the waters of the sea and is not
necessary for purposes of public utility, or for the establishment of
special industries, or for coast-guard service, the government shall
declare it to be the property of the owners of the estates adjacent
thereto and as an increment thereof. We believe that only the
executive and possibly the legislative departments have the authority
and the power to make the declaration that any land so gained by the
sea, is not necessary for purposes of public utility, or for the
establishment of special industries, or for coast-guard service. If no
such declaration has been made by said departments, the lot in
question forms part of the public domain. (Natividad v. Director of
Lands, supra.)
The reason for this pronouncement, according to this Tribunal in the
case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134
(cited in Velayo's Digest, Vol. 1, p. 52).
124

... is undoubtedly that the courts are neither primarily called upon,
nor indeed in a position to determine whether any public land are to
be used for the purposes specified in Article 4 of the Law of Waters.
Consequently, until a formal declaration on the part of the
Government, through the executive department or the Legislature, to
the effect that the land in question is no longer needed for coastguard service, for public use or for special industries, they continue
to be part of the public domain not available for private appropriation
or ownership.(108 Phil. at 338-339; emphasis supplied)
Thus, under Ignacio, either the Executive Department or the Legislative
Department may convert property of the State of public dominion into
patrimonial property of the State. No particular formula or procedure of
conversion is specified either in statute law or in case law. Article 422 of the Civil
Code simply states that: "Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial property of
the State". I respectfully submit, therefore, that the only requirement which is
legitimately imposable is that the intent to convert must be reasonably clear from
a consideration of the acts or acts of the Executive Department or of the
Legislative Department which are said to have effected such conversion.
The same legal situation exists in respect of conversion of property of public
dominion belonging to municipal corporations, i.e., local governmental units,
into patrimonial property of such entities. InCebu Oxygen Acetylene v.
Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a
certain portion of an existing street as an abandoned road, "the same not being
included in the city development plan". Subsequently, by another resolution, the
City Council of Cebu authorized the acting City Mayor to sell the land through
public bidding. Although there was no formal and explicit declaration of
conversion of property for public use into patrimonial property, the Supreme
Court said:
xxx xxx xxx
(2) Since that portion of the city street subject of petitioner's
application for registration of title was withdrawn from public use, it
follows that such withdrawn portion becomes patrimonial property
which can be the object of an ordinary contract.
Article 422 of the Civil Code expressly provides that "Property of
public dominion, when no longer intended for public use of for public
service, shall form part of the patrimonial property of the State."
Besides, the Revised Charter of the City of Cebu heretofore quoted,
in very clear and unequivocal terms, states that "Property thus
withdrawn from public servitude may be used or conveyed for any
purpose for which other real property belonging to the City may be
lawfully used or conveyed."
Accordingly, the withdrawal of the property in question from public
use and its subsequent sale to the petitioner is valid. Hence, the
petitioner has a registrable title over the lot in question. (66 SCRA at
484-; emphasis supplied)
Thus, again as pointed out by Sarmiento J., in his separate opinion, in the case
of property owned by municipal corporations simple non-use or the actual
125

dedication of public property to some use other than "public use" or some
"public service", was sufficient legally to convert such property into patrimonial
property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]- Municipality of
Hinunganan v. Director of Lands 24 Phil. 124 [1913]; Province of Zamboanga del
Norte v. City of Zamboanga, 22 SCRA 1334 (1968).
I would also add that such was the case not only in respect of' property of
municipal corporations but also in respect of property of the State itself. Manresa
in commenting on Article 341 of the 1889 Spanish Civil Code which has been
carried over verbatim into our Civil Code by Article 422 thereof, wrote:
La dificultad mayor en todo esto estriba, naturalmente, en fijar el
momento en que los bienes de dominio publico dejan de serlo. Si la
Administracion o la autoridad competente legislative realizan qun
acto en virtud del cual cesa el destino o uso publico de los bienes de
que se trata naturalmente la dificultad queda desde el primer
momento resuelta. Hay un punto de partida cierto para iniciar las
relaciones juridicas a que pudiera haber lugar Pero puede ocurrir que
no haya taldeclaracion expresa, legislativa or administrativa, y, sin
embargo, cesar de hecho el destino publico de los bienes; ahora
bien, en este caso, y para los efectos juridicos que resultan de entrar
la cosa en el comercio de los hombres,' se entedera que se ha
verificado la conversion de los bienes patrimoniales?
El citado tratadista Ricci opina, respecto del antiguo Codigo italiano,
por la afirmativa, y por nuestra parte creemos que tal debe ser la
soluciion. El destino de las cosas no depende tanto de una
declaracion expresa como del uso publico de las mismas, y cuanda
el uso publico cese con respecto de determinados bienes, cesa
tambien su situacion en el dominio publico. Si una fortaleza en ruina
se abandona y no se repara, si un trozo de la via publica se abandona
tambien por constituir otro nuevo an mejores condiciones....ambos
bienes cesan de estar Codigo, y leyes especiales mas o memos
administrativas. (3 Manresa, Comentarios al Codigo Civil Espanol, p.
128 [7a ed.; 1952) (Emphasis supplied)
The majority opinion says that none of the executive acts pointed to by the
Government purported, expressly or definitely, to convert the Roppongi property
into patrimonial property of the Republic. Assuming that to be the case, it is
respectfully submitted that cumulative effect of the executive acts here involved
was to convert property originally intended for and devoted to public service into
patrimonial property of the State, that is, property susceptible of disposition to
and appropration by private persons. These executive acts, in their totality if not
each individual act, make crystal clear the intent of the Executive Department to
effect such conversion. These executive acts include:
(a) Administrative Order No. 3 dated 11 August 1985, which created a Committee
to study the disposition/utilization of the Government's property in Japan, The
Committee was composed of officials of the Executive Department: the Executive
Secretary; the Philippine Ambassador to Japan; and representatives of the
Department of Foreign Affairs and the Asset Privatization Trust. On 19
September 1988, the Committee recommended to the President the sale of one of
the lots (the lot specifically in Roppongi) through public bidding. On 4 October
1988, the President approved the recommendation of the Committee.

126

On 14 December 1988, the Philippine Government by diplomatic note informed

the Japanese Ministry of Foreign Affairs of the Republic's intention to dispose of
the property in Roppongi. The Japanese Government through its Ministry of
Foreign Affairs replied that it interposed no objection to such disposition by the
Republic. Subsequently, the President and the Committee informed the leaders
of the House of Representatives and of the Senate of the Philippines of the
proposed disposition of the Roppongi property.
(b) Executive Order No. 296, which was issued by the President on 25 July 1987.
Assuming that the majority opinion is right in saying that Executive Order No.
296 is insufficient to authorize the sale of the Roppongi property, it is here
submitted with respect that Executive Order No. 296 is more than sufficient to
indicate an intention to convert the property previously devoted to public service
into patrimonial property that is capable of being sold or otherwise disposed of
(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for any
other public purposes. Assuming (but only arguendo) that non-use does not, by
itself, automatically convert the property into patrimonial property. I respectfully
urge that prolonged non-use, conjoined with the other factors here listed, was
legally effective to convert the lot in Roppongi into patrimonial property of the
State. Actually, as already pointed out, case law involving property of municipal
corporations is to the effect that simple non-use or the actual dedication of
public property to some use other than public use or public service, was
sufficient to convert such property into patrimonial property of the local
governmental entity concerned. Also as pointed out above, Manresa reached the
same conclusion in respect of conversion of property of the public domain of the
State into property of the private domain of the State.
The majority opinion states that "abandonment cannot be inferred from the nonuse alone especially if the non-use was attributable not to the Government's own
deliberate and indubitable will but to lack of financial support to repair and
improve the property" (Majority Opinion, p. 13). With respect, it may be stressed
that there is no abandonment involved here, certainly no abandonment of
property or of property rights. What is involved is the charge of the classification
of the property from property of the public domain into property of the private
domain of the State. Moreover, if for fourteen (14) years, the Government did not
see fit to appropriate whatever funds were necessary to maintain the property in
Roppongi in a condition suitable for diplomatic representation purposes, such
circumstance may, with equal logic, be construed as a manifestation of the
crystalizing intent to change the character of the property.
(d) On 30 March 1989, a public bidding was in fact held by the Executive
Department for the sale of the lot in Roppongi. The circumstance that this
bidding was not successful certainly does not argue against an intent to convert
the property involved into property that is disposable by bidding.
The above set of events and circumstances makes no sense at all if it does
not, as a whole, show at least the intent on the part of the Executive Department
(with the knowledge of the Legislative Department) to convert the property
involved into patrimonial property that is susceptible of being sold.
II
Having reached an affirmative answer in respect of the first issue, it is necessary
to address the second issue of whether or not there exists legal authority for the
sale or disposition of the Roppongi property.
127

The majority opinion refers to Section 79(f) of the Revised Administrative Code of
1917 which reads as follows:
SEC. 79 (f). Conveyances and contracts to which the Government is a
party. In cases in which the Government of the Republic of the
Philippines is a party to any deed or other instrument conveying the
title to real estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective Department
Secretary shall prepare the necessary papers which, together with
the proper recommendations, shall besubmitted to the Congress of
the Philippines for approval by the same. Such deed, instrument, or
contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the
authority therefor be expressly vested by law in another officer.
(Emphasis supplied)
The majority opinion then goes on to state that: "[T]he requirement has been
retained in Section 4, Book I of the Administrative Code of 1987 (Executive Order
No. 292)" which reads:
SEC. 48. Official Authorized to Convey Real Property. Whenever
real property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the
government by the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
Two points need to be made in this connection. Firstly, the requirement of
obtaining specific approval of Congress when the price of the real property being
disposed of is in excess of One Hundred Thousand Pesos (P100,000.00) under
the Revised Administrative Code of 1917, has been deleted from Section 48 of
the 1987 Administrative Code. What Section 48 of the present Administrative
Code refers to isauthorization by law for the conveyance. Section 48 does not
purport to be itself a source of legal authority for conveyance of real property of
the Government. For Section 48 merely specifies the official authorized to
execute and sign on behalf of the Government the deed of conveyance in case of
such a conveyance.
Secondly, examination of our statute books shows that authorization by law for
disposition of real property of the private domain of the Government, has been
granted by Congress both in the form of (a) a general, standing authorization for
disposition of patrimonial property of the Government; and (b) specific
legislation authorizing the disposition of particular pieces of the Government's
patrimonial property.
Standing legislative authority for the disposition of land of the private domain of
the Philippines is provided by Act No. 3038, entitled "An Act Authorizing the
Secretary of Agriculture and Natural Resources to Sell or Lease Land of the
128

Private Domain of the Government of the Philippine Islands (now Republic of the
Philippines)", enacted on 9 March 1922. The full text of this statute is as follows:
Be it enacted by the Senate and House of Representatives of the
Philippines in Legislature assembled and by the authority of the
same:
SECTION 1. The Secretary of Agriculture and Natural Resources (now
Secretary of the Environment and Natural Resources) is hereby
authorized to sell or lease land of the private domain of the
Government of the Philippine Islands, or any part thereof, to such
persons, corporations or associations as are, under the provisions of
Act Numbered Twenty-eight hundred and seventy-four, (now
Commonwealth Act No. 141, as amended) known as the Public Land
Act, entitled to apply for the purchase or lease or agricultural public
land.
SECTION 2. The sale of the land referred to in the preceding
section shall, if such land is agricultural, be made in the manner and
subject to the limitations prescribed in chapters five and six,
respectively, of said Public Land Act, and if it be classified differently,
in conformity with the provisions of chapter nine of said Act:
Provided, however, That the land necessary for the public service
shall be exempt from the provisions of this Act.
SECTION 3. This Act shall take effect on its approval.
Approved, March 9, 1922. (Emphasis supplied)
Lest it be assumed that Act No. 3038 refers only to agricultural lands of the
private domain of the State, it must be noted that Chapter 9 of the old Public
Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act
(Commonwealth Act No. 141, as amended) and that both statutes refer to: "any
tract of land of the public domain which being neither timber nor mineral land, is
intended to be used for residential purposes or for commercial or industrial
purposes other than agricultural" (Emphasis supplied). In other words, the
statute covers the sale or lease or residential, commercial or industrial land of
the private domain of the State.
Implementing regulations have been issued for the carrying out of the provisions
of Act No. 3038. On 21 December 1954, the then Secretary of Agriculture and
Natural Resources promulgated Lands Administrative Orders Nos. 7-6 and 7-7
which were entitled, respectively: "Supplementary Regulations Governing the
Sale of the Lands of the Private Domain of the Republic of the Philippines"; and
"Supplementary Regulations Governing the Lease of Lands of Private Domain of
the Republic of the Philippines" (text in 51 O.G. 28-29 [1955]).
It is perhaps well to add that Act No. 3038, although now sixty-eight (68) years
old, is still in effect and has not been repealed. 1
Specific legislative authorization for disposition of particular patrimonial
properties of the State is illustrated by certain earlier statutes. The first of these
was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of
the friar lands, purchased by the Government from the Roman Catholic Church,
to bona fide settlers and occupants thereof or to other persons. In Jacinto v.
Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private
129

and patrimonial properties of the State. Act No. 2360, enacted on -28 February
1914, authorized the sale of the San Lazaro Estatelocated in the City of Manila,
which had also been purchased by the Government from the Roman Catholic
Church. In January 1916, Act No. 2555 amended Act No. 2360 by including
therein all lands and buildings owned by the Hospital and the Foundation of San
Lazaro theretofor leased by private persons, and which were also acquired by the
Philippine Government.
After the enactment in 1922 of Act No. 3038, there appears, to my knowledge, to
be only one statute authorizing the President to dispose of a specific piece of
property. This statute is Republic Act No. 905, enacted on 20 June 1953, which
authorized the
President to sell an Identified parcel of land of the private domain of the National
Government to the National Press Club of the Philippines, and to other
recognized national associations of professionals with academic standing, for
the nominal price of P1.00. It appears relevant to note that Republic Act No. 905
was not an outright disposition in perpetuity of the property involved- it provided
for reversion of the property to the National Government in case the National
Press Club stopped using it for its headquarters. What Republic Act No. 905
authorized was really a donation, and not a sale.
The basic submission here made is that Act No. 3038 provides standing
legislative authorization for disposition of the Roppongi property which, in my
view, has been converted into patrimonial property of the Republic. 2
To some, the submission that Act No. 3038 applies not only to lands of the
private domain of the State located in the Philippines but also to patrimonial
property found outside the Philippines, may appear strange or unusual. I
respectfully submit that such position is not any more unusual or strange than
the assumption that Article 420 of the Civil Code applies not only to property of
the Republic located within Philippine territory but also to property found outside
the boundaries of the Republic.
It remains to note that under the well-settled doctrine that heads of Executive
Departments are alter egos of the President (Villena v. Secretary of the Interior,
67 Phil. 451 [1939]), and in view of the constitutional power of control exercised
by the President over department heads (Article VII, Section 17,1987
Constitution), the President herself may carry out the function or duty that is
specifically lodged in the Secretary of the Department of Environment and
Natural Resources (Araneta v. Gatmaitan 101 Phil. 328 [1957]). At the very least,
the President retains the power to approve or disapprove the exercise of that
function or duty when done by the Secretary of Environment and Natural
Resources.
It is hardly necessary to add that the foregoing analyses and submissions relate
only to the austere question of existence of legal power or authority. They have
nothing to do with much debated questions of wisdom or propriety or relative
desirability either of the proposed disposition itself or of the proposed utilization
of the anticipated proceeds of the property involved. These latter types of
considerations He within the sphere of responsibility of the political departments
of government the Executive and the Legislative authorities.
For all the foregoing, I vote to dismiss the Petitions for Prohibition in both G.R.
Nos. 92013 and 92047.
130

Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

G.R. No. L-61311 September 2l, 1987

FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA
MIRANDA, RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners,
vs.
HON. MARIANO CASTAEDA, JR., Presiding Judge of the Court of First Instance
of Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the
Mayor, San Fernando, Pampanga,respondents.

CRUZ, J.:
There is in the vicinity of the public market of San Fernando, Pampanga, along
Mercado Street, a strip of land measuring 12 by 77 meters on which stands a
conglomeration of vendors stalls together forming what is commonly known as
a talipapa. This is the subject of the herein petition. The petitioners claim they have a
right to remain in and conduct business in this area by virtue of a previous authorization
granted to them by the municipal government. The respondents deny this and justify
the demolition of their stalls as illegal constructions on public property. At the
petitioners' behest, we have issued a temporary restraining order to preserve the status
quobetween the parties pending our decision. 1 Now we shall rule on the merits.
This dispute goes back to November 7, 1961, when the municipal council of San
Fernando adopted Resolution No. 218 authorizing some 24 members of the
Fernandino United Merchants and Traders Association to construct permanent stags
and sell in the above-mentioned place. 2 The action was protested on November 10, 1961, in Civil
Case No. 2040, where the Court of First Instance of Pampanga, Branch 2, issued a writ of preliminary injunction
3
that prevented the defendants from constructing the said stalls until final resolution of the controversy. On
January 18, 1964, while this case was pending, the municipal council of San Fernando adopted Resolution G.R.
No. 29, which declared the subject area as "the parking place and as the public plaza of the
4
municipality, thereby impliedly revoking Resolution No. 218, series of 1961. Four years later, on November 2,
1968, Judge Andres C. Aguilar decided the aforesaid case and held that the land occupied by the petitioners,
being public in nature, was beyond the commerce of man and therefore could not be the subject of private
5
6
occupancy. The writ of preliminary injunction was made permanent.

The decision was apparently not enforced, for the petitioners were not evicted from the
place; in fact, according to then they and the 128 other persons were in 1971 assigned
specific areas or space allotments therein for which they paid daily fees to the
municipal government. 7 The problem appears to have festered for some more years under a presumably
uneasy truce among the protagonists, none of whom made any move, for some reason that does not appear in
the record. Then, on January 12, 1982, the Association of Concerned Citizens and Consumers of San Fernando
filed a petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its
8
original and customary use as a public plaza.

Acting thereon after an investigation conducted by the municipal attorney,

respondent
Vicente A. Macalino, as officer-in-charge of the office of the mayor of San Fernando, issued on June 14, 1982, a
resolution requiring the municipal treasurer and the municipal engineer to demolish the stalls in the subject place
beginning July 1, 1982. 10 The reaction of the petitioners was to file a petition for prohibition with the Court of First Instance of Pampanga,
docketed as Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition on July 19, 1982, 11 and the motion for reconsideration
on August 5, 1982, 12 prompting the petitioners to come to this Court on certiorari to challenge his decision. 13

As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their
reply. 15 In compliance with our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and respondent Macalino, for his part,
asked that his comment be considered his memorandum. 17 On July 28, 1986, the new officer-in-charge of the office of the mayor of San Fernando,
Paterno S. Guevarra, was impleaded in lieu of Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18

131

After considering the issues and the arguments raised by the parties in their respective
pleadings, we rule for the respondents. The petition must be dismissed.
There is no question that the place occupied by the petitioners and from which they are
sought to be evicted is a public plaza, as found by the trial court in Civil Case No. 2040.
This finding was made after consideration of the antecedent facts as especially
established by the testimony of former San Fernando Mayor Rodolfo Hizon, who later
became governor of Pampanga, that the National Planning Commission had reserved
the area for a public plaza as early as 1951. This intention was reiterated in 1964
through the adoption of Resolution No. 29. 19
It does not appear that the decision in this case was appealed or has been reversed. In
Civil Case G.R. No. 6740, which is the subject of this petition, the respondent judge
saw no reason to disturb the finding in Civil Case No. 2040 and indeed used it as a
basis for his own decision sustaining the questioned order. 20
The basic contention of the petitioners is that the disputed area is under lease to them
by virtue of contracts they had entered into with the municipal government, first in 1961
insofar as the original occupants were concerned, and later with them and the other
petitioners by virtue of the space allocations made in their favor in 1971 for which they
saw they are paying daily fees. 21 The municipal government has denied making such agreements. In
any case, they argue, since the fees were collected daily, the leases, assuming their validity, could be terminated
22
at will, or any day, as the claimed rentals indicated that the period of the leases was from day to day.

The parties belabor this argument needlessly.

A public plaza is beyond the commerce of man and so cannot be the subject of lease or
any other contractual undertaking. This is elementary. Indeed, this point was settled as
early as in Municipality of Cavite vs. Rojas, 23decided in 1915, where the Court declared as null and
void the lease of a public plaza of the said municipality in favor of a private person.

Justice Torres said in that case:

According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces.
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in
the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and plazas
and streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says: "communal
things that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common
lands, rivers, fountains, etc."
Therefore, it must be concluded that the contract, Exhibit C, whereby the
municipality of Cavite leased to Hilaria Rojas a portion of the Plaza
Soledad is null and void and of no force or effect, because it is contrary to
132

the law and the thing leased cannot be the object of a was held that the
City of contract.
In Muyot vs. de la Fuente, 24 it was held that the City of Manila could not lease a portion of a public
sidewalk on Plaza Sta. Cruz, being likewise beyond the commerce of man.

Echoing Rojas, the decision said:

Appellants claim that they had obtained permit from the present of the City
of Manila, to connect booths Nos. 1 and 2, along the premises in question,
and for the use of spaces where the booths were constructed, they had
paid and continued paying the corresponding rentals. Granting this claim to
be true, one should not entertain any doubt that such permit was not legal,
because the City of Manila does not have any power or authority at all to
lease a portion of a public sidewalk. The sidewalk in question, forming part
of the public plaza of Sta. Cruz, could not be a proper subject matter of the
contract, as it was not within the commerce of man (Article 1347, new Civil
Code, and article 1271, old Civil Code). Any contract entered into by the
City of Manila in connection with the sidewalk, is ipso facto null and ultra
vires. (Municipality of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk
in question was intended for and was used by the public, in going from one
place to another. "The streets and public places of the city shall be kept
free and clear for the use of the public, and the sidewalks and crossings for
the pedestrians, and the same shall only be used or occupied for other
purpose as provided by ordinance or regulation; ..." (Sec. 1119, Revised
Ordinances of the City of Manila.) The booths in question served as fruit
stands for their owners and often, if not always, blocked the fire passage of
pedestrians who had to take the plaza itself which used to be clogged with
vehicular traffic.
Exactly in point is Espiritu vs. Municipal Council of Pozorrubio, 25 where the Supreme Court
declared:

There is absolutely no question that the town plaza cannot be used for the
construction of market stalls, specially of residences, and that such
structures constitute a nuisance subject to abatement according to law.
Town plazas are properties of public dominion, to be devoted to public use
and to be made available to the public in general They are outside the
common of man and cannot be disposed of or even leased by the
municipality to private parties.
Applying this well-settled doctrine, we rule that the petitioners had no right in the first
place to occupy the disputed premises and cannot insist in remaining there now on the
strength of their alleged lease contracts. They should have realized and accepted this
earlier, considering that even before Civil Case No. 2040 was decided, the
municipalcouncil of San Fernando had already adopted Resolution No. 29, series of
1964, declaring the area as the parking place and public plaza of the municipality.
It is the decision in Civil Case No. 2040 and the said resolution of the municipal council
of San Fernando that respondent Macalino was seeking to enforce when he ordered
the demolition of the stags constructed in the disputed area. As officer-in-charge of the
office of the mayor, he had the duty to clear the area and restore it to its intended use
as a parking place and public plaza of the municipality of San Fernando, conformably to
the aforementioned orders from the court and the council. It is, therefore, not correct to
say that he had acted without authority or taken the law into his hands in issuing his
order.
133

Neither can it be said that he acted whimsically in exercising his authority for it has
been established that he directed the demolition of the stalls only after, upon his
instructions, the municipal attorney had conducted an investigation, to look into the
complaint filed by the Association of Concerned Citizens and Consumers of San
Fernando. 26 There is evidence that the petitioners were notified of this hearing, 27which they chose to
28

disregard. Photographs of the disputed area, which does look congested and ugly, show that the complaint was
valid and that the area really needed to be cleared, as recommended by the municipal attorney.

The Court observes that even without such investigation and recommendation, the
respondent mayor was justified in ordering the area cleared on the strength alone of its
status as a public plaza as declared by the judicial and legislative authorities. In calling
first for the investigation (which the petitioner saw fit to boycott), he was just
scrupulously paying deference to the requirements of due process, to remove an taint
of arbitrariness in the action he was caged upon to take.
Since the occupation of the place in question in 1961 by the original 24 stallholders
(whose number later ballooned to almost 200), it has deteriorated increasingly to the
great prejudice of the community in general. The proliferation of stags therein, most of
them makeshift and of flammable materials, has converted it into a veritable fire trap,
which, added to the fact that it obstructs access to and from the public market itself, has
seriously endangered public safety. The filthy condition of the talipapa, where fish and
other wet items are sold, has aggravated health and sanitation problems, besides
pervading the place with a foul odor that has spread into the surrounding areas. The
entire place is unsightly, to the dismay and embarrassment of the inhabitants, who want
it converted into a showcase of the town of which they can all be proud. The vendors in
the talipapa have also spilled into the street and obstruct the flow of traffic, thereby
impairing the convenience of motorists and pedestrians alike. The regular stallholders
in the public market, who pay substantial rentals to the municipality, are deprived of a
sizable volume of business from prospective customers who are intercepted by
the talipapa vendors before they can reach the market proper. On top of all these, the
people are denied the proper use of the place as a public plaza, where they may spend
their leisure in a relaxed and even beautiful environment and civic and other communal
activities of the town can be held.
The problems caused by the usurpation of the place by the petitioners are covered by
the police power as delegated to the municipality under the general welfare
clause. 29 This authorizes the municipal council "to enact such ordinances and make such regulations, not
repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon it
by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity,
improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof,
and for the protection of property therein." This authority was validly exercised in this casethrough the adoption of
Resolution No. 29, series of 1964, by the municipal council of San Fernando.

Even assuming a valid lease of the property in dispute, the resolution could have
effectively terminated the agreement for it is settled that the police power cannot be
surrendered or bargained away through the medium of a contract. 30 In fact, every contract
affecting the public interest suffers a congenital infirmity in that it contains an implied reservation of the police
31
power as a postulate of the existing legal order. This power can be activated at any time to change the
provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such
an act will not militate against the impairment clause, which is subject to and limited by the paramount police
32
power.

We hold that the respondent judge did not commit grave abuse of discretion in denying
the petition for prohibition. On the contrary, he acted correctly in sustaining the right
and responsibility of the mayor to evict the petitioners from the disputed area and clear
it of an the structures illegally constructed therein.

134

The Court feels that it would have been far more amiable if the petitioners themselves,
recognizing their own civic duty, had at the outset desisted from their original stance
and withdrawn in good grace from the disputed area to permit its peaceful restoration
as a public plaza and parking place for the benefit of the whole municipality. They
owned this little sacrifice to the community in general which has suffered all these many
years because of their intransigence. Regrettably, they have refused to recognize that
in the truly democratic society, the interests of the few should yield to those of the
greater number in deference to the principles that the welfare of the people is the
supreme law and overriding purpose. We do not see any altruism here. The traditional
ties of sharing are absent here. What we find, sad to say, is a cynical disdaining of the
spirit of "bayanihan," a selfish rejection of the cordial virtues of "pakikisama " and
"pagbibigayan" which are the hallmarks of our people.
WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the
order-dated August 5, 1982, are AFFIRMED. The temporary restraining order dated
August 9, 1982, is LIFTED. This decision is immediately executory. Costs against the
petitioners.
SO ORDERED.

G.R. No. L-57461 September 11, 1987

THE DIRECTOR OF LANDS, petitioner,
vs.
MANILA ELECTRIC COMPANY and HON. RIZALINA BONIFACIO VERA, as
Presiding Judge, Court of First Instance of Rizal, Pasig, Branch
XXIII, respondents.

CORTES, J.:
This is an appeal by certiorari of a decision of the respondent Judge in Land
Registration Case No. N-10317 LRC Record No. N-54803 entitled "In Re: Application
for Registration of Title, Manila Electric Company, applicant," dated May 29, 1981.
The facts are not disputed. Manila Electric Company filed an amended application for
registration of a parcel of land located in Taguig, Metro Manila on December 4, 1979.
On August 17, 1976, applicant acquired the land applied for registration by purchase
from Ricardo Natividad (Exhibit E) who in turn acquired the same from his father
Gregorio Natividad as evidenced by a Deed of Original Absolute Sale executed on
December 28, 1970 (Exhibit E). Applicant's predecessors-in-interest have possessed
the property under the concept of an owner for more than 30 years. The property was
declared for taxation purposes under the name of the applicant (Exhibit 1) and the
taxes due thereon have been paid (Exhibits J and J-1).
On May 29, 1981 respondent Judge rendered a decision ordering the registration of the
property in the name of the private respondent. The Director of Lands interposed this
petition raising the issue of whether or not a corporation may apply for registration of
title to land. After comments were filed by the respondents, the Court gave the petition
due course. The legal issue raised by the petitioner Director of Lands has been
squarely dealt with in two recent cases (The Director of Lands v. Intermediate Appellate
Court and Acme Plywood & Veneer Co., Inc., etc., No. L-73002 (December 29, 1986),
146 SCRA 509. The Director of Lands v. Hon. Bengzon and Dynamarine Corporation,
135

etc., No. 54045 (July 28, 1987)], and resolved in the affirmative. There can be no
different answer in the case at bar.
In the Acme decision, this Court upheld the doctrine that open, exclusive and
undisputed possession of alienable public land for the period prescribed by law creates
the legal fiction whereby the land, upon completion of the requisite period ipso jure and
without the need of judicial or other sanction, ceases to be public land and becomes
private property.
As the Court said in that case:
Nothing can more clearly demonstrate the logical inevitability of
considering possession of public land which is of the character and
duration prescribed by statute as the equivalent of an express grant from
the State than the dictum of the statute itself that the possessor(s) "... shall
be conclusively presumed to have performed all the conditions essential to
a Government grant and shall be entitled to a certificate of title .... " No
proof being admissible to overcome a conclusive presumption,
confirmation proceedings would in truth be little more than a formality, at
the most limited to ascertaining whether the possession claimed is of the
required character and length of time; and registration thereunder would
not confer title, but simply recognize a title already vested. The
proceedings would not originally convert the land from public to private
land, but only confirm such a conversion already affected (sic) from the
moment the required period of possession became complete.
Coming to the case at bar, if the land was already private at the time Meralco bought it
from Natividad, then the prohibition in the 1973 Constitution against corporations
holding alienable lands of the public domain except by lease (1973 Const., Art. XIV,
See. 11) does not apply.
Petitioner, however, contends that a corporation is not among those that may apply for
confirmation of title under Section 48 of Commonwealth Act No. 141, the Public Land
Act.
As ruled in the Acme case, the fact that the confirmation proceedings were instituted by
a corporation is simply another accidental circumstance, "productive of a defect hardly
more than procedural and in nowise affecting the substance and merits of the right of
ownership sought to be confirmed in said proceedings." Considering that it is not
disputed that the Natividads could have had their title confirmed, only a rigid
subservience to the letter of the law would deny private respondent the right to register
its property which was validly acquired.
WHEREFORE, the petition is DENIED. The questioned decision of the respondent
Judge is AFFIRMED.
SO ORDERED.

ERESITA BONGATO, petitioner, vs. Spouses SEVERO A. MALVAR and

TRINIDAD MALVAR, respondents.
DECISION
136

PANGANIBAN, J.:

An action for forcible entry is a quieting process that is summary in nature. It is designed
to recover physical possession in speedy proceedings that are restrictive in nature, scope and
time limits. The one-year bar within which to bring the suit is prescribed to complement its
summary nature. Thus, after the one-year period has lapsed, plaintiffs can no longer avail
themselves of the summary proceedings in the municipal trial court but must litigate, in the
normal course, in the regional trial court in an ordinary action to recover possession, or to
recover both ownership and possession.

Statement of the Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the December 16, 1998 Decision[1] and the September 1, 1999 Resolution[2] of the
Court of Appeals (CA) in CA-GR SP No. 34204. The decretal portion of the Decision reads:

WHEREFORE, the petition is hereby dismissed for lack of merit. Costs against
petitioner.
[3]

The assailed Resolution denied petitioners Motion for Reconsideration.

The CA sustained the Decision of the Regional Trial Court (RTC) of Butuan City (Branch
4), which had disposed thus:

WHEREFORE, in view of all the foregoing, the Court hereby affirms the decision of the
Municipal Trial Court in Cities, Branch 2 penned by the Honorable Santos Rod. Cedro and
the Writ of Execution issued on the 24thday of August 1993 upon order of the Honorable
Rosarito F. Dabalos (Record, p. 42, Folio II) can now be served on the defendant.
[4]

The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:

The spouses Severo and Trinidad Malvar filed a complaint for forcible entry against
petitioner Teresita Bongato, alleging that petitioner Bongato unlawfully entered a parcel of
land covered by TCT No. RT-16200 belonging to the said spouses and erected thereon a
house of light materials. The petitioner filed a motion for extension of time to file an answer
which the MTCC denied; it being proscribed under the Rule on Summary Procedure, and
likewise containing no notice of hearing. With a new counsel, Atty. Viador C. Viajar,
petitioner filed an answer which the MTCC disregarded, the same having been filed beyond
the ten-day reglementary period. Later, with still another counsel, Atty. Jesus G. Chavez of
the Public Attorneys Office, petitioner filed a motion to dismiss which the MTCC denied as
being contrary to the Rule on Summary Procedure.
Thereafter, the MTCC rendered a decision ordering petitioner to vacate the land in
question, and to pay rentals, attorneys fees, and the costs of the suit. The decision was
affirmed by respondent RTC judge. Petitioner filed a motion for reconsideration.
On March 4, 1994, respondent Judge issued an order granting the motion for
reconsideration only insofar as to determine the location of the houses involved in this civil
case so that the Court will know whether they are located on one and the same lot or a lot
different from that involved in the criminal case for Anti-Squatting. In the same order,
respondent Judge disallowed any extension and warned that if the survey is not made, the
court might consider the same abandoned and the writ of execution would be issued.
137

The criminal case for anti-squatting (Crim. Case No. 4659) was filed by private respondents
Malvar against petitioner Bongato. The case is still pending with the Regional Trial Court,
Branch I, Butuan City.
On March 28, 1994, petitioner filed a motion for extension of the March 29, 1994 deadline
for the submission of the relocation survey and to move the deadline to April 15, 1994, as
the engineer concerned, Engr. Lumarda, could not conduct his survey during the Holy Week,
he being a lay minister and parish council member.
On April 7, 1994, respondent Judge noted that no survey report was submitted and ordered
the record of the case returned to the court of origin for disposal. (Citations omitted)
[5]

Ruling of the Court of Appeals

The CA held that the lot referred to in the present controversy was different from that
involved in the anti-squatting case.[6] It further ruled that the Municipal Trial Court in Cities
(MTCC) had jurisdiction, and that it did not err in rejecting petitioners Motion to Dismiss. The
appellate court reasoned that the MTCC had passed upon the issue of ownership of the
property merely to determine possession -- an action that did not oust the latter of its
jurisdiction.[7]
Unsatisfied with the CA Decision, petitioner lodged this Petition.[8]

Issues
In her Memorandum, petitioner raises the following issues for this Courts consideration:
I

Whether or not the Court of Appeals gravely abused its discretion in not finding that the
trial court lacked jurisdiction since the Complaint was filed beyond the one-year period from
date of alleged entry;
II

Whether or not the Court of Appeals gravely abused its discretion in ruling that the Motion
to Dismiss was a prohibited pleading.
[9]

This Courts Ruling

The Petition is meritorious.

First Issue:
MTCC Jurisdiction
Petitioner claims that the MTCC had no jurisdiction, because the Complaint for forcible
entry was filed only in 1992 or beyond the one-year period provided under the Rules of Civil
Procedure.[10] She avers that in Criminal Case No. 4659 for anti-squatting, Respondent Severo
Malvar alleged in his Sworn Statement that petitioner had illegally entered his land sometime
in the first week of January 1987. [11]
On the other hand, respondents contend that the subject of the anti-squatting case is
different from the parcel of land involved here.[12]
138

Before tackling the issue directly, it is worthwhile to restate three basic legal
principles. First, in forcible entry, one employs force, intimidation, threat, strategy or stealth to
deprive another of physical possession of land or building. [13] Thus, the plaintiff must allege and
prove prior physical possession of the property in litigation until deprived thereof
by the defendant.[14] This requirement implies that the possession of the disputed land by the
latter was unlawful from the beginning.[15] The sole question for resolution hinges on the
physical or material possession (possession de facto) of the property. Neither a claim of
juridical possession (possession de jure) nor an averment of ownership[16] by the defendant can
outrightly prevent the court from taking cognizance of the case.[17] Ejectment cases proceed
independently of any claim of ownership, and the plaintiff needs merely to prove prior
possession de facto and undue deprivation thereof.[18]
Second, as a general rule, courts do not take judicial notice of the evidence presented in
other proceedings, even if these have been tried or are pending in the same court or before
the same judge.[19] There are exceptions to this rule. Ordinarily, an appellate court cannot refer
to the record in another case to ascertain a fact not shown in the record of the case before
it,[20] yet, it has been held that it may consult decisions in other proceedings, in order to look for
the law that is determinative of or applicable to the case under review.[21] In some instances,
courts have also taken judicial notice of proceedings in other cases that are closely connected
to the matter in controversy.[22] These cases may be so closely interwoven, or so clearly
interdependent, as to invoke a rule of judicial notice.[23]
Third, factual findings of trial courts, especially when affirmed by the Court of Appeals, are
binding on the Supreme Court. Indeed, the review of such findings is not a function that this
Court normally undertakes.[24] However, this Rule is not absolute; it admits of exceptions, such
as (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)
when a lower courts inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, run contrary to the
admissions of the parties to the case, or fail to notice certain relevant facts which -- if properly
considered -- will justify a different conclusion; (5) when there is a misappreciation of facts; (6)
when the findings of fact are conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or are contradicted by evidence on
record.[25]
Respondents in the present Petition filed three cases against petitioner: (1) Criminal Case
No. 4659 for violation of PD No. 772[26] (filed on October 2, 1991), in which petitioner was
acquitted on the ground of good faith; (2) Civil Case No. 5681 for forcible entry (filed on July
10, 1992) which was resolved by the MTCC on October 26, 1992. [27] (3) Criminal Case No.
5734 for Violation of PD No. 1096[28] (filed on July 15, 1993), wherein petitioner was again
acquitted.
We agree with respondents that Lot 10-A, covered by Transfer Certificate of Title (TCT)
No. RT-16200[29] and registered under the name of Severo Malvar, is different from Lot 1 which
is covered by TCT No. RT-15993[30] and registered under the name of Severo Malvar
also. However, we cannot ignore the Decision[31] dated April 30, 1996 in Criminal Case No.
4659 for violation of PD 772; or the Decision[32] dated November 26, 1997 in Criminal Case No.
5734 for violation of PD 1096. The property involved in these two criminal cases and in the
instant case for forcible entry is one and the same -- petitioners house.
The allegation of petitioner that there is only one house involved in these three cases has
not been controverted by respondents. Neither was there evidence presented to prove that,
indeed, she had constructed one house on Lot 1 and another on Lot 10-A. On the contrary,
she correctly points out that the house involved in these three cases is found on one and the
same location. Verily, in his Sworn Statement[33] submitted in Criminal Case No. 4659,
Respondent Severo Malvar stated that petitioners house was located in front of the Museum
and just behind the City Hall. On the other hand, in the Complaint [34] for forcible entry, the
subject property was said to be located along Doongan Road and right in front of the Regional
National Museum and not far behind the City Hall of Butuan City. Lastly, the Decision[35] in
Criminal Case No. 5734 stated that the building inspector, Engineer Margarita Burias, had
responded to a verbal complaint involving a structure built near the Museum in Upper
Doongan, Butuan City.
139

Based on these factual antecedents, there is cogent basis for petitioners contention that
the MTCC lacked jurisdiction in this case.
First, respondents allege that the subject house was built by petitioner on Lot 10-A
covered by TCT No. 16200. This allegation is belied by the sketch plan[36] dated June 16, 1994,
submitted by Engineer Regino A. Lomarda Jr. To recall, in an Order[37] dated March 4, 1994, the
RTC had required petitioner to submit a relocation survey of Lot 10-A to determine the location
of the house and to ascertain if it was the same house involved in Criminal Case No. 4659 for
anti-squatting. However, because of the Holy Week, petitioner failed to submit the relocation
survey within the period provided by the RTC. In the said sketch plan that was offered in
evidence as Exhibit 5 in the anti-squatting case, Engineer Lomarda Jr. certified that the hut
of Teresita Bongato is not within Lot 10-A as shown in this plan as relocated by the
undersigned based [o]n TCT No. RT-1576 of Benjamin Eva, et al. and [o]n TCT No. RT-16200
of Lot 10-A of Severo Malvar.
Second, according to the Decision in Criminal Case No. 4659, petitioners house is actually
located on Lot 1, the parcel of land previously covered by TCT No. RT-15993 and subject of
the anti-squatting case. The RTC Judge in said case ruled:

The lot on which accuseds house is standing was formerly covered by Transfer Certificate
of Title No. RT-15993 dated January 24, 1983 in the name of Severo Malvar, and
superseded by Transfer Certificate of Title No. RT-24589 dated December 3, 1991 in the
name of Butuan Land Developers Group, Inc.
[38]

Third, petitioners house had actually been in existence prior to February 1992, the alleged
date of illegal entry. Thus, in Criminal Case No. 5734 for violation of PD 1096, the RTC Judge
opined as follows:

Firstly, the prosecution has not proven that the accused had constructed or for that matter
was constructing the questioned house in February of 1992, since it was never stated that
when the complaint was lodged with the City Engineers Office, that the house occupied by
the accused was under construction or under renovation. The fact that Engr. Burias even
admitted that she had no knowledge of when the structure was built implicitly indicates that
the same was completely erected or constructed before Engr. Burias visit, or even for that
matter, before the complaint was filed.
[39]

That the house of petitioner had been constructed by her father and that she had merely
continued to reside therein was upheld by the Decision, which we quote:

Suffice it to state, however, that We are convinced, given the testimonial evidence offered
that the house in question was not built by the accused, but by her father, Jacinto
Bongato sometime in 1935; that accused merely lived in the house as a member of Jacinto
Bongatos family until the death of her parents, whereupon, she continued to reside in the
said house and now claims to be its owner.
[40]

Fourth, Respondent Severo Malvar admitted in Criminal Case No. 4659 that he had
knowledge of petitioners house since January 1987. We quote from his testimony:
Q

Earlier, Judge Malvar, you told this Honorable Court that you discovered sometime in January
1987, the accused was occupying your property consisting of 348 square meters. What did you
do upon discovering that the accused already occupied a portion of your property without your
knowledge?

I want to demolish her house. I told her that I am the owner of the land and she is looking for the
hectare that was not sold by her father to me.

And upon being informed by Teresita Bongato that they were looking for the hectare lot
which was not sold to you by her father, what did you say to her?

I told her to remove her house. Then after that, I was so busy with the squatters along Satorre
Street of the Malvar Village that kept me so busy. It was only last year that we were able to
attend to this.[41]
140

It is wise to be reminded that forcible entry is a quieting process, and that the restrictive
time bar is prescribed to complement the summary nature of such process. [42] Indeed, the oneyear period within which to bring an action for forcible entry is generally counted from the date
of actual entry to the land. However, when entry is made through stealth, then the one-year
period is counted from the time the plaintiff learned about it. [43] After the lapse of the one-year
period, the party dispossessed of a parcel of land may file either an accion publiciana, which is
a plenary action to recover the right of possession; or an accion reivindicatoria, which is an
action to recover ownership as well as possession.[44]
On the basis of the foregoing facts, it is clear that the cause of action for forcible entry filed
by respondents had already prescribed when they filed the Complaint for ejectment on July 10,
1992.[45] Hence, even if Severo Malvar may be the owner of the land, possession thereof cannot
be wrested through a summary action for ejectment of petitioner, who had been occupying it
for more than one (1) year.[46] Respondents should have presented their suit before the RTC in
an accion publiciana or an accion reivindicatoria, not before the MTCC in summary
proceedings for forcible entry.[47] Their cause of action for forcible entry had prescribed already,
and the MTCC had no more jurisdiction to hear and decide it.[48]

Second Issue:
Motion to Dismiss
Petitioner further argues that a motion to dismiss based on lack of jurisdiction over the
subject matter is not a prohibited pleading, but is allowed under Sec. 19(a) of the Revised
Rule on Summary Procedure.[49] We agree.
The Rule on Summary Procedure was promulgated specifically to achieve an expeditious
and inexpensive determination of cases.[50] The speedy resolution of unlawful detainer cases
is a matter of public policy,[51] and the Rule should equally apply with full force to forcible entry
cases, in which possession of the premises is already illegal from the start. [52] For this reason,
the Rule frowns upon delays and prohibits altogether the filing of motions for extension of
time. Consistently, Section 6 was added to give the trial court the power to render judgment,
even motu proprio, upon the failure of a defendant to file an answer within the reglementary
period.[53] However, as forcible entry and detainer cases are summary in nature and involve
disturbances of the social order, procedural technicalities should be carefully avoided [54] and
should not be allowed to override substantial justice.[55]
Pursuant to Section 36[56] of BP 129,[57] the Court on June 16, 1983, promulgated the Rule
on Summary Procedure in Special Cases.[58] Under this Rule, a motion to dismiss or quash is a
prohibited pleading. Under the 1991 Revised Rule on Summary Procedure, however, [59] a
motion to dismiss on the ground of lack of jurisdiction over the subject matter is an exception to
the rule on prohibited pleadings:

SEC. 19. Prohibited pleadings and motions. The following pleadings, motions, or
petitions shall not be allowed in the cases covered by this Rule:
(a)

Motion to dismiss the complaint or to quash the complaint or

information except on the ground of lack of jurisdiction over the subject
matter, or failure to comply with the preceding section;
xxx

xxx

x x x

Further, a courts lack of jurisdiction over the subject matter cannot be waived by the
parties or cured by their silence, acquiescence or even express consent. [60] A party may assail
the jurisdiction of the court over the action at any stage of the proceedings and even on
appeal.[61] That the MTCC can take cognizance of a motion to dismiss on the ground of lack of
jurisdiction, even if an answer has been belatedly filed we likewise held in Bayog v. Natino:[62]

The Revised Rule on Summary Procedure, as well as its predecessor, do not provide that an
answer filed after the reglementary period should be expunged from the records. As a matter
141

of fact, there is no provision for an entry of default if a defendant fails to answer. It must
likewise be pointed out that MAGDATOs defense of lack of jurisdiction may have even
been raised in a motion to dismiss as an exception to the rule on prohibited pleadings in the
Revised Rule on Summary Procedure. Such a motion is allowed under paragraph (a) thereof,
x x x.
In the case at bar, the MTCC should have squarely ruled on the issue of jurisdiction,
instead of erroneously holding that it was a prohibited pleading under the Rule on Summary
Procedure.[63]Because the Complaint for forcible entry was filed on July 10, 1992, the 1991
Revised Rule on Summary Procedure was applicable.
Finally, the MTCC should have taken into account petitioners Answer,[64] in which she
averred that she had been in constant occupation on said land in question since birth on
March 17, 1941 up to the present, being an heir of the late Emiliana Eva-Bongato, who
inherited said property from her father Raymundo Eva with considerable improvements
thereon. It should have heard and received the evidence adduced by the parties for the
precise purpose of determining whether or not it possessed jurisdiction over the subject
matter.[65] And after such hearing, it could have dismissed the case for lack of jurisdiction. [66] In
this way, the long, drawn out proceedings that took place in this case could have been
avoided.[67]
WHEREFORE, the Petition is GRANTED and the assailed Decision ANNULLED and SET
ASIDE. The Complaint for forcible entry is DISMISSED for lack of jurisdiction. No
pronouncement as to costs.
SO ORDERED.

CAGAYAN DE ORO CITY LANDLESS RESIDENTS ASSOCIATION INC.

(COCLAI), Macabalan, Cagayan de Oro City, petitioner, vs. COURT OF
APPEALS
and
the
NATIONAL
HOUSING
AUTHORITY
(NHA), respondents.
DECISION
HERMOSISIMA, JR., J.:

This is a petition to set aside the decision of the Court of Appeals,

dated February 28, 1991, in C.A. G.R. SP No. 23080, which reversed the decision
of the Regional Trial Court of Cagayan de Oro City, Branch 25, dated November 17,
1988.
The antecedent facts as found by the Court of Appeals are as follows:
The land subject of the dispute is Lot No. 1982 of Cad. 237 consisting of about
12.82 hectares located at Cagayan de Oro City. Said parcel of land was formerly a
timberland identified as Block No. F, L.C. Project No. 8 of the Bureau of Forestry.
On September 4, 1956, the Bureau of Forestry released the said land as alienable
and disposable public land.
Subsequently, on January 29, 1964, the Bureau of Lands issued Survey
Authority No. 16-64 granting authority to the COCLAI to survey the land in question
for purposes of subdivision into residential lots. By virtue of said authority, the
COCLAI engaged the services of a geodetic engineer to prepare the subdivision
survey which was submitted to the Bureau of Lands. On March 31, 1964, the
Bureau of Lands, after conducting an ocular survey, required the COCLAI, in behalf
of its members, to file a miscellaneous Sales Application over the land in question
which the latter did on August 13, 1970. The said sales application was however
142

held in abeyance by the Bureau of Lands pending the final outcome of the civil case
filed by the Republic of the Philippines and the City of Cagayan de Oro against
Benedicta Macabebe Salcedo, et al. for the annulment of Original Certificate of Title
No. 0-257 covering the land in question then pending before the Supreme Court
docketed as G.R. No. L-41115. In said case, the COCLAI was a party-intervenor.
Meanwhile, on August 22, 1979, the NHA filed an expropriation proceeding
before the former Court of First Instance of Misamis Oriental at Cagayan de Oro
City docketed as Civil Case No. 6806 to acquire Cadastral Lot No. 1982, including
the land involved in this case, located at Macabalan, Cagayan de Oro City with an
area of 224,554 square meters which was then covered by OCT No. 0-257. In said
case, the COCLAI intervened claiming that instead of being paid the amount of
P300,000.00, they prefer to acquire residential lots in any housing area of NHA.
Upon learning of the pending suit before the Supreme Court (G.R. No. L-41115)
involving the annulment of the title over the same land, the NHA sought the
suspension of the expropriation proceedings.
On September 11, 1982, the Supreme Court finally resolved G.R. No. L-41115
annulling OCT No. 0-257 and declaring the land covered thereby as public land.
On October 8, 1982, the Solicitor General furnished the Bureau of
Lands, Manila, with a copy of the Supreme Court decision prompting the Director of
the Bureau of Lands to order the District Land Officer in Cagayan de Oro City to
take appropriate action for inventory of each and every portion of Cadastral Lot No.
1982. In response thereto, the Regional Land Director of Region 10 informed the
Director of Lands that the members of COCLAI were occupying portions of the said
lot by virtue of the Survey Authority issued on March 19, 1964 and the COCLAIs
subdivision survey had already been submitted to the Central Office for verification
and approval but was held in abeyance.
On May 10, 1983, the President of the Philippines issued Proclamation No. 2292
reserving the entire area of Cadastral Lot No. 1982 for the Slum Improvement and
Resettlement (SIR) Project to be implemented by the NHA. Under the said
proclamation, the NHA was granted the authority to develop, administer and
dispose of Lot No. 1982 located at Macabalan, Cagayan de Oro City, in accordance
with the guidelines of the Slum Improvement and Resettlement Program and the
approved development plan of the area.
On May 19, 1983, the Bureau of Lands, through its Regional Director, issued an
order rejecting the subdivision survey previously submitted by the COCLAI.
Sometime in November, 1986, the NHA, through its agents, Virgilio Dacalos and
Engr. Vicente Generalao, the area manager and project engineer, respectively with
the help of the policemen and claiming authority under P.D. 1472, demolished the
structures erected by the COCLAI members. This action prompted the COCLAI to
file a forcible entry and damages case against the NHA employees and police
officers with the Municipal Trial Court in Cities, Branch 3, Cagayan de Oro City
docketed as Civil Case No. 11204.
After due hearing, the MTCC on November 17, 1988 rendered judgment
ordering the defendants in Civil Case No. 11204 to restore the COCLAI members to
their respective actual possession of the portions of Lot No. 1982 but the court
dismissed plaintiffs claim for damages. On appeal, the Regional Trial Court in
Cagayan de Oro City affirmed the decision of the lower court. Thereafter, the
prevailing party, the COCLAI members, moved for the issuance of a writ of
execution before the MTCC on July 23,1990.
143

While Civil Case No. 11204 was pending before the courts, the President of the
Philippines issued on July 1, 1988 Special Patent No. 3551 covering the entire area
of Cadastral Lot No. 1982, and by virtue thereof, the Register of Deeds of Cagayan
de Oro City issued on January 3, 1990 an Original Certificate of Title No. P-3324 in
the name of NHA.
Thus, on July 24, 1990, a day after the COCLAI moved for the execution of the
judgment in Civil Case No. 11204, the NHA filed a complaint for Quieting of Title
with Application for a Writ of Preliminary Injunction against the COCLAI and its
president, Pablo Solomon, as well as the City Sheriff, which was docketed as Civil
Case No. 90-337. Said case was assigned to Branch 25 of the Regional Trial Court
in Cagayan de Oro City, presided over by Hon. Noli T. Catli. In its complaint, plaintiff
NHA alleged:
4) That defendant landless association laid claim of a portion of Lot No. 1982 aforestated
alleging that they are entitled to possession thereof and, in fact, filed a complaint for Forcible
Entry against certain Virgilio Decalos, Vicente Generalao, and four (4) others, plaintiff
herein not being made a party thereto, which case is docketed as Civil Case No. 11204
assigned to Branch 3 of the Municipal Trial Court of Cagayan de Oro City;
5) That on November 18, 1988 defendant landless association obtained a favorable
decision from MTCC Branch 3;
6) That pursuant to the ruling of the Supreme Court in City of Bacolod et al. vs. Hon.
Enriquez et al., G.R. No L-9773, May 29, 1957 the said decision could not be enforced
against plaintiff herein as it was not a party to the said case;
7) That the claim of defendant landless association for possession of a portion of said Lot
No. 1982, subject-matter hereof, is predicated or anchored upon the fact that said lot was
declared a public land;
8) That on January 3, 1990, however, plaintiff National Housing Authority became the
absolute owner of said Lot No. 1982, now the site of the Slum Improvement and
Resettlement Project, by virtue of Special Patent No. 3551 issued by Her Excellency, the
President of the Philippines, for which Original Certificate of Title No. P-3324 was issued in
its name; x x x
9) That the claim of defendant landless association has created a cloud on plaintiffs title
to Lot No. 1982 aforementioned, which claim is apparently valid or effective but is in truth
and in fact invalid, ineffective and unenforceable and prejudicial to plaintiffs title, the land,
subject-matter hereof, having ceased to be a public land;
10) That defendants Solomon, et al. threatened or are about to enforce the decision in said
Civil Case No. 11204 in violation of plaintiffs rights respecting the subject of the action,
and tending to render the judgment herein ineffectual, unless restrained or enjoined by this
Honorable Court;
11) That the plaintiff is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission of the act herein complained of;
12) That the commission of the act herein complained of during the litigation would
probably work injustice to the plaintiff;
13) That the plaintiff is willing and ready to file a bond executed to the defendants in an
amount to be fixed by this Honorable Court, to the effect that the plaintiff will pay to said
144

defendants all damages which they may sustain by reason of the injunction if the Court
should finally decide that the plaintiff was not entitled thereto.
Acting on the plaintiffs prayer for the issuance of a restraining order and/or preliminary
injunction, the Regional Trial Court issued an Order on July 24, 1990 stating thus:
x x x let a RESTRAINING ORDER be issued to Defendants Pablo Salomon and Cagayan
de Oro Landless Association, Inc. and the City Sheriff or Deputy Sheriff of MTCC, Branch
3, or anybody acting in their behalf or acting as their agent or representative. And until
further orders from this court, they are enjoined to refrain or desist from enforcing the
decision of Civil Case No. 11204 until this court resolves this complaint.
Subsequently, the defendants moved to dismiss the complaint stating, among others, as a
ground therefor that the cause of action is barred by a prior judgment in another case.
(Apparently, the NHA has filed an action for Injunction with Damages against COCLAI
and its President before the Regional Trial Court, Branch 17, Cagayan de Oro City docketed
as Civil Case No. 89-399 to prevent the MTCC from executing its decision in Civil Case No.
11204, but this was dismissed by the Regional Trial Court in its Order dated July 19, 1990
on the ground that the decision of the MTCC in Civil Case No. 11204, had been upheld by
the Supreme Court when it denied NHAs petition for certiorari. The RTC, Branch 17,
further stated that x x x (I)f plaintiff believes that it is the owner of the property subject of
that civil case (No. 11204), then it should ventilate its claim in some other case but not in a
simple case of injunction.)
On August 10, 1990, the Regional Trial Court in Civil Case No. 90-337 issued an Order
denying the motion to dismiss as well as plaintiff NHAs prayer for the issuance of a
preliminary injunction to restrain the enforcement of the decision in Civil Case No.
11204. The motion for reconsideration filed by plaintiff NHA was likewise denied by the
Regional Trial Court in its Order dated August 17, 1990.
[1]

Aggrieved by the decision of the Regional Trial Court, the NHA appealed to the Court of
Appeals which reversed the decision of the lower court. The decretal portion of the said
decision, reads:
WHEREFORE, the instant petition for certiorari is GRANTED the questioned Orders of
respondent judge are hereby declared null and void and respondent judge is ordered to issue
a writ of preliminary injunction to respect the possession of the petitioner over the land
subject of the dispute x x x
[2]

Hence, this petition.

The issues raised by petitioner are: whether or not the Court of Appeals erred in
ruling (a) that the National Housing Authority (NHA) is entitled to the injunction
prayed for; and (b) that NHA has a better right to the possession of Lot No. 1982, as
a necessary consequence of ownership.
As an extraordinary remedy, injunction is calculated to preserve or maintain
the status quo of things and is generally availed of to prevent actual or threatened
acts, until the merits of the case can be heard. As such, injunction is accepted as
the strong arm of equity or a transcendent remedy to be used cautiously, as it
affects the respective rights of the parties, and only upon full conviction on the part
of the court of its extreme necessity. Its issuance rests entirely within the discretion
of the court taking cognizance of the case and is generally not interfered with except
in cases of manifest abuse. Moreover, it may only be resorted to by a litigant for the
[3]

[4]

[5]

145

preservation or protection of his rights or interests and for no other purpose during
the pendency of the principal action.
[6]

Before an injunction can be issued, it is essential that the following requisites be

present: 1) there must be a right in esse or the existence of a right to be protected;
and 2) the act against which the injunction is to be directed is a violation of such
right. Hence, it should only be granted if the party asking for it is clearly entitled
thereto.
[7]

[8]

In the case at bench, the Court of Appeals was justified in ruling that NHA was
entitled to the writ of injunction. The reason is that, while Civil Case No. 11204 for
forcible entry was pending on appeal before the Regional Trial Court, Special Patent
No. 3551 was issued by then President Corazon Aquino which covered the lot
subject of the dispute and by virtue thereof, an Original Certificate of Title in the
name of NHA was issued by the Register of Deeds of Cagayan de Oro City on
January 3, 1990. So, when petitioner moved for the issuance of a writ of execution
before the MTCC on July 23, 1990, a certificate of title had already been issued to
NHA. In view of this intervening development, NHA filed a complaint for quieting of
title before the Regional Trial Courtof Cagayan de Oro City. Thus, it was only
proper for the Court of Appeals to direct the Regional Trial Court, where Civil Case
No. 90-337 was pending, to grant the writ of preliminary injunction to restrain the
enforcement of the decision of the MTCC in Civil Case No. 11204 as there was a
material change in the status of the parties with regard to the said land. Clearly, the
government, through the NHA will be prejudiced by the impending enforcement of
the decision in Civil Case No. 11204 which directs the said agency to restore the
members of petitioner to their respective possession on portions of Lot No. 1982.
[9]

Petitioner claims that Special Patent No. 3351 issued by then President Corazon
Aquino on July 1, 1988 and the corresponding issuance by the Register of Deeds of
Original Certificate of Title No P-3324 in the name of NHA had entrusted only the
administration of the disputed lot to the said agency but not the ownership thereof It
also alleges that, by virtue of Proclamation No. 2290, issued on May 10, 1985,
declaring the land situated at Barrio Macabalan, Cagayan de Oro City, as Slum
Improvement Settlement (SIR) area, it is illegal for NHA to claim ownership over the
said land. Furthermore, petitioner also claims that respondent Court overlooked the
fact that the issues on ownership and possession are sub-judice before RTC,
Branch 25, Cagayan de Oro City in Civil Case ;No. 90-337 x x x Hence, it
concludes that the appellate court cannot pass upon these issues as there is still no
final judgment on said civil case.
[10]

Petitioners contentions are bereft of merit.

The Original Certificate of Title (No. P-3324) issued to respondent NHA serves
as a concrete and conclusive evidence of an indefeasible title to the
property. Accordingly, once a decree of registration is issued under
the Torrens systems and the one year period from the issuance of the decree of
registration has lapsed, without said decree being controverted by any adverse
party, the title becomes perfect and cannot later on be questioned.
[11]

Furthermore, in the case at bench, the original certificate of title was issued by
the Register of Deeds, under an administrative proceeding pursuant to Special
Patent No. 3551. Thus, it is as indefeasible as a certificate of title issued under a
judicial registration proceeding as the land covered by said certificate is a
disposable public land within the contemplation of the Public Land Law. Moreover,
the said certificate of title was not controverted by petitioner in a proper proceeding
nor did it show that the issuance of the Original Certificate of Title by the register of
deeds to NHA was tainted with bad faith or fraud. Hence, said certificate of title
[12]

146

enjoys the presumption of having been issued by the register of deeds in the regular
performance of its official duty.
[13]

Also, OCT No. P-3324 issued in the name of respondent NHA, clearly states:
TO HAVE AND TO HOLD, the said parcel of land with all the appurtenances thereunto
of right of belonging unto the NATIONAL HOUSING AUTHORITY and to its successors-ininterest or assigns forever, subject to private rights, if any there be.
[14]

Clearly the certificate of title vested not only ownership over the lot but also the
right of possession as a necessary consequence of the right of ownership.
Respondent is not merely the administrator of the said lot. It cannot be denied
that Proclamation No. 2290 gave authority to the NHA to dispose of Lot No.
1982. In the said Proclamation the President of the Philippines granted to NHA the
authority to develop, administer and dispose of Lot No. 1982, located at
Macabalan, Cagayan de Oro City, in accordance with the guidelines of the Slum
Improvement and Resettlement Program and the approved development plan of the
area.
On the other hand, petitioners only basis for claiming the disputed lot is lawful
entry and possession for an extended period of time and, as a matter of fact, there
is a final judgment in its favor in the case for forcible entry before the MTCC. As to
this, settled is the rule that, in an action for forcible entry, the only issue involved is
mere
physical
possession (possession
de
facto) and
not
juridical
possession (possession de jure) nor ownership As the case filed before the lower
court is only one for forcible entry, it is indicative that the legal title over the said
property is not disputed by the petitioner. There has been no assertion of ownership
over the land, only that of prior possession. At any rate, the judgment rendered in
the ejectment case is effective only with respect to possession and in no wise bind
the title or affect the ownership of the land.
[15]

[16]

Indeed, petitioner has no legal leg to stand as regards ownership because its
Miscellaneous Sales Application was not acted upon nor favorably considered by
the Bureau of Lands. The Bureau, through its Regional Director, rejected the
subdivision survey previously submitted by COCLAI, in an Order, dated May 19,
1983.
In effect, petitioners occupation of the land in question, after the denial of its
application
for
Miscellaneous
Sales
Patent,
became
subsequently
illegal. Petitioners members have, as a consequence, become squatters whose
continuous possession of the land may now be considered to be in bad faith. This is
unfortunate because squatters acquire no legal right over the land they are
occupying.
[17]

Although as a general rule, a court should not, by means of a preliminary

injunction, transfer property in litigation from the possession of one party to another,
this rule admits of some exceptions. For example, when there is a clear finding of
ownership and possession of the land or unless the subject property is covered by a
torrens title pointing to one of the parties as the undisputed owner. In the case at
bench, the land subject of the suit is covered by a torrens title under the name of
NHA.
[18]

A writ of injunction should issue so as not to render moot and academic any
decision which the Regional Trial Court in Civil Case No. 90-337 will render and in
order to prevent any irreparable injury which respondent may sustain by virtue of the
enforcement of the decision of the MTCC.
147

WHEREFORE, the petition is DISMISSED. The decision of the Court of

Appeals in C.A. G.R. SP No. 23080 is AFFIRMED.
SO ORDERED.
Padilla, Bellosillo and Vitug, JJ., concur.
Kapunan, J., took no part. Participated in the C.A. decision appealed from.

[G.R. No. 142546. August 9, 2001]

HEIRS OF ANASTACIO FABELA, namely; Teodula Fabela Paguidopon, Ricardo

Fabela, Irenita Fabela Zea(d), Carolina Fabela Arazo Donglas, and
Ampiloquio Fabela, petitioners, vs. HON. COURT OF APPEALS, HEIRS OF
ROQUE NERI, namely: Roque Neri, Jr., Filomeno, Sherlina, Emeterio,
Antonio, Nelcar and Claudia, all surnamed Neri, respondents.
DECISION
GONZAGA-REYES, J.:

Petitioners, heirs of Anastacio Fabela, seek to annul the (1) decision of the respondent Court of
Appeals dated June 17, 1999[1] which reversed and set aside the appealed judgment by default of the
Regional Trial Court of Misamis Oriental, Branch 18, Cagayan De Oro City[2] in Civil Case No.
10459 declaring petitioners as the rightful owners of subject lot 868 of the Pls. 293 of Balacanas,
Nabacaan, Villanueva, Misamis Oriental, and (2) its resolution dated February 18,[3] 2000 denying
petitioners motion for reconsideration.
Sometime in December 1985, the heirs of Anastacio Fabela filed a complaint for reconveyance and
damages against the heirs of Roque Neri, Sr., involving the subject lot 868, alleging among others, that
plaintiffs late grandfather, Anastacio Fabela, left two parcels of land in Nabacaan, Misamis Oriental
which were later identified as lot 868 with an area of 48,121 sq. meters and lot 870 consisting of 15,658
sq. meters which originally formed part of their grandfathers big tract of land; that earlier in 1924, the
parcel of land became the subject of litigation (Civil Case No. 2891) in the then Court of First Instance
of Misamis Oriental between Carmelino Neri as plaintiff and Simeona Balhon and children heirs of
Anastacio Fabela as defendants and in connection therewith, the parties entered into an agreement
embodied in an Escritura de transaccion, a notarized document in a Visayan dialect, which provided
that Carmelino Neri, as vendee-a-retro had been entrusted with the possession of a parcel of land for a
period of fourteen (14) years from the date of the instrument which was May 10, 1924 and upon the
expiration of said period, Carmelino Neri was to restore the possession of the property to Simeona
Balhon and her children-heirs of Anastacio Fabela, without need of redemption; that sometime in
1977 or 1978, the Bureau of Lands conducted a cadastral survey on this land when a road (Barrio
Abacan road) was constructed across the land dividing it into two separate lots which are now known as
lot 868 and 870; that Roque Neri Sr. declared these two parcels of land in his name with the Bureau of
Lands and the Assessors office; that sometime in 1980, the Philippine Veterans Industrial Development
Corporation (PHIVIDEC), a government entity buying substantially all real properties at Nabacaan,
Villanueva, Misamis Oriental, negotiated with Roque Neri Sr. for the purchase of lot 870, however, the
heirs of Anastacio Fabela, protested and consequently, Roque Neri Sr. executed a waiver of rights over
a portion of lot 870 stating that the 8,000 sq. meter portion of lot 870 was erroneously included in his
name, thus plaintiff heirs of Anastacio Fabela eventually received the proceeds of the sale; that with
respect to lot 868, which was the lot in controversy, the late Roque Neri Sr. continued to ignore
plaintiffs demand for the return of the said lot. Plaintiffs prayed for judgment declaring (1) the plan of
lot 868, Pls-293 and the tax declarations issued subsequent to and by virtue of aforesaid plan as null
and void, (2) the heirs of Anastacio Fabela as the lawful owners of lot 868, and (3) the estate of Roque
Neri Sr. liable for payment of damages.
148

Upon motion of plaintiffs heirs of Anastacio Fabela, defendants Sherlinda Neri Jamisolamin,
Emeterio Neri and Antonio Neri, were declared in default on April 14, 1986, Filomena Neri on
September 26, 1986 while Nelchar and Claudia Neri on February 9, 1989, for their failure to file answer
despite receipt of summons and copy of the complaint. On the other hand, defendant Roque B. Neri, Jr.
had filed his answer with Counterclaim, but was likewise declared in default for failure to appear at pretrial on August 12, 1988.
The case was submitted for decision on the basis of plaintiffs evidence since all the defendants
were declared in default. After trial and hearing ex-parte, the trial court rendered judgment in favor of
plaintiffs, the dispositive portion reads:[4]

WHEREFORE, in view of the foregoing, judgment is rendered in favor of the heirs of the
late Anastacio Fabela including those named in the Complaint as plaintiffs, as co-owners of
lot 868, Pls-293 subject of the complaint and as indicated in the plan (Exhibit D), as such
entitled to the full enjoyment and possession thereof. All other prayers or claims in the
complaint are denied for lack of merit.
In finding that the property belonged to the heirs of Anastacio Fabela, the trial court concluded that
in the Escritura de Transaccion, Carmelino Neri was obliged to restore the subject property in or
about 1938 to the heirs of Anastacio Fabela; thus the fulfillment of that prestation of Carmelino Neri
was presumed under Section 5, par (ii), Rule 131, Rules of Court which enumerates among the
disputable presumptions that a trustee or other person whose duty it was to convey real property to a
particular person has actually conveyed it to him when such presumption is necessary to perfect the title
of such person or his successor-in interest. It thus found that the Fabela heirs have been in possession
of lot 868 since 1938 up to the present and as such were entitled to the full enjoyment and possession as
owners thereof.
On July 24, 1989, defendants heirs of Roque Neri Sr. filed a motion to set aside orders of default
and judgment which the trial court denied in an Order dated August 22, 1989, on the grounds that the
motion had been filed out of time (after judgment) and that even if such motion would be treated as a
motion to set aside judgment/new trial under Section 1, Rule 37, Rules of Court, defendants negligence
was not excusable, much less a mistake.[5]
Heirs of Roque Neri Sr. appealed to the respondent Court of Appeals. Considering, however, that
the original records of the case from the trial court had been lost or misplaced, the respondent court,
pursuant to Rule 7 of the Revised Internal Rules of the Court of Appeals (RIRCA), set the case for
preliminary conference on December 17, 1998, which was reset to January 26, 1999, and the parties
were informed of the loss of the original records of the case. Counsel for defendants-appellants heirs of
Roque Neri Sr. manifested her clients willingness to submit the case for decision, even without the
original records and asked for thirty days to file memorandum, to which manifestation counsel for
plaintiffs-appellees heirs of Fabela interposed no objection. The respondent court granted appellants
prayer and gave plaintiffs-appellees twenty days to file their counter memorandum and appellants ten
(10) days to file reply memorandum, after which the case was submitted for decision.[6]
On June 17, 1999, the respondent Court of Appeals rendered its assailed decision reversing the trial
courts judgment by default and dismissed the complaint. It sustained the trial courts declaration of
default against appellants heirs of Roque Neri, Sr. but found that the judgment of default was contrary to
the evidence or the law. It concluded that petitioners had not successfully adduced the required
preponderance of evidence on their claim of absolute ownership over lot 868, the court stated:[7]

Art. 434 of the Civil Code states that In an action to recover, the property must be
identified, and the plaintiff must rely on the strength of his title and not on the weakness of
the defendants claims. The possessor of the property has the presumption of title in his
favor. Hence, any person who claims that he has a better right to the property, as owner
thereof, must prove (1) that he has a better title than the defendant to the property, and (2)
the identity of the property. The identity of the land sought to be recovered may be
established through the survey plan of the property. Ownership may be proved by any
evidence admissible in law, such as titles and certificates, long possession and tax
declarations or receipts.
149

Appellees claimed that Lots 868 and 870 are owned by their grandfather Anastacio
Fabela. The records of the Bureau of Lands, as well as the survey plan presented in court,
however, indicate Roque Neri, Sr. as the registered claimant of both lots. The original of
the Escritura de Transaccion on which appellees relied heavily, was not presented in
court. Its probative value, however, remains doubtful since said document does not really
prove appellees absolute ownership of the subject property, nor was Lot 868 explicitly
referred to as the property being entrusted to the vendee-a-retro (Carmelino Neri).
On the other hand, the waiver of rights executed in 1980 by Roque Neri, Sr. appears to refer
only to a portion of Lot 870 (the parcel of land sold to PHIVIDEC), and not to Lot 868. The
old tax declaration presented by appellees and which supposedly covered the two (2) lots did
not specify the lot number, nor was there any evidence presented that the original parcel of
land actually consisted of eighteen (18) hectares. Their allegation that both lots have already
been partitioned among the heirs of Anastacio Fabela was not substantiated by any document
or writing evidencing such extra-judicial partition. The fourteen (14) years of the agreed
temporary possession of the land by the defendants-appellants had lapsed a long time ago,
and this was prior to the 1971 public survey conducted by the Bureau of Lands. It appears
appellees did not exert diligent efforts to regain possession or resume paying taxes on the
land thereafter, prior to the purchase of Lot 870 by PHIVIDEC. The fact that appellees were
the ones paid by PHIVIDEC for the portion of Lot 870 does not automatically lead to the
conclusion that they also absolutely own Lot 868. Most significant yet, is appellees failure
to adequately explain why they had not at all registered their claim over the property with
the Bureau of Lands during and after the public survey in the municipality.
Roque Neri, Sr., appellants predecessor-in-interest, meanwhile registered his claim or
interest on the land and declared it for taxation purposes. Appellees claim of possession
was through the lands caretaker and administrator, Delfin Sia, but at the same time
admitting that appellants similarly benefit from the fruits of the land. Regarding tax
declarations, it has been held that while tax declarations and receipts are not conclusive
evidence of ownership, yet, when coupled with proof of actual possession, they are strong
evidence of ownership. Thus, where it was shown that plaintiff has never paid the land tax,
while the defendant has faithfully done so for many years, there being no explanation
offered, it was held that such payment of taxes should be taken into consideration in favor of
defendant. Being the exclusive possessors of the subject property who have declared the
same for tax purposes through the years, defendants-appellants are entitled to such favorable
presumption of ownership which so far had not been overturned by plaintiffs-appellees.
The foregoing considered, it is clear that plaintiffs had not successfully proved by the
required preponderance of evidence their claim of absolute ownership of Lot 868. It is an
invariable rule laid down in numerous decisions, that a person who claims the ownership of
property is in duty bound to clearly identify the land claimed, in accordance with the titles on
which he founds (sic) his right to ownership, and he shall not be permitted to rely upon the
defects in defendants title. Failure to prove his right of ownership will bar an action to
recover the property; his right to recover must be founded on positive title or right, and not
merely on negative ones, such as the lack or insufficiency of title on the part of the
defendant. The possessor has a presumption of title, and unless the plaintiff proves he has a
better right, he cannot recover the property from the defendant.
Appellees motion for reconsideration was denied in a resolution dated February 18, 2000.
Hence this petition for review on certiorari filed by the heirs of Anastacio Fabela alleging that the
respondent court (1) departed from the stringent jurisprudence on default and appeals filed out of time
and (2) erred in the appreciation of the findings of fact of the lower court.
Anent the first assigned error, petitioners fault the respondent court for reversing the decision of the
trial court despite its complete agreement with the findings of the trial court that respondents were
150

properly declared in default. They contend that the reasons cited by private respondents for their failure
to file answer and to appear at the pre-trial were not meritorious and that private respondents affidavit
attached to the motion for reconsideration did not declare how Roque Neri Sr. acquired lot 868.
We are not persuaded.
Section 1, Rule 18[8] of the old Rules of Court which is the law applicable in the instant case
provides:

Judgment by default- If the defendant fails to answer within the time specified in these
rules, the court shall, upon motion of the plaintiff and proof of such failure, declare the
defendant in default. Thereupon, the court shall proceed to receive the plaintiffs evidence
and render judgment granting him such relief as the complaint and the facts proven may
warrant. This provision applies where no answer is made to a counterclaim, cross-claim, or
third-party complaint within the period provided in this rule.
Favorable relief can be granted only after the court has ascertained that the evidence offered and the
facts proven by the presenting party, petitioners in this case, warrant the grant of the same. [9] In this
sense, the law gives the defaulting parties some measure of protection because plaintiffs, despite the
default of defendants, are still required to substantiate their allegations in the complaint. The judgment
of default against defendants who have not appeared or filed their answers does not imply a waiver of
all their rights, except their right to be heard and to present evidence to support their
allegations.[10] Otherwise, it would be meaningless to require presentation of evidence if every time the
other party is declared in default, a decision would automatically be rendered in favor of the nondefaulting party and exactly according to the tenor of his prayer.[11] Since the trial court rendered a
judgment of default against private respondents, the latter took the appropriate remedy which is an
ordinary appeal under Section 2 Rule 41, par (3)[12], of the Rules of Court providing in part as follow:

A party who has been declared in default may likewise appeal from the judgment rendered
against him as contrary to the evidence or to the law, even if no petition for relief to set aside
the order of default had been presented by him in accordance with Rule 38.
Thus, notwithstanding the respondent courts complete agreement with the trial courts findings that all
the respondents were properly declared in default, it found that the judgment by default was contrary to
the evidence or the law and thus reversed the trial court decision.
Anent the second error, petitioners claim that the respondent court erred in concluding that
petitioners predecessor Roque Neri, Sr. appeared as the registered claimant of lot 868 and 870 which
was contrary to the findings of the trial court that the plan showing lot 868 (Exh. D-2) and lot 870
(Exh. D-1) although appearing to have been approved by Jose F. Gatus, OIC, Regional Director, on July
17, 1986 does not on its face indicate for whom it had been approved; that Neri Sr. failed to produce
evidence of ownership on how he acquired the subject Lot No. 868. They further claim that the
execution in their favor by Roque Neri Sr. of a waiver of right over lot 870 where the former
acknowledged the erroneous inclusion of the lot in his name was a strong admission against interest on
Neris part. They also contend that the respondent court erred in doubting the probative value of the
Escritura de Transaccion only for the reason that the original was not presented in court.
These arguments essentially raise factual issues which normally are not reviewable by this Court in
a petition under Rule 45 which is generally limited only to question of law.[13] While certain exceptions to
this rule are recognized such as when the factual findings of the respondent Court of Appeals are at
variance with those of the Regional Trial Court, the Court does not, in all cases of disagreement of facts
between these two courts, automatically delve into the record to determine the facts for
itself.[14] Admittedly, there have been instances when this Court made independent findings of fact on the
points that the trial court and the appellate court disagreed but we did not do so as a matter of course.
When the dispute between the two courts are merely on probative value, we limit our review of the
evidence ascertaining if the findings of the Court of Appeals are supported by the record. And, so long
as the findings of the said court are consistent with, or not palpably contrary to, the evidence on record,
we decline to make a review on the probative value of the evidence.[15] In the instant case, We find no
cogent reason to disturb the factual findings of the respondent court and its conclusion that petitioners
failed to establish their case by preponderance of evidence.
151

The invariable applicable rule is to the effect that in order to maintain an action for recovery of
ownership, the person who claims that he has a better right to the property must prove not only his
ownership of the property claimed but also the identity thereof.[16] The party who desires to recover must
fix the identity of the land claimed by describing the location, area and boundaries thereof.[17]
In the instant case, petitioners based their claim of ownership on the 1924 Escritura de
Transaccion, the original copy of which was not presented in the trial court, while the photocopy was
also lost when the original records were elevated to the respondent court. This was the only piece of
evidence that would establish petitioners ownership and the identity of subject lot 868. In ruling for
petitioners heirs of Anastacio Fabela as the absolute owners of lot 868, the trial court found that in the
Escritura, it appears that the portion which is now identified as lot 868 had been entrusted to the
possession of Carmelino Neri, as vendee-a retro, for a period of 14 years from the date of the instrument
which was May 10, 1924 and upon the expiration of which said Carmelino Neri was to restore the
possession of the property to Simeona Balhon and her children heirs of Anastacio Fabela, namely Petra
Buenaventura, Julio and Pedro, all surnamed Fabela, without need of redemption, and that
fulfillment of Neris obligation was presumed to have taken place. We note, however, that nowhere in
the trial courts narration of facts were the boundaries of the parcel of land indicated with particularity,
nor the parcel of land referring to as lot 868. What really defines a piece of land is not the area
mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating
its limits.[18]
Moreover, the testimony of petitioner heir Teodula Fabela Paguidopon which was quoted in part in
petitioners own memorandum[19] did not also clearly establish the relation of the said Escritura de
Transaccion to lot 868, to wit:
Q: Now, that bigger lot has the cadastral lot number before?
A:

No because that was not yet surveyed.

Q:

Do you know who owns this lot?

A:

Our grandfather Anastacio Fabela.

Q:

Now while it was still in the hands of Anastacio Fabela while he was still alive, do you know what was
the total area of the mother lot?

A:

Yes, it was estimated by our father and we estimated it to be 18 hectares.

Q:

Do you have evidence to prove that it was indeed 18 hectares?

A:

Yes, maam.

Q:

I am showing to you an old document but only a xerox copy thereof entitled escritura de transaccion
notarized by Uldarico Akut in the year 1924, kindly take a look and see where is the 18 hectares which
you have just mentioned?

A:

This one.

xxxxxxx
ATTY. LLEGO:
x x x We will have this marked as our Exhibits A, A-1 to A-3.

xxxxxxx
(TSN of 2/9/89 pages 16 to 18 (topmost)
COURT:
Plaintiff is ordered to prepare the English translation of that document.

xxxxxxx
(TSN of 2/9/89 page 18)
ATTY. LLEGO: (continuing)
Q:

You have pointed this portion as your basis for saying that the area is 18 hectares. Now kindly read this
paragraph on the description of the land for purposes of record.
(witness is ready (sic)
Which, we pray that that portion being read into the record by witness be marked as our Exhibit A-4.
152

COURT:
Mark it. (page 18 bottom to page 19 middle portion of the page).

Unfortunately, the description of the eighteen (18) hectare land which should had been read and
incorporated into the transcript for purposes of record, was omitted in the quoted portion, to establish the
exact location, area and boundary of the 18 hectare lot in relation to lot 868. The omission has created
serious doubts as to the specific identity of the lot which petitioners sought to recover. Moreover, even
in the petitioners complaint filed before the trial court, there was no allegation of the metes and bounds
of the subject lot, the complaint reads:

3) a. That the grandfather of plaintiffs-the late Anastacio Fabela, had left among others, the
following property, to wit:
a) Lot 870
Area:15,658 sq. m.
Location: Nabacaan, Misamis Oriental
b) Lot 868
Area: 48, 121 sq.m.
Location: Nabacaan, Misamis Oriental

b. That the above described parcels of land are adjacent to each other as shown by a
photocopy of the sketch plan from the Bureau of Lands hereto enclosed and marked as
Annex B;
c. That these two parcels since time immemorial used to be one big parcel of land, until in
1977 or 1978, when a government cadastral survey in Villanueva, Misamis Oriental, was
undertaken by the Bureau of Lands, wherein a road was provided and made to appear across
the big parcel of land, causing it to be divided physically and for which the government
surveyors assigned two lots numbers for what used to be one big parcel of land, thus the
appearance of Lot 870 and Lot 868; This once one big chunk of land never had a cadastral
number in the past;
Notably, the total area of lots 868 and 870 would only be about 63,679 sq. meters or about six (6)
hectares which fails to correspond to the eighteen (18) hectare parcel of land allegedly owned by the
late Anastacio Fabela which was the subject of the Escritura de Transaccion and testified to by
Teodula Fabela Paguidopon. Petitioners failed to identify the land with that degree of certainty required
to support their affirmative allegation of ownership.
Moreover, the respondent court found, and we agree, that the waiver of rights executed in 1980 by
Roque Neri Sr., in favor of petitioners referred only to a portion of lot 870 and not to lot 868. Thus
such waiver which petitioners capitalized on as an admission against Neris interest did not in any way
support petitioners claim of ownership of lot 868. Said waiver reads:[20]

ACKNOWLEDGMENT OF ADJUDICATION
AND QUITCLAIM
KNOW ALL MEN BY THESE PRESENTS:
That I, Roque Neri, Sr., of legal age, widower, Filipino, with residence and postal address at
Villanueva, Misamis Oriental, Philippines, do hereby ACKNOWLEDGE AND CONFIRM
that the certain portion of a parcel of land located at Balacanas, Villanueva, Misamis
Oriental under Lot No. 870 of Pls. 923 of Villanueva Public Land Subdivision containing a
total area of SIXTEEN THOUSAND SQUARE METERS (16,0000 sq. m.) which portion is
more particularly described as follows:
North - Roque Neri, Sr.
East - Nabacaan Road
153

West - Tayum Creek

South - Lot 869
containing an area of EIGHT THOUSAND SQUARE METERS (8,000 sq. m.) is hereby
adjudicated in favor of the Heirs of Anastacio Fabela.
That the above described portion of a parcel of land actually belongs and owned by said
Heirs of Anastacio Fabela.
That the above described portion of land was erroneously included in the land survey
conducted by the Bureau of Lands in my name.
That I hereby quitclaim and renounce whatever interest, rights and participation I have over
the described portion of real property of which the Heirs of Anastacio Fabela were the lawful
owners.
In witness whereof, I have hereunto set my hand this 18 day of August 1980 in Villanueva,
Misamis Oriental, Philippines.
th

SGD. ILLEGIBLE
T/ROQUE NERI, SR.
A simple reading of the instrument would readily show that only 8,000 sq. meters of the entire
16,000 sq. meters included in lot 870 was adjudicated in favor of the heirs of Anastacio Fabela as
belonging to them. In fact, petitioners in their memorandum admitted that only 8,000 sq. meters was
given to them and yet they did not take any positive action to assert their ownership of the entire lot 870.
Petitioners have accordingly no sound basis to claim lot 868 by virtue of such instrument. As the
appellate court succinctly stated, the fact that appellees were the ones paid by PHIVIDEC for the
portion of lot 870 does not automatically lead to the conclusion that they also absolutely own lot
868. Most significantly, is appellees failure to adequately explain why they had not at all registered
their claim over the property with the Bureau of Lands during and after the public survey in the
municipality. Finally, petitioners also failed to allege much less establish that they are in possession of
the subject lot.
On the other hand, the respondent court found, and this finding was not refuted, that petitioners
own witness, Norberto Dumat-ol, a representative of the Bureau of Lands, testified that when a
cadastral survey was conducted in 1971, the registered claimant of lot 868 based on their official record
was Roque Neri Sr. Petitioners allegation that Neri Sr., committed fraud in the registration in his
name of these two (2) parcels of lot was not substantiated. The survey plan for lot 868 was approved
for Roque Neri Sr. and he had also declared lot 868 for taxation purposes which was admitted by
petitioners as their complaint prayed for the annulment of the plan and tax declaration. Although a tax
declaration is not considered as conclusive proof of ownership the same is admissible in evidence to
show the nature of the possession of the claimant of the property for which taxes have been paid. We
accordingly find well-taken the respondent courts conclusion as follows:

Thus, where it was shown that plaintiff has never paid the land tax, while the defendant has
faithfully done so for many years, there being no explanation offered, it was held that such
payment of taxes should be taken into consideration in favor of defendant. Being the
exclusive possessors of the subject property who have declared the same for tax purposes
through the years, defendants-appellants are entitled to such favorable presumption of
ownership which so far had not been overturned by plaintiffs-appellees.
In civil cases, the burden of proof is on the plaintiff to establish his case by preponderance of
evidence.[21] If he claims a right granted or created by law, he must prove his claim by competent
evidence. He must rely on the strength of his own evidence and not upon the weakness of that of his
opponent.[22] When the record does not show that the land which is the subject matter of the action for
recovery of ownership has been exactly determined, such action cannot prosper, inasmuch as the
154

petitioners ownership rights in the land claimed do not appear satisfactorily and conclusively proven at
the trial.[23]
WHEREFORE, the petition is DENIED and the decision of the respondent Court of Appeals is
AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., on leave.

[G.R. No. 109215. July 11, 2000]

DOMINICA CUTANDA, SEBASTIAN CUTANDA, JUANARIO CUTANDA,
SOTERO CUTANDA, CRISPIN CUTANDA, FLORENCIO CUTANDA, TRINIDAD
CUTANDA, NICANOR CUTANDA, GABINA CUTANDA FLORES, and CLAUDIO
CUTANDA, petitioners, vs. HEIRS OF ROBERTO CUTANDA, namely,
GERVACIO CUTANDA, SOPRONIO C. CUTANDA, JORGE CUTANDA, and
CRISPIN G. AVENIDO and COURT OF APPEALS, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals dated March 31,
1992 in C.A.-G.R. CV No. 24546, insofar as it reverses the decision of the Regional
Trial Court, Branch 1, Tagbilaran City declaring petitioners as the true and lawful
owners of the subject lands.
The background of this case is as follows:
On August 4, 1988, private respondents brought an action for recovery of
possession, accounting and damages against petitioners in the Regional Trial Court
of Tagbilaran City. They alleged that in the 1900s, their grandfather, Roberto
Cutanda, owned two parcels of land in Bohol. One had an area of 31.0929 hectares
and was covered by Tax Declaration No. 1246, while the other was 7.0925
hectares and was covered by Tax Declaration No. 1247. Both tax declarations
were in Roberto Cutandas name. Upon Roberto Cutandas death, these lands were
inherited by his children, namely: Doque, Diego, Pedro, Andres, and Anastacia, all
surnamed Cutanda. Except for Doque who stayed in Bohol and administered the
lands, all of Roberto Cutandas children established residence in Leyte. In 1987,
they returned to Bohol to personally work the inherited lands. Their plan, however,
was frustrated as petitioners, who were occupying the lands, refused to leave.
Private respondent thus prayed that each be declared owner of 1/5 of the subject
real properties and that petitioners be ordered to return to them said properties.
[1]

[2]

[3]

In due time, petitioners filed their answers. One was prepared by the Citizens Legal
Assistance Office, while the other one, which was the one actually considered
during the trial, was prepared by the Bureau of Legal Assistance of the Department
of Agrarian Reform. Contending that private respondents had no cause of action,
petitioners denied that private respondents predecessor-in-interest, Roberto
Cutanda, was the original owner of the lands in question. Instead, they claimed that
the owner was their uncle and predecessor-in-interest, Anastacio Cutanda. It was
alleged that Anastacio Cutanda died without children and that the real properties in
155

question were inherited by his brothers and sisters whose children are the present
petitioners. Claiming a better right to possess the subject properties, petitioners
alleged that while they occupied the shares which their parents inherited from
Anastacio Cutanda, some of them also worked as tenants cultivating the lands of
their co-petitioners. They filed a counterclaim in which they sought the recovery of
damages from private respondents.
[4]

On September 28, 1989, the trial court rendered its decision declaring petitioners to
have acquired the ownership of the subject properties through prescription and
dismissing private respondents' complaint. The court ordered private respondents to
vacate the properties and remove whatever improvements they may have made, to
restore petitioners in possession of the lands, and to cease from laying further
adverse claims over the lands. As basis for its ruling, the trial court made the
following findings:
[5]

In the assessment of the evidence of the parties the court finds the
evidence of the defendants preponderant and had established their
case against plaintiffs, among the most outstanding facts are as follows:
1. Even plaintiffs document (Exhibit "C") visayan written
testament/statement of Quirico Becauan dated February 25,
1935, it admitted that before 1935 Anastacio Cutanda had
been in the possession of the land in question;
2. Gervacio Cutanda admitted that the defendants thru their
predecessor-in-interest Anastacio Cutanda had squatted on
the land since 1933 and since then because his father
Roberto Cutanda, the alleged original owner of the land had
transferred residence in Leyte, the land was with the
defendants. Although, he came back in 1949, he and
Sofronio only claimed back the land in 1987;
3. That, it is beyond doubt that the defendants have long
been in possession and cultivation of the land as owners
whose possession if tacked with Anastacio Cutanda since
1933 up to the present has been for more than 54 years;
4. That, Tax Declaration No. 10434 of Anastacio Cutanda
from whom the defendants have inherited the land is dated
as far back as 1933 and continuously until the present when
different tax declarations were issued in the names of the
defendants;
5. That, defendants continuous possession, occupation and
cultivation of the land is not rebutted, refuted by convincing,
sufficient evidence by the plaintiffs whose claim is highly
nebulous and unsatisfactory;
6. That, even assuming the plaintiffs have the right over the
land in question, the fact that they have slept [on] their right
since 1933 up to 1987 by failing to institute an action to
recover its ownership and possession, plaintiffs are clearly
guilty of laches;
156

....
8. That, Anastacio Cutandas right over the land and
succeeded by defendants since 1933 has beyond any cloud
of doubt been sufficiently established.
[6]

Private respondents appealed to the Court of Appeals. On March 31, 1992, the
appellate court rendered a decision which, while affirming the dismissal of the case
against petitioners, nonetheless declared that there was no sufficient evidence that
they were the owners of the properties. It stated:
[7]

However, this Court finds that the trial court has exceeded its jurisdiction
in declaring defendants-appellees to be the true and lawful owners of
the land in question there being no sufficient evidence on record that
they have been in open, continuous, exclusive and notorious
possession and occupation of the land under a bona fide claim of
ownership for the period required by law as to acquire ownership
thereof by prescription.
[8]

Both parties moved for reconsideration of the appellate courts decision. On

February 26, 1993, the Court of Appeals denied their motions for lack of merit. No
further action was taken by private respondents so that the decision of the appellate
court affirming the dismissal of their action for recovery of possession, accounting
and damages became final. On the other hand, petitioners brought the instant
petition for review, insofar as the Court of Appeals ruled that no sufficient evidence
existed in the records to establish their ownership of the lands.
The sole issue for resolution in this petition is thus whether petitioners presented
sufficient evidence to prove their ownership of the lands in question. Petitioners
contend that: (1) the findings of fact of the Court of Appeals should not be binding
upon this Court as they are in direct contradiction to that of the trial court; (2) the
decision of the Court of Appeals does not cite any reason for reversing the trial
courts findings of fact; (3) while agricultural tenancy relations exist between them
and the owners of the land, they were also owners of the shares inherited by their
parents from Anastacio Cutanda; and (4) as found by the trial court, petitioners and
their predecessors have been in possession of the lands since 1933 and have
consequently acquired the same through acquisitive prescription.
[9]

[10]

[11]

[12]

The petition is meritorious.

First. While both the Court of Appeals and the trial court held that private
respondents action for recovery of possession (accion publiciana) was already
barred, it appears that they relied upon different grounds. For the trial court, the
ground was extinctive prescription. Paragraph no. 7 of its findings plainly states that

7. Consequent to laches, plaintiffs right to the land having allowed the

defendants to possess, cultivate and claim as owners since 1933 up to
1987, their rights if any are lost byextinctive prescription and, therefore,
defendants have acquired the rights over the parcels of land by
acquisitive prescription.
[13]

The Court of Appeals, on the other hand, held private respondents action to be
barred by laches, thus:
157

The failure of plaintiff-appellants and their predecessors-in-interest to

assert their claim over the disputed properties from the time that
Anastacio Cutanda allegedly usurped said lands in 1933 until the instant
action was filed in 1988 -- a period of 55 years -- constitutes laches and
bars this action to recover possession of said properties.
[14]

In Maneclang v. Baun, this Court distinguished prescription from laches as follows:

[15]

. . . While prescription is concerned with the fact of delay, laches is

concerned with the effect of delay. Prescription is a matter of time;
laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the condition
of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at
law. Prescription is based on fixed time, laches is not.
Based on this distinction, we hold that prescription, not laches, is the proper ground
for holding private respondents action to be barred. Art. 1106 of the Civil Code
provides that by prescription, one acquires ownership and other real rights through
the lapse of time, in the manner and under the conditions laid down by law. In the
same way, rights and actions are lost by prescription. There are thus two kinds of
prescription: (1) the acquisition of a right by the lapse of time, or acquisitive
prescription; and (2) the loss of a right of action by the lapse of time, or extinctive
prescription.
Private respondents action was an accion publiciana to recover the right of
possession and to be declared owners of the subject lands. Their complaint
squarely put in issue the ownership of the lands in dispute. It may thus be properly
treated as an accion reivindicatoria. As found by the Court of Appeals and by the
trial court, however, petitioners predecessor-in-interest, Anastacio Cutanda,
acquired possession of said lands in 1933. On the other hand, private respondents
did not assert ownership over the lands until 1988 55 years later, when they filed
their present complaint for recovery of possession. It is settled that the remedies
of accion publiciana or accion reivindicatoria must be availed of within 10 years from
dispossession. Under Art. 555(4) of the Civil Code, the real right of possession is
lost after the lapse of 10 years. In Cruz v. Court of Appeals, in which an action for
recovery of possession and ownership of lands was brought only after 26 years had
elapsed, this Court ruled:
[16]

[17]

And secondly, whether We consider the complaint of private

respondents to recover possession of the property in question as accion
publiciana or accion reivindicatoria, the same has prescribed after the
lapse of ten years. After private respondents had abandoned for 26
years the property which is unregistered land, the law as well as justice
and equity will not allow them "to lie in wait and spring as in an ambush"
to dislodge and dispossess petitioners who during said period made and
constructed residences, buildings and other valuable improvements
thereon, and enjoying the fruits therefrom.
Hence, insofar as petitioners are concerned, private respondents cause of action
was barred, not by laches, but by extinctive prescription, regardless of whether their
complaint is considered as an accion publiciana or an accion reivindicatoria. As
regards the private respondents who did not appeal from the ruling of the Court of
Appeals, this question is now final.
158

Second. As already stated, the Court of Appeals reversed the trial courts ruling that
petitioners had acquired the lands by prescription on the ground that there was no
sufficient evidence to prove that petitioners had been in open, continuous and
adverse possession of the lands. There is, however, nothing in the evidence to
support this finding of the appellate court. To the contrary, the evidence in the
record, both documentary and testimonial, shows: (1) that their common ancestor
was the late Doque Cutanda, son of Eustaquio Cutanda and Rufina Atup; (2) that
Doque Cutanda had several children, namely, Anastacio, Saturnino, Esperidion,
Pedro, Honorio, German, Fortunata, Eustaquia, and Ponciana; (3) that, in his
lifetime, Doque Cutanda acquired a parcel of agricultural land consisting of 31.0929
hectares, which was declared under Tax Declaration No. 6983 in the name of his
eldest child, Anastacio; (4) that Anastacio, who had no children, remained in
possession of said land from 1933 until 1968 when he executed a deed of
extrajudicial settlement of estate which adjudicated and partitioned said parcel of
land among his brothers and sisters; (5) that after 1968, Anastacios brothers and
sisters worked on the land, as shown by several tax declarations and
subsequently, their children and successors, herein petitioners, remained in actual
and peaceful possession of said land until 1988 when private respondents filed their
action to recover possession of the land; (6) that during such time, petitioners
Dominica, Sebastian, Sotero, Januario and Nicanor were cultivating the share of
their father while working as agricultural tenants on the shares of their uncles
Honorio and German Cutanda; and (7) that petitioners Gabina, Crispin and Claudio
Cutanda are the children and heirs of Honorio Cutanda working on their fathers
share while petitioners Florencio and Trinidad Cutanda are the children and heirs of
German and Esperidion Cutanda, respectively.
[18]

[19]

[20]

[21]

[22]

[23]

[24]

The foregoing sufficiently establish that Anastacio Cutanda was in possession of the
land covered by Tax Declaration No. 6983, which has an area of 31.0929 hectares,
from 1933 up to 1968, or a period of 35 years. Such possession appears to be
adverse, continuous and in the concept of an owner because Anastacio Cutanda
cultivated the land, thereby, performing an act of ownership over it. It is to be noted
that Anastacios possession began under the former Civil Code. This fact brings this
case squarely under the ruling in Cruz v. Court of Appeals, in which adverse
possession of a parcel of unregistered land started in 1938 while the complaint for
recovery of possession was filed only in 1964, after 26 years. The trial court
dismissed the complaint and declared the adverse possessors as owners of the
land. The Court of Appeals, however, reversed the trial court. On appeal, this Court
in turn reversed the appellate court. We held that
[25]

This contention of the petitioners is impressed with truth and merit as

the same is borne out by the records and the transcript thereof which
We have previously discussed. We, therefore, find that the ruling of the
respondent court dating petitioners adverse possession to the year
1953 is contrary to the admission of the private respondents thru
counsel, andsince petitioners possession of the property in question
commenced way back in 1938 which was at the time of the old Civil
Code was still in force, the prescriptive period is governed under
Section 41 of the Code of Civil Procedure because Article 1116 of the
New Civil Code provides that "Prescription already running before the
effectivity of this Code (August 30, 1950) shall be governed by laws
previously in force." Section 41 of the C.C.P. states:
Sec. 41. Title to land by prescription. -- Ten years of actual
adverse possession by any person claiming to be the owner
159

for that time of any land or interest in land, uninterruptedly,

continuously for ten years by occupancy, descent, grants or
otherwise, in whatever way such occupancy may have
commenced or continued, shall vest in every actual
possessor of such land a full complete title, saving to the
persons under disabilities the rights, secured by the next
section.
[26]

Under the Code of Civil Procedure, therefore, ten years of actual adverse
possession was required, regardless of how such occupancy may have commenced
or continued, before possession ripened into full and complete title over the land.
Applying this to the present case, by 1943, ten years after his possession of the
subject parcel of land had begun, Anastacio Cutanda became owner of the land in
question through acquisitive prescription.
Third. The Court of Appeals limited its review of the evidence to the issue of
acquisitive prescription. Petitioners, however, submitted evidence to prove that they
were heirs of Anastacio Cutandas brothers and sisters, even as some of them were
also working as tenants for their co-petitioners. Particularly compelling is the 1968
Deed of Extrajudicial Settlement of Real Estate executed by Anastacio Cutanda
which pertinently states that:
WHEREAS, ANASTACIO CUTANDA, single, 90 years of age, with no
common-law wife, illegitimate children or otherwise, through his own
will desires to adjudicate and partition his three (3) parcels of land to his
brothers and sisters or legal heirs, declared under Tax Dec. Nos. R2485; R-2486; and R-6983 situated at Camambugan, Ubay, Bohol and
Saguisinhan, Trinidad, Bohol, respectively, which are described and
bounded as follows:
....
Tax Declaration No. 6983, situated at Saguisinhan, Trinidad, Bohol, with
an area of 31.0929 hectares more or less: Bounded on the North by
Justo Ogayon & creek; or East, by Saguinsihan Creek; on South, by
Pablo Ebaoc, Graciano Ebaoc, Diosdado Ebaoc, Gaviro Mumar; and on
West by Pablo Ebaoc, Mateo Nuera, Dominga Nuera; with
improvements of 15 groups of bamboos.
....
WHEREAS, the brothers, sisters and heirs of said Anastacio
Cutanda, through his will and voluntary deed, mutually agree to accept
this extrajudicial partition made by said Anastacio Cutanda for the
benefit of said brothers, sisters, and heirs of same.
As Anastacio Cutanda had acquired ownership of said parcel of land through the
lapse of the period required by law, he could validly adjudicate and partition it
among his brothers and sisters who were his only heirs. Petitioners, in turn, as
children of Anastacios brothers and sisters, acquired ownership of the subject land
not through prescription but through hereditary succession.
But while we find sufficient evidence of ownership with respect to that parcel with an
area of 31.0929 hectares covered by Tax Declaration No. 6983, we find no similar
160

evidence to support the finding of the trial court that Anastacio Cutanda was also the
owner of the other parcel of land consisting of seven hectares. Petitioner Florencio
Cutanda himself admitted that he and the other petitioners were only claiming the
31-hectare land. His testimony is as follows:
Q.....And Mr. Witness you will assure us here that this tax declaration
No. R-6983 is the only parcel of land owned by either Doque Cutanda or
Anastacio Cutanda situated in Trinidad, Cambangay Norte?
A.....That is correct.
Q.....You will not change your answer?
A.....I will not.
Q.....So that Mr. Witness considering that this case now involves two
parcels of land, one with an area of 31 hectares and the other with an
area of 7 hectares, you are only claiming the 31 hectares covered by
Tax Decl. No. R-6983, am I correct?
A.....Only the 31 hectares.
Q.....You and your co-defendants are not claiming the 7 hectares?
A.....This 7 hectares was already owned and claimed by Honorio
Cutanda.
Q.....You mean to tell us that Honorio Cutanda has a previous tax
declaration covering this 7 hectares?
A.....Yes, sir.
Q.....But you are not in the possession of that tax declaration?
A.....No, sir.

[27]

Moreover, the alleged tax declaration in Honorio Cutandas name covering the
seven-hectare land was never presented in evidence. For these reasons, with
respect to the said seven-hectare land, the ruling of the Court of Appeals that there
is no sufficient evidence as to its ownership must be affirmed.
WHEREFORE, the decision of the Court of Appeals is set aside and another one is
rendered declaring petitioners to be true and lawful owners of that parcel of land
covered by Tax Declaration No. 6983 of the Tax Assessors Office of Saguisinhan,
Trinidad, Bohol, with an area of 31.0929 hectares. The complaint filed by
respondents is dismissed.
SO ORDERED.

[G.R. No. 115634. April 27, 2000]

161

FELIPE CALUB and RICARDO VALENCIA, DEPARTMENT of ENVIRONMENT

and NATURAL RESOURCES (DENR), CATBALOGAN, SAMAR, petitioners,
vs.COURT OF APPEALS, MANUELA T. BABALCON, and CONSTANCIO
ABUGANDA, respondents.
DECISION
QUISUMBING, J.:
For review is the decision dated May 27, 1994, of the Court of Appeals in CA-G.R.
SP No. 29191, denying the petition filed by herein petitioners for certiorari,
prohibition and mandamus, in order to annul the Order dated May 27, 1992, by the
Regional Trial Court of Catbalogan, Samar. Said Order had denied petitioners (a)
Motion to Dismiss the replevin case filed by herein private respondents, as well as
(b) petitioners Motion for Reconsideration of the Order of said trial court dated April
24, 1992, granting an application for a Writ of replevin.. h Y
.[1]

[2]

The pertinent facts of the case, borne by the records, are as follows:
On January 28, 1992, the Forest Protection and Law Enforcement Team of the
Community Environment and Natural Resources Office (CENRO) of the DENR
apprehended two (2) motor vehicles, described as follows:
"1. Motor Vehicle with Plate No. HAK-733 loaded with one thousand and
twenty six (1,026) board feet of illegally sourced lumber valued at
P8,544.75, being driven by one Pio Gabon and owned by [a certain]
Jose Vargas.
2. Motor Vehicle with Plate No. FCN-143 loaded with one thousand two
hundred twenty four and ninety seven (1,224.97) board feet of illegallysourced lumber valued at P9,187.27, being driven by one Constancio
Abuganda and owned by [a certain] Manuela Babalcon. "
.[3]

Constancio Abuganda and Pio Gabon, the drivers of the vehicles, failed to present
proper documents and/or licenses. Thus, the apprehending team seized and
impounded the vehicles and its load of lumber at the DENR-PENR (Department of
Environment and Natural Resources-Provincial Environment and Natural
Resources) Office in Catbalogan. Seizure receipts were issued but the drivers
refused to accept the receipts.. Felipe Calub, Provincial Environment and Natural
Resources Officer, then filed before the Provincial Prosecutors Office in Samar, a
criminal complaint against Abuganda, in Criminal Case No. 3795, for violation of
Section 68 [78), Presidential Decree 705 as amended by Executive Order 277,
otherwise known as the Revised Forestry Code. Mis sc
.[4]

[5]

[6]

On January 31, 1992, the impounded vehicles were forcibly taken by Gabon and
Abuganda from the custody of the DENR, prompting DENR Officer Calub this time
to file a criminal complaint for grave coercion against Gabon and Abuganda. The
complaint was, however, dismissed by the Public Prosecutor.
.[7]

On February 11, 1992, one of the two vehicles, with plate number FCN 143, was
again apprehended by a composite team of DENR-CENR in Catbalogan and
Philippine Army elements of the 802nd Infantry Brigade at Barangay Buray,
Paranas, Samar. It was again loaded with forest products with an equivalent volume
of 1,005.47 board feet, valued at P10,054.70. Calub duly filed a criminal complaint
162

against Constancio Abuganda, a certain Abegonia, and several John Does, in

Criminal Case No. 3625, for violation of Section 68 [78], Presidential Decree 705 as
amended by Executive Order 277, otherwise known as the Revised Forestry Code.

.[8]

In Criminal Cases Nos. 3795 and 3625, however, Abegonia and Abuganda were
acquitted on the ground of reasonable doubt. But note the trial court ordered that a
copy of the decision be furnished the Secretary of Justice, in order that the
necessary criminal action may be filed against Noe Pagarao and all other persons
responsible for violation of the Revised Forestry Code. For it appeared that it was
Pagarao who chartered the subject vehicle and ordered that cut timber be loaded on
it.
.[9]

Subsequently, herein private respondents Manuela Babalcon, the vehicle owner,

and Constancio Abuganda, the driver, filed a complaint for the recovery of
possession of the two (2) impounded vehicles with an application for replevin
against herein petitioners before the RTC of Catbalogan. The trial court granted the
application for replevin and issued the corresponding writ in an Order dated April 24,
1992. Petitioners filed a motion to dismiss which was denied by the trial court.
[11]

.[10]

Thus, on June 15, 1992, petitioners filed with the Supreme Court the present
Petition for Certiorari, Prohibition and Mandamus with application for Preliminary
Injunction and/or a Temporary Restraining Order. The Court issued a TRO,
enjoining respondent RTC judge from conducting further proceedings in the civil
case for replevin; and enjoining private respondents from taking or attempting to
take the motor vehicles and forest products seized from the custody of the
petitioners. The Court further instructed the petitioners to see to it that the motor
vehicles and other forest products seized are kept in a secured place and protected
from deterioration, said property being in custodia legis and subject to the direct
order of the Supreme Court. In a Resolution issued on September 28, 1992, the
Court referred said petition to respondent appellate court for appropriate
disposition.
.[12]

.[13]

On May 27, 1994, the Court of Appeals denied said petition for lack of merit. It ruled
that the mere seizure of a motor vehicle pursuant to the authority granted by Section
68 [78] of P.D. No. 705 as amended by E.O. No. 277 does not automatically place
said conveyance in custodia legis. According to the appellate court, such authority
of the Department Head of the DENR or his duly authorized representative to order
the confiscation and disposition of illegally obtained forest products and the
conveyance used for that purpose is not absolute and unqualified. It is subject to
pertinent laws, regulations, or policies on that matter, added the appellate court. The
DENR Administrative Order No. 59, series of 1990, is one such regulation, the
appellate court said. For it prescribes the guidelines in the confiscation, forfeiture
and disposition of conveyances used in the commission of offenses penalized under
Section 68 [78] of P.D. No. 705 as amended by E.O. No. 277.
.[14]

Additionally, respondent Court of Appeals noted that the petitioners failed to observe
the procedure outlined in DENR Administrative Order No. 59, series of 1990. They
were unable to submit a report of the seizure to the DENR Secretary, to give a
written notice to the owner of the vehicle, and to render a report of their findings and
recommendations to the Secretary. Moreover, petitioners failure to comply with the
procedure laid down by DENR Administrative Order No. 59, series of 1990, was
confirmed by the admission of petitioners counsel that no confiscation order has
been issued prior to the seizure of the vehicle and the filing of the replevin suit.
163

Therefore, in failing to follow such procedure, according to the appellate court, the
subject vehicles could not be considered in custodia legis.
.[15]

Respondent Court of Appeals also found no merit in petitioners claim that private
respondents complaint for replevin is a suit against the State. Accordingly,
petitioners could not shield themselves under the principle of state immunity as the
property sought to be recovered in the instant suit had not yet been lawfully
adjudged forfeited in favor of the government. Moreover, according to respondent
appellate court, there could be no pecuniary liability nor loss of property that could
ensue against the government. It reasoned that a suit against a public officer who
acted illegally or beyond the scope of his authority could not be considered a suit
against the State; and that a public officer might be sued for illegally seizing or
withholding the possession of the property of another.
.[16]

Respondent court brushed aside other grounds raised by petitioners based on the
claim that the subject vehicles were validly seized and held in custody because they
were contradicted by its own findings. Their petition was found without merit. Rtc
[18]

.[17]

spped

Now, before us, the petitioners assign the following errors:

.[19]

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT MERE

SEIZURE OF A CONVEYANCE PURSUANT TO SECTION 68-A [78-A]
OF P.D. NO. 705 AS AMENDED BY EXECUTIVE ORDER 277 DOES
NOT PLACE SAID CONVEYANCE IN CUSTODIA LEGIS;
(2) THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
OPERATIVE ACT GIVING RISE FOR THE SUBJECT CONVEYANCE
TO BE IN CUSTODIA LEGIS IS ITS LAWFUL SEIZURE BY THE DENR
PURSUANT TO SECTION 68-A [78-A] OF P.D. NO. 705, AS
AMENDED BY E.O. NO. 277; AND
(3) THE COURT OF APPEALS ERRED IN HOLDING THAT THE
COMPLAINT FOR REPLEVIN AGAINST THE PETITIONERS IS NOT A
SUIT AGAINST THE STATE.
In brief, the pertinent issues for our consideration are:
(1) Whether or not the DENR-seized motor vehicle, with plate number FCN 143, is
in custodia legis.
(2) Whether or not the complaint for the recovery of possession of impounded
vehicles, with an application for replevin, is a suit against the State.
We will now resolve both issues.
The Revised Forestry Code authorizes the DENR to seize all conveyances used in
the commission of an offense in violation of Section 78. Section 78 states:
Sec. 78. Cutting, Gathering, and or Collecting Timber, or Other Forest
Products without License. Any person who shall cut, gather, collect,
remove timber or other forest products from any forestland, or timber
from alienable or disposable public land, or from private land, without
any authority, or possess timber or other forest products without the
legal documents as required under existing forest laws and regulations,
164

shall be punished with the penalties imposed under Articles 309 and
310 of the Revised Penal Codeslx mis
The Court shall further order the confiscation in favor of the government
of the timber or any forest products cut, gathered, collected, removed,
or possessed, as well as the machinery, equipment, implements and
tools illegally used in the area where the timber or forest products are
found.
This provision makes mere possession of timber or other forest products without the
accompanying legal documents unlawful and punishable with the penalties imposed
for the crime of theft, as prescribed in Articles 309-310 of the Revised Penal Code.
In the present case, the subject vehicles were loaded with forest products at the
time of the seizure. But admittedly no permit evidencing authority to possess and
transport said load of forest products was duly presented. These products, in turn,
were deemed illegally sourced. Thus there was a prima facie violation of Section 68
[78] of the Revised Forestry Code, although as found by the trial court, the persons
responsible for said violation were not the ones charged by the public prosecutor.
The corresponding authority of the DENR to seize all conveyances used in the
commission of an offense in violation of Section 78 of the Revised Forestry Code is
pursuant to Sections 78-A and 89 of the same Code. They read as follows: Sc
Sec. 78-A. Administrative Authority of the Department Head or His Duly
Authorized Representative to Order Confiscation. -- In all cases of
violation of this Code or other forest laws, rules and regulations, the
Department Head or his duly authorized representative, may order the
confiscation of any forest products illegally cut, gathered, removed, or
possessed or abandoned, and all conveyances used either by land,
water or air in the commission of the offense and to dispose of the same
in accordance with pertinent laws, regulations or policies on the matter.
Sec. 89. Arrest; Institution of criminal actions. -- A forest officer or
employee of the Bureau [Department] or any personnel of the Philippine
Constabulary/Philippine National Police shall arrest even without
warrant any person who has committed or is committing in his presence
any of the offenses defined in this Chapter. He shall also seize and
confiscate, in favor of the Government, the tools and equipment used in
committing the offense... [Emphasis supplied.]
Note that DENR Administrative Order No. 59, series of 1990, implements Sections
78-A and 89 of the Forestry Code, as follows:
Sec. 2. Conveyances Subject to Confiscation and Forfeiture. -- All
conveyances used in the transport of any forest product obtained or
gathered illegally whether or not covered with transport documents,
found spurious or irregular in accordance with Sec. 68-A [78-A] of P.D.
No. 705, shall be confiscated in favor of the government or disposed of
in accordance with pertinent laws, regulations or policies on the matter.
Sec. 4. Who are Authorized to Seize Conveyance. -- The Secretary or
his duly authorized representative such as the forest officers and/or
natural resources officers, or deputized officers of the DENR
are authorized to seize said conveyances subject to policies and
165

guidelines pertinent thereto. Deputized military personnel and officials of

other agencies apprehending illegal logs and other forest products and
their conveyances shall notify the nearest DENR field offices, and turn
over said forest products and conveyances for proper action and
disposition. In case where the apprehension is made by DENR field
officer, the conveyance shall be deposited with the nearest
CENRO/PENRO/RED Office as the case may be, for safekeeping
wherever it is most convenient and secured. [Emphasis supplied.]
Upon apprehension of the illegally-cut timber while being transported without
pertinent documents that could evidence title to or right to possession of said timber,
a warrantless seizure of the involved vehicles and their load was allowed under
Section 78 and 89 of the Revised Forestry Code. Slxs c
Note further that petitioners failure to observe the procedure outlined in DENR
Administrative Order No. 59, series of 1990 was justifiably explained. Petitioners did
not submit a report of the seizure to the Secretary nor give a written notice to the
owner of the vehicle because on the 3rd day following the seizure, Gabon and
Abuganda, drivers of the seized vehicles, forcibly took the impounded vehicles from
the custody of the DENR. Then again, when one of the motor vehicles was
apprehended and impounded for the second time, the petitioners, again were not
able to report the seizure to the DENR Secretary nor give a written notice to the
owner of the vehicle because private respondents immediately went to court and
applied for a writ of replevin. The seizure of the vehicles and their load was done
upon their apprehension for a violation of the Revised Forestry Code. It would be
absurd to require a confiscation order or notice and hearing before said seizure
could be effected under the circumstances.
Since there was a violation of the Revised Forestry Code and the seizure was in
accordance with law, in our view the subject vehicles were validly deemed
in custodia legis. It could not be subject to an action for replevin. For it is property
lawfully taken by virtue of legal process and considered in the custody of the law,
and not otherwise.
.[20]

In Mamanteo, et. al. v. Deputy Sheriff Magumun, A.M. No. P-98-1264, promulgated
on July 28, 1999, the case involves property to be seized by a Deputy Sheriff in a
replevin suit. But said property were already impounded by the DENR due to
violation of forestry laws and, in fact, already forfeited in favor of the government by
order of the DENR. We said that such property was deemed in custodia legis. The
sheriff could not insist on seizing the property already subject of a prior warrant of
seizure. The appropriate action should be for the sheriff to inform the trial court of
the situation by way of partial Sheriffs Return, and wait for the judges instructions
on the proper procedure to be observed.
Note that property that is validly deposited in custodia legis cannot be the subject of
a replevin suit. In Mamanteo v. Deputy Sheriff Magumun, we elucidated further:
". . . the writ of replevin has been repeatedly used by unscrupulous
plaintiffs to retrieve their chattel earlier taken for violation of the Tariff
and Customs Code, tax assessment, attachment or execution. Officers
of the court, from the presiding judge to the sheriff, are implored to be
vigilant in their execution of the law otherwise, as in this case, valid
seizure and forfeiture proceedings could easily be undermined by the
simple devise of a writ of replevin..." Scslx
.[21]

166

On the second issue, is the complaint for the recovery of possession of the two
impounded vehicles, with an application for replevin, a suit against the State?
Well established is the doctrine that the State may not be sued without its
consent. And a suit against a public officer for his official acts is, in effect, a suit
against the State if its purpose is to hold the State ultimately liable.. However, the
protection afforded to public officers by this doctrine generally applies only to
activities within the scope of their authority in good faith and without willfulness,
malice or corruption. In the present case, the acts for which the petitioners are
being called to account were performed by them in the discharge of their official
duties. The acts in question are clearly official in nature. In implementing and
enforcing Sections 78-A and 89 of the Forestry Code through the seizure carried
out, petitioners were performing their duties and functions as officers of the DENR,
and did so within the limits of their authority. There was no malice nor bad faith on
their part. Hence, a suit against the petitioners who represent the DENR is a suit
against the State. It cannot prosper without the States consent.
.[22]

[23]

[24]

[25]

Given the circumstances in this case, we need not pursue the Office of the Solicitor
Generals line for the defense of petitioners concerning exhaustion of administrative
remedies. We ought only to recall that exhaustion must be raised at the earliest time
possible, even before filing the answer to the complaint or pleading asserting a
claim, by a motion to dismiss. If not invoked at the proper time, this ground for
dismissal could be deemed waived and the court could take cognizance of the case
and try it. Mesm
.[26]

[27]

ACCORDINGLY, the Petition is GRANTED, and the assailed Decision of the Court
of Appeals in CA-G.R. SP No. 29191 is SET ASIDE. Consequently, the Order
issued by the Regional Trial Court of Catbalogan, dated May 27, 1992, and the Writ
of replevin issued in the Order dated April 24, 1992, are ANNULLED. The Sheriff of
the Regional Trial Court of Catbalogan, Branch 29, is directed to take possession of
the subject motor vehicle, with plate number FCN 143, for delivery to the custody of
and appropriate disposition by petitioners. Let a copy of this decision be provided
the Honorable Secretary of Justice for his appropriate action, against any and all
persons responsible for the abovecited violation of the Revised Forestry Code.
Costs against private respondents.
SO ORDERED.

[G.R. No. 138971. June 6, 2001]

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), petitioner, vs. HON.

RUMOLDO R. FERNANDEZ, Regional Trial Court of Lapu-Lapu City
(Branch 54); and the Heirs of the Deceased Spouses JUAN CUIZON and
FLORENTINA RAPAYA, respondents.
DECISION
PANGANIBAN, J.:

167

An action for reconveyance of land, an equitable remedy recognized under our land registration
laws, is subject to the applicable rules on prescription. Moreover, the right to pursue such reivindicatory
action may be defeated when the property sought to be recovered has been conveyed to an innocent
purchaser for value.

The Case
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
seeking to set aside the June 8, 1999 Decision[1] of the Court of Appeals (CA) in CA-GR SP No.
47575. In the said Decision, the CA sustained the January 12, 1998[2] and the March 31, 1998[3] Orders
of the Regional Trial Court of Lapu-Lapu City (Branch 54) in Civil Case No. 4534-L, which denied
petitioners Motion to Dismiss and Motion for Reconsideration, respectively. The dispositive portion of
the CA Decision reads as follows:

WHEREFORE, [there being] no abuse of discretion committed by respondent court, the

instant petition is hereby DISMISSED.
The Facts
The subject of the present controversy is Lot No. 4673 of the Opon Cadastre situated in Lapu-Lapu
City, covered by Original Certificate of Title (OCT) No. RO-2537 (May 19, 1982) and registered in the
names of Florentina Rapaya, Victorino Cuizon, Isidro Cuizon, Ursula Cuizon, Benito Lozano, Isabel
Lozano, Pelagia Lozano, Augusto Lozano, Valeriano Ybaez, Jesus Ybaez, Numeriano Ybaez,
Martino Ybaez, Eutiquio Patalinghug, Celedonio Patalinghug, Santiago Patalinghug and Silvino
Patalinghug. The lot has an area of 11,345 square meters, more or less.
On May 15, 1982, Jorgea Igot-Soroo, Frisca Booc and Felix Cuizon executed an Extrajudicial
Partition, in which they declared themselves as the only surviving heirs of the registered owners of the
aforesaid lot. Consequently, they were issued TCT No. 12467 on July 8, 1982.
Considering that the said lot was among the objects of expropriation proceedings docketed as Civil
Case No 510-L and pending before it, Branch XVI of the Regional Trial Court (RTC) of Lapu-Lapu
City rendered a partial Decision on August 11, 1982. In that Decision, the RTC approved the
Compromise Agreement entered into between the Export Processing Zone Authority (EPZA) and the
new registered owners of Lot No. 4673; namely, Jorgea Igot-Soroo, Frisca Booc and Felix Cuizon. In
accordance with the approved Compromise Agreement, EPZA would pay P68,070 as just compensation
for the expropriation of the subject property, which was to be used for an export processing zone to be
established in Lapu-Lapu City.
As a consequence of the RTC Decision, petitioner acquired title over Lot No. 4673 and the
corresponding Transfer Certificate of Title (TCT) No. 12788 issued by the Register of Deeds of LapuLapu City on October 13, 1982.
On July 29, 1996, private respondents filed with the RTC of Lapu-Lapu City a Complaint for
Nullity of Documents, Redemption and Damages against petitioner and Jorgea-Igot Soroo et
al. Docketed as Civil Case No. 4534-L, the Complaint alleged that herein private respondents had been
excluded from the extrajudicial settlement of the estate. It likewise sought the nullification of several
documents, including TCT No. 12788 dated October 13, 1992, issued in the name of herein petitioner.
On February 17, 1997, petitioner filed a Motion to Dismiss the Complaint on the ground of
prescription. This Motion was denied by respondent judge in the Order dated January 12, 1998. A
Motion for Reconsideration thereof was likewise denied in the Order dated March 31, 1998.
On April 30, 1998, petitioner elevated the matter to the Court of Appeals through a Petition for
Certiorari. As earlier noted, the CA dismissed the Petition.
Hence, this recourse.[4]

The CA Ruling
168

In denying the Petition, the CA ratiocinated as follows:

Civil Case No. 4534-L although instituted in the guise of a complaint for Nullity of
Documents, Redemption and Damages is in effect an action for reconveyance of the property
to plaintiffs of a portion which rightfully belong to them. It would be against good reason
and conscience not to hold that defendants, Francisca Frisca Booc, heirs of deceased
Jorg[e]a Igot-Soronio and heirs of Felix Cuizon committed a breach of trust which enabled
them to execute a Deed of Extrajudicial Partition[,] Special Power of Attorney and Deed of
Absolute Sale in favor of EPZA to the prejudice of the plaintiffs as their co-heirs. Therefore,
in an action like this case, the private respondents may be ordered to make reconveyance of
the property to the person rightfully entitled to it.
It is undeniable that defendants defrauded plaintiffs by falsely representing that they were
the only heirs of deceased Juan Cuizon and Florentina Rapaya, succeeded in having the
original title cancelled and enabling them to appropriate the land in favor of EPZA and a
new one issued in the name of the latter (EPZA). This way of acquiring title create[s] what
is called constructive trust in favor of the defrauded party and grants the latter the right to
vindicate [itself] x x x regardless of the lapse of time. Thus, it has been held that if a person
obtain(s) a legal title to the property by fraud or concealment, courts of equity will impress
upon the title a so called trust in favor of the defrauded party. In fact, it has long been held
that a co-heir who through fraud, succeeds in obtaining a certificate of title in his name to the
prejudice of his co-heirs, is deemed to hold the land in trust for the latter. The excluded
heirs action is imprescriptible.
And if the action involve(s) the declaration of the nullity or inexistence of a void or
inexistent contract which became the basis for the fraudulent registration of the subject
property, then the action is imprescriptible. This finds codal support in Article 1410 of the
Civil Code, which declares that the action or defense for the declaration of the inexistence of
a void contract does not prescribe.
As to the constructive notice rule alleged by the petitioner, (the) Supreme Court in the case
of Juan vs. Zuniga, citing Sevilla vs. Angeles, has this to say:
'While this ruling is correct as applied to ordinary actions by recovery of real
property which is covered by a torrens title upon the theory that its registration under
our registration system has the effect of constructive notice to the whole world, the
same cannot be applied x x x when the purpose of the action is to compel a trustee to
convey the property registered in his name for the benefit of the cestui que trust. In
other words, the defense of prescription cannot be set up in an action whose purpose
is to recover property held by a person for the benefit of another.
The Issues
Petitioner interposes the following issues for the consideration of this Court:
I

Whether or not the appellate court erred in not holding that private respondents claim
against expropriated property had prescribed.
II

Whether or not the appellate court erred in not holding that reconveyance does not lie against
the expropriated property.[5]
169

The Courts Ruling

The Petition is meritorious.

First Issue: Prescription

Petitioner avers that private respondents claim against the subject property has already prescribed,
because the two-year period within which an unduly excluded heir may seek a new settlement of the
estate had already lapsed by the time private respondents filed their action with the trial court. Petitioner
further argues that private respondents received constructive notice in view of the registration of the
extrajudicial partition with the Registry of Deeds. According to petitioner, the two-year period
commenced from July 8, 1982, the date of inscription of the extrajudicial settlement on OCT No. 2537.
The pertinent provisions of Section 4, Rule 74 of the Rules of Court, are reproduced for easy
reference, as follows:

Section 4. Liability of distributees and estate. - If it shall appear at any time within two
(2) years after the settlement and distribution of an estate in accordance with the provisions
of either of the first two sections of this rule, that an heir or other person has been unduly
deprived of his lawful participation in the estate, such heir or such other person may
compel the settlement of the estate in the courts in the manner hereinafter provided for the
purpose of satisfying such lawful participation. And if within the same time of two (2)
years, it shall appear that there are debts outstanding against the estate which have not been
paid, or that an heir or other person has been unduly deprived of his lawful participation
payable in money, the court having jurisdiction of the estate may, by order for that purpose,
after hearing, settle the amount of such debts or lawful participation and order how much and
in what manner each distributee shall contribute in the payment thereof, and may issue
execution, if circumstances require, against the bond provided in the preceding section or
against the real estate belonging to the deceased, or both. Such bond and such real estate
shall remain charged with a liability to creditors, heirs, or other persons for the full period of
two (2) years after such distribution, notwithstanding any transfers of real estate that may
have been made. (Emphasis supplied)
A perusal of the foregoing provision will show that persons unduly deprived of their lawful
participation in a settlement may assert their claim only within the two-year period after the settlement
and distribution of the estate. This prescription period does not apply, however, to those who had no
part in or had no notice of the settlement. Section 4, Rule 74 of the Rules of Court, is not meant to be a
statute of limitations. Moreover, by no reason or logic can one contend that an extrajudicial partition,
being merely an ex parte proceeding, would affect third persons who had no knowledge thereof. [6] Be
that as it may, it cannot be denied, either, that by its registration in the manner provided by law, a
transaction may be known actually or constructively.
In the present case, private respondents are deemed to have been constructively notified of the
extrajudicial settlement by reason of its registration and annotation in the certificate of title over the
subject lot. From the time of registration, private respondents had two (2) years or until July 8, 1984,
within which to file their objections or to demand the appropriate settlement of the estate.
On the matter of constructive notice vis--vis prescription of an action to contest an extrajudicial
partition, a leading authority on land registration elucidates as follows:

While it may be true that an extrajudicial partition is an ex parte proceeding, yet after its
registration under the Torrens system and the annotation on the new certificate of title of
the contingent liability of the estate for a period of two years as prescribed in Rule 74,
Section 4, of the Rules of Court, by operation of law a constructive notice is deemed made
to all the world, so that upon the expiration of said period all third persons should be
barred [from going] after the particular property, except where title thereto still remains in
170

the names of the alleged heirs who executed the partition tainted with fraud, or their
transferees who may not qualify as innocent purchasers for value. If the liability of the
registered property should extend indefinitely beyond that period, then such constructive
notice which binds the whole world by virtue of registration would be meaningless and
illusory. x x x.[7] (Emphasis supplied)
The only exception to the above-mentioned prescription is when the title remains in the hands of the
heirs who have fraudulently caused the partition of the subject property or in those of their transferees
who cannot be considered innocent purchasers for value.
In this regard, title to the property in the present case was no longer in the name of the allegedly
fraudulent heirs, but already in that of an innocent purchaser for value the government. Moreover, the
government is presumed to have acted in good faith in the acquisition of the lot, considering that title
thereto was obtained through a Compromise Agreement judicially approved in proper expropriation
proceedings.
Even assuming that there was in fact fraud on the part of the other heirs, private respondents may
proceed only against the defrauding heirs, not against petitioner which had no participation in or
knowledge of the alleged fraud. The fact that the co-heirs title to the property was fraudulently secured
cannot prejudice the rights of petitioner which, absent any showing that it had knowledge or
participation in the irregularity, is considered a purchaser in good faith and for value.[8]
The remedy of an owner alleged to have been prejudiced or fraudulently deprived of property that
was subsequently sold to an innocent purchaser for value is an action for damages against the person or
persons who perpetrated the fraud.[9]

Second Issue: Limitations on Reconveyance

The law recognizes the right of a person, who, by adjudication or confirmation of title obtained by
actual fraud, is deprived of an estate or an interest therein.[10] Although a review of the decree of
registration is no longer possible after the one-year period from its entry expires, still available is an
equitable remedy to compel the reconveyance of property to those who may have been wrongfully
deprived of it.[11] This equitable remedy afforded by law is not without limitations, however.
An action for reconveyance resulting from fraud prescribes four years from the discovery of the
fraud; such discovery is deemed to have taken place upon the issuance of the certificate of title over the
property. Registration of real property is considered a constructive notice to all persons and, thus, the
four-year period shall be counted therefrom.[12] Clearly then, private respondents action for
reconveyance based on fraud has already prescribed, considering that title to said property had been
issued way back on August 11, 1982, while the reivindicatory suit was instituted only on July 29, 1996.
Even an action for reconveyance based on an implied or a constructive trust would have already
prescribed just the same, because such action prescribes ten (10) years from the alleged fraudulent
registration or date of issuance of the certificate of title over the property.[13] The imprescriptibility of an
action for reconveyance based on implied or constructive trust applies only when the plaintiff or the
person enforcing the trust is in possession of the property. In effect, the action for reconveyance is an
action to quiet the property title, which does not prescribe.[14] Undisputedly, private respondents are not
in possession of the disputed property. In fact, they do not even claim to be in possession of it, even if
to do so would enable them to justify the imprescriptibility of their action.
Accordingly, the CA Decisions reliance on Juan v. Zuiga,[15] as regards the imprescriptibility of an
action for reconveyance based on implied or constructive trust, is utterly misplaced in the light of the
foregoing rulings of the Court declaring a ten-year period of prescription for such action. Moreover, the
principle enunciated therein has no application to the instant case, considering that the supposed
trustee herein has effectively repudiated the so-called trust by directly performing an act of
ownership; that is, by conveying the property to the government through expropriation. An action to
compel, for the benefit of the cestui que trust, the conveyance of property registered in the trustees
name does not prescribe unless the trustee repudiates the trust.[16] Thus, private respondents cannot
invoke the imprescriptibility of their action for reconveyance, irrespective of their basis for it.

171

Finally, it must be remembered that reconveyance is a remedy of those whose property has been
wrongfully or erroneously registered in the name of another. Such recourse, however, cannot be availed
of once the property has passed to an innocent purchaser for value. For an action for reconveyance to
prosper, the property should not have passed into the hands of an innocent purchaser for value.[17]
Indubitably, we find that the property has already been conveyed to the government in appropriate
expropriation proceedings, the regularity or validity of which has not been questioned. Petitioner
should, therefore, enjoy the security afforded to innocent third persons under our registration
laws. Equally important, its title to the property must be rightfully preserved.
Hence, private respondents action to recover the subject property from the government cannot be
maintained, not only because of the prescription of the action, but on account of the protection given to
innocent purchasers for value granted under our land registration laws. Indeed, the inevitable
consequences of the Torrens system of land registration must be upheld in order to give stability to it
and provide finality to land disputes.
This ruling notwithstanding, private respondents are not without recourse. They may sue for
damages their co-heirs who have allegedly perpetrated fraud in Civil Case No. 4534-L pending before
the RTC. The right and the extent of damages to be awarded to private respondents shall be determined
by the trial court, subject to the evidence duly established during the proceedings.
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision of the Court of
Appeals REVERSED. The Orders of the Regional Trial Court of Lapu-Lapu City (Branch 54) in Civil
Case No. 4534-L, dated January 12, 1998 and March 31, 1998, are SET ASIDE and the said Civil Case,
as against petitioner, is DISMISSED. No costs.
SO ORDERED.

ULO SA NAYON, INC. and/or

PHILIPPINE VILLAGE HOTEL, INC.
and JOSE MARCEL E. PANLILIO,
Petitioners,

G.R. No. 170923

Present:
PUNO, C.J., Chairperson,
CARPIO,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

- versus -

NAYONG PILIPINO FOUNDATION,

Respondent.

Promulgated:
January 20, 2009

x----------------------------------------------------------- x

DECISION
PUNO, C.J.:
On appeal are the Court of Appeals (CAs) October 4, 2005 Decision [1] in CAG.R. SP No. 74631 and December 22, 2005 Resolution,[2] reversing the November 29,
2002 Decision[3] of the Regional Trial Court (RTC) of Pasay City in Civil Case No. 020133. The RTC modified the Decision[4] of the Metropolitan Trial Court (MeTC)
172

ofPasay City which ruled against petitioners and ordered them to vacate the premises and
pay their arrears. The RTC declared petitioners as builders in good faith and upheld their
right to indemnity.

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and controlled
corporation, is the owner of a parcel of land in Pasay City, known as the Nayong Pilipino
Complex. Petitioner Philippine Village Hotel, Inc. (PVHI), formerly called Sulo sa
Nayon, Inc., is a domestic corporation duly organized and existing under Philippine
laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President.
On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex,
consisting of 36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the construction
and operation of a hotel building, to be known as the Philippine Village Hotel. The lease
was for an initial period of 21 years, or until May 1996. It is renewable for a period of 25
years under the same terms and conditions upon due notice in writing to respondent of
the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995,
petitioners sent respondent a letter notifying the latter of their intention to renew the
contract for another 25 years. On July 4, 1995, the parties executed a Voluntary
Addendum to the Lease Agreement. The addendum was signed by petitioner Jose Marcel
E. Panlilio in his official capacity as Senior Executive Vice President of the PVHI and by
Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the
renewal of the contract for another 25 years, or until 2021. Under the new agreement,
petitioner PVHI was bound to pay the monthly rental on a per square meter basis at the
rate of P20.00 per square meter, which shall be subject to an increase of 20% at the end
of every 3-year period. At the time of the renewal of the lease contract, the monthly rental
amounted to P725,780.00.
Beginning January 2001, petitioners defaulted in the payment of their monthly
rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the
premises. The last demand letter was sent on March 26, 2001.
On September 5, 2001, respondent filed a complaint for unlawful detainer before
the MeTC of Pasay City. The complaint was docketed as Civil Case No. 70801. Respondent computed the arrears of petitioners in the amount of twenty-six million
one hundred eighty-three thousand two hundred twenty-five pesos and fourteen centavos
(P26,183,225.14), as of July 31, 2001.
173

On February 26, 2002, the MeTC rendered its decision in favor of respondent. It
ruled, thus:
. . . . The court is convinced by the evidence that indeed, defendants
defaulted in the payment of their rentals. It is basic that the lessee is obliged to
pay the price of the lease according to the terms stipulated (Art. 1657, Civil
Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor
may eject (sic) and treat the lease as rescinded and sue to eject the lessee (C.
Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For non-payment of rentals, the
lessor may rescind the lease, recover the back rentals and recover possession of
the leased premises. . .
xxx
. . . . Improvements made by a lessee such as the defendants herein on
leased premises are not valid reasons for their retention thereof. The Supreme
Court has occasion to address a similar issue in which it ruled that: The fact
that petitioners allegedly made repairs on the premises in question is not a
reason for them to retain the possession of the premises. There is no provision
of law which grants the lessee a right of retention over the leased premises on
that ground. Article 448 of the Civil Code, in relation to Article 546, which
provides for full reimbursement of useful improvements and retention of the
premises until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on a land in the belief that he is the owner
thereof. This right of retention does not apply to a mere lessee, like the
petitioners, otherwise, it would always be in his power to improve his
landlord out of the latters property (Jose L. Chua and Co Sio Eng vs. Court of
Appeals and Ramon Ibarra, G.R. No. 109840, January 21, 1999).
Although the Contract of Lease stipulates that the building and all the
improvements in the leased premises belong to the defendants herein, such will
not defeat the right of the plaintiff to its property as the defendants failed to pay
their rentals in violation of the terms of the contract. At most, defendants can
only invoke [their] right under Article 1678 of the New Civil Code which
grants them the right to be reimbursed one-half of the value of the building
upon the termination of the lease, or, in the alternative, to remove the
improvements if the lessor refuses to make reimbursement.

174

The dispositive portion of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in
favor of Nayong Pilipino Foundation, and against the defendant Philippine
Village Hotel, Inc[.], and all persons claiming rights under it, ordering the latter
to:
1.

VACATE the subject premises and surrender possession thereof

to plaintiff;

2.

PAY plaintiff its rental arrearages in the sum of TWENTY SIX

MILLION ONE HUNDRED EIGHTY THREE THOUSAND
TWO HUNDRED TWENTY FIVE PESOS AND 14/100
(P26,183,225.14) incurred as of July 31, 2001;

3.

PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE

THOUSAND
SEVEN
HUNDRED
EIGHTY
PESOS
(P725,780.00) per month starting from August 2001 and every
month thereafter by way of reasonable compensation for the use
and occupation of the premises;

4.

PAY plaintiff the sum of FIFTY THOUSAND PESOS

(P50,000.00) by way of attorneys fees[; and]

5.

PAY the costs of suit.

The complaint against defendant Jose Marcel E. Panlilio is hereby

dismissed for lack of cause of action. The said defendants counterclaim
however is likewise dismissed as the complaint does not appear to be frivolous
or maliciously instituted.
SO ORDERED.[5]

Petitioners appealed to the RTC which modified the ruling of the MeTC. It held
that:
. . . it is clear and undisputed that appellants-lessees were expressly
required to construct a first-class hotel with complete facilities. The appellants
were also unequivocally declared in the Lease Agreement as the owner of the
improvements so constructed. They were even explicitly allowed to use the
improvements and building as security or collateral on loans and credit
accommodations that the Lessee may secure for the purpose of financing the
construction of the building and other improvements (Section 2; pars. A to
B, Lease Agreement). Moreover, a time frame was setforth (sic) with respect
to the duration of the lease initially for 21 years and renewable for another 25
years in order to enable the appellants-lessees to recoup their huge money
investments relative to the construction and maintenance of the improvements.
xxx
Considering therefore, the elements of permanency of the construction
and substantial value of the improvements as well as the undispute[d]
ownership over the land improvements, these, immensely engender the
application of Art. 448 of the Civil Code. The only remaining and most crucial
issue to be resolved is whether or not the appellants as builders have acted in
good faith in order for Art. 448 in relation to Art. 546 of the Civil Code may
apply with respect to their rights over improvements.
175

xxx
. . . it is undeniable that the improvement of the hotel building of
appellants (sic) PVHI was constructed with the written consent and knowledge
of appellee. In fact, it was precisely the primary purpose for which they
entered into an agreement. Thus, it could not be denied that appellants
were builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art. 546 of the
Civil Code, plaintiff-appellee has the sole option or choice, either to
appropriate the building, upon payment of proper indemnity consonant to Art.
546 or compel the appellants to purchase the land whereon the building was
erected. Until such time that plaintiff-appellee has elected an option or choice,
it has no right of removal ordemolition against appellants unless after having
selected a compulsory sale, appellants fail to pay for the land (Ignacio vs.
Hilario; 76 Phil. 605). This, however, is without prejudice from the parties
agreeing to adjust their rights in some other way as they may mutually deem fit
and proper.

The dispositive portion of the decision of the RTC reads as follows:

WHEREFORE, and in view of the foregoing, judgment is hereby
rendered modifying the decision of [the] MTC, Branch 45 of Pasay City
rendered on February 26, 2002 as follows:
1. Ordering plaintiff-appellee to submit within thirty (30) days from
receipt of a copy of this decision a written manifestation of the option
or choice it selected, i.e., to appropriate the improvements upon
payment of proper indemnity or compulsory sale of the land whereon
the hotel building of PVHI and related improvements or facilities
were erected;
2. Directing the plaintiff-appellee to desist and/or refrain from doing
acts in the furtherance or exercise of its rights and demolition against
appellants unless and after having selected the option of compulsory
sale and appellants failed to pay [and] purchase the land within a
reasonable time or at such time as this court will direct;
3. Ordering defendants-appellants to pay plaintiff-appellee [their]
arrears in rent incurred as of July 31, 2001 in the amount of
P26,183,225.14;
4. Ordering defendants-appellants to pay to plaintiff-appellee the
unpaid monthly rentals for the use and occupation of the premises
pending this appeal from July to November 2002 only at P725,780.00
per month;
5. The fourth and fifth directives in the dispositive portion of the trial
courts decision including that the last paragraph thereof JME
Panlilios complaint is hereby affirmed;
6. The parties are directed to adjust their respective rights in the interest
of justice as they may deem fit and proper if necessary.

SO ORDERED.[6]

176

Respondent appealed to the CA which held that the RTC erroneously applied the
rules on accession, as found in Articles 448 and 546 of the Civil Code when it held that
petitioners were builders in good faith and, thus, have the right to indemnity. The CA
held:
By and large, respondents are admittedly mere lessees of the subject
premises and as such, cannot validly claim that they are builders in good faith
in order to solicit the application of Articles 448 and 546 of the Civil Code in
their favor. As it is, it is glaring error on the part of the RTC to apply the
aforesaid legal provisions on the supposition that the improvements, which are
of substantial value, had been introduced on the leased premises with the
permission of the petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of the valuable and
substantial improvements that they introduced to the leased premises plainly
contravenes the law and settled jurisprudential doctrines and would, as stated,
allow the lessee to easily improve the lessor out of its property.
. . . . Introduction of valuable improvements on the leased premises
does not strip the petitioner of its right to avail of recourses under the law and
the lease contract itself in case of breach thereof. Neither does it deprive the
petitioner of its right under Article 1678 to exercise its option to acquire the
improvements or to let the respondents remove the same.

Petitioners Motion for Reconsideration was denied.

Hence, this appeal.[7]

Petitioners assign the following errors:

I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE
REVERSIBLE ERROR IN NOT HOLDING THAT PETITIONERS WERE
BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL AND
VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON
THE SUBJECT PROPERTY, THUS COMPELLING THE APPLICATION
OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546
OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL
CODE.
II
THE HONORABLE COURT OF APPEALS COMMITTED A
SERIOUS REVERSIBLE ERROR WHEN IT DISREGARDED THE FACT
THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OF
THE PARTIES AND CONSEQUENTLY THE PARTIES MAY BE
CONSIDERED TO HAVE IMPLIEDLY WAIVED THE APPLICATION OF
ARTICLE 1678 OF THE CIVIL CODE TO THE INSTANT CASE.
III

177

ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT

BUILDERS IN GOOD FAITH, THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT
OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD
FAITH WHEN IT DID NOT HONOR AND INSTEAD BREACHED THE
LEASE CONTRACT BETWEEN THE PARTIES, THUS BOTH PARTIES
ACTED AS IF THEY ARE IN GOOD FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE
CIVIL CODE INSTEAD OF ARTICLE 448 OF THE CIVIL CODE IN
RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY
WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS
AND INTERESTS OF PETITIONER PHILIPPINE VILLAGE HOTEL, INC.
WHILE RESPONDENT NAYONG PILIPINO FOUNDATION, IN
COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR
INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD
CONSTITUTE UNJUST ENRICHMENT ON THE PART OF RESPONDENT
AT GREAT EXPENSE AND GRAVE PREJUDICE OF PETITIONERS.
V
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE
REVERSIBLE ERROR IN NOT HOLDING THAT THE COURTS A QUO
DID NOT ACQUIRE JURISDICTION OVER THE UNLAWFUL
DETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL
REQUIREMENTS DUE TO THE ABSENCE OF A NOTICE TO VACATE
UPON PETITIONERS.[8]

First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not
acquire jurisdiction to hear and decide the ejectment case because they never received
any demand from respondent to pay rentals and vacate the premises, since such demand
is a jurisdictional requisite. We reiterate the ruling of the MeTC, RTC and CA. Contrary
to the claim of petitioners, documentary evidence proved that a demand letter dated
March 26, 2001 was sent by respondent through registered mail to petitioners, requesting
them to pay the rental arrears or else it will be constrained to file the appropriate legal
action and possess the leased premises.
Further, petitioners argument that the demand letter is inadequate because it
contained no demand to vacate the leased premises does not persuade. We have ruled
that:
. . . . The word vacate is not a talismanic word that must be employed
in all notices. The alternatives in this case are clear cut. The tenants must pay
rentals which are fixed and which became payable in the past, failing which
they must move out. There can be no other interpretation of the notice given to
them. Hence, when the petitioners demanded that either he pays P18,000 in
five days or a case of ejectment would be filed against him, he was placed on
178

notice to move out if he does not pay. There was, in effect, a notice or demand
to vacate.[9]

In the case at bar, the language of the demand letter is plain and
simple: respondent

demanded

payment

of

the

rental

arrears

amounting

to P26,183,225.14 within ten days from receipt by petitioners, or respondent will be

constrained to file an appropriate legal action against petitioners to recover the said
amount. The demand letter further stated that respondent will possess the leased
premises in case of petitioners failure to pay the rental arrears within ten days. Thus, it
is clear that the demand letter is intended as a notice to petitioners to pay the rental
arrears, and a notice to vacate the premises in case of failure of petitioners to perform
their obligation to pay.
Second, we resolve the main issue of whether the rules on accession, as found in
Articles 448 and 546 of the Civil Code, apply to the instant case.

Article 448 and Article 546 provide:

Art. 448. The owner of the land on which anything has been built, sown
or planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith

with the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of
paying the increase in value which the thing may have acquired by reason
thereof.

We uphold the ruling of the CA.

The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:
This article [Article 448] is manifestly intended to apply only to a case
where one builds, plants, or sows on land in which he believes himself to have
a claim of title,[10] and not to lands where the only interest of the builder, planter
or sower is that of a holder, such as a tenant.[11]

179

In the case at bar, petitioners have no adverse claim or title to the land. In fact, as
lessees, they recognize that the respondent is the owner of the land. What petitioners
insist is that because of the improvements, which are of substantial value, that they have
introduced on the leased premises with the permission of respondent, they should be
considered builders in good faith who have the right to retain possession of the property
until reimbursement by respondent.
We affirm the ruling of the CA that introduction of valuable improvements on the
leased premises does not give the petitioners the right of retention and reimbursement
which rightfully belongs to a builder in good faith. Otherwise, such a situation would
allow the lessee to easily improve the lessor out of its property. We reiterate the
doctrine that a lessee is neither a builder in good faith nor in bad faith [12] that would call
for the application of Articles 448 and 546 of the Civil Code. His rights are governed by
Article 1678 of the Civil Code, which reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form or substance
of the property leased, the lessor upon the termination of the lease shall pay the lessee
one-half of the value of the improvements at that time. Should the lessor refuse to
reimburse said amount, the lessee may remove the improvements, even though the
principal thing may suffer damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to

any reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to retain
them by paying their value at the time the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-half of the value of the
improvements which the lessee made in good faith, which are suitable for the use for
which the lease is intended, and which have not altered the form and substance of the
land. On the other hand, the lessee may remove the improvements should the lessor
refuse to reimburse.
Petitioners argue that to apply Article 1678 to their case would result to sheer
injustice, as it would amount to giving away the hotel and its other structures at virtually
bargain prices. They allege that the value of the hotel and its appurtenant facilities
amounts to more than two billion pesos, while the monetary claim of respondent against
them only amounts to a little more than twenty six-million pesos. Thus, they contend that
it is the lease contract that governs the relationship of the parties, and consequently, the
parties may be considered to have impliedly waived the application of Article 1678.

180

We cannot sustain this line of argument by petitioners. Basic is the doctrine that
laws are deemed incorporated in each and every contract. Existing laws always form part
of

any

contract. Further,

the

lease

contract

in

181

the case at bar shows no special kind of agreement between the parties as to how to
proceed in cases of default or breach of the contract. Petitioners maintain that the lease
contract contains a default provision which does not give respondent the right to
appropriate the improvements nor evict petitioners in cases of cancellation or termination
of the contract due to default or breach of its terms. They cite paragraph 10 of the lease
contract, which provides that:
10. DEFAULT. - . . . Default shall automatically take place upon the
failure of the LESSEE to pay or perform its obligation during the time fixed
herein for such obligations without necessity of demand, or, if no time is fixed,
after 90 days from the receipt of notice or demand from the LESSOR. . .
In case of cancellation or termination of this contract due to the default
or breach of its terms, the LESSEE will pay all reasonable attorneys fees, costs
and expenses of litigation that may be incurred by the LESSOR in enforcing its
rights under this contract or any of its provisions, as well as all unpaid rents,
fees, charges, taxes, assessment and others which the LESSOR may be entitled
to.

Petitioners assert that respondent committed a breach of the lease contract when it
filed the ejectment suit against them. However, we find nothing in the above quoted
provision that prohibits respondent to proceed the way it did in enforcing its rights as
lessor. It can rightfully file for ejectment to evict petitioners, as it did before the court a
quo.
IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4, 2005
Decision of the Court of Appeals in CA-G.R. SP No. 74631 and its December 22, 2005
Resolution are AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 152319

October 28, 2009

HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE,

Surviving Spouse; and DANILO and JOSELITO, both surnamed Limense,
children, Petitioners,
vs.
RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS,
BENJAMIN RAMOS, WALDYTRUDES RAMOS-BASILIO, TRINIDAD RAMOSBRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOS-REYES, and JACINTA
RAMOS, Respondents.
DECISION
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PERALTA, J.,
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision1 of the Court of Appeals dated December 20, 2001 in
CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial Court of
Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128.
The antecedent facts are as follows:
Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12,
Block No. 1074 of the cadastral survey of the City of Manila covered by Original
Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14,
1927,3 containing an area of 873.80 square meters, more or less, located in Beata
Street, Pandacan, Manila.
Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B,
12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he donated
the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all
surnamed Lozada. The Deed of Donation was registered with the office of the Register
of Deeds of Manila on March 15, 1932.
Under the said Deed of Donation, the lots were adjudicated to Dalmacio's daughters in
the following manner:
a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense;
b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad;
c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel
Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco
Ramos, in equal parts;
d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and
e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and
Felicidad Lozada, married to Galicano Centeno.
By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which
was registered in his name, was cancelled and, in lieu thereof, Transfer Certificates of
Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor
of the donees, except TCT No. 40044, which remained in his name. These new TCTs
were annotated at the back of OCT No. 7036.5
TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners
Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac
Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60
square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the
southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision
plan. In 1932, respondents' predecessor-in-interest constructed their residential building
on Lot No. 12-D, adjacent to Lot No. 12-C.
On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense
covering the very same area of Lot No. 12-C.
On October 1, 1981, Joaquin Limense secured a building permit for the construction of
a hollow block fence on the boundary line between his aforesaid property and the
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adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as
Lot No. 12-D, which was being occupied by respondents. The fence, however, could
not be constructed because a substantial portion of respondents' residential building in
Lot No. 12-D encroached upon portions of Joaquin Limense's property in Lot No. 12-C.
Joaquin Limense demanded the removal of the encroached area; however, respondent
ignored both oral and written demands. The parties failed to amicably settle the
differences between them despite referral to the barangay. Thus, on March 9, 1983,
Joaquin Limense, duly represented by his Attorney-in-Fact, Teofista L. Reyes, instituted
a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila,
Branch 15, for removal of obstruction and damages.
Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and
severally, to remove the portion which illegally encroached upon his property on Lot No.
12-C and, likewise, prayed for the payment of damages, attorneys fees and costs of
suit.
Respondents, on the other hand, averred in their Answer8 that they were the surviving
heirs of Francisco Ramos,9who, during his lifetime, was married to Salud Lozada, one
of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing
the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina,
married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to
Francisco Ramos. Being the surviving heirs of Francisco Ramos, respondents later
became co-owners of Lot No. 12-C. Lot No. 12-C has served as right of way or
common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a
common alley, it could not be closed or fenced by Joaquin Limense without causing
damage and prejudice to respondents.
After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990
dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of
right of way existed in favor of respondents. Pertinent portions of the decision read as
follows:
The Court finds that an apparent easement of right of way exists in favor of the
defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley
which shows its existence. It is admitted that this alley was established by the original
owner of Lot 12 and that in dividing his property, the alley established by him continued
to be used actively and passively as such. Even when the division of the property
occurred, the non-existence of the easement was not expressed in the corresponding
titles nor were the apparent sign of the alley made to disappear before the issuance of
said titles.
The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he
knew that said lot could serve no other purpose than as an alley. That is why even after
he acquired it in 1969, the lot continued to be used by defendants and occupants of the
other adjoining lots as an alley. The existence of the easement of right of way was
therefore known to plaintiff who must respect the same in spite of the fact that his
transfer certificate of title does not mention the lot of defendants as among those listed
therein as entitled to such right of way. It is an established principle that actual notice or
knowledge is as binding as registration.11
Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of
the case were transmitted to the Court of Appeals (CA). During the pendency of the
appeal with the CA, Joaquin Limense died in 1999.12

184

The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated December
20, 2001 dismissed the appeal and affirmed in toto the decision of the RTC.
Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense,
elevated the case to this Court via a Petition for Review on Certiorari14 raising the
following issues:
1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING,
LIKE THE TRIAL COURT DID, THAT RESPONDENTS' LOT 12-D HAS AN
EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE'S LOT 12-C?
2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO
HOLD, LIKE THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS
OF RESPONDENTS' HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN
LIMENSE'S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD
BE REMOVED?
Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two
TCT's, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to show
how Joaquin Limense was able to secure another title over an already titled property,
then one of these titles must be of dubious origin. According to the CA, TCT No. 96886,
issued in the name of Joaquin Limense, was spurious because the Lozada sisters
never disposed of the said property covered by TCT No. 40043. The CA further ruled
that a co-ownership existed over Lot No. 12-C between petitioners and respondents.
Petitioners countered that TCT No. 96886, being the only and best legitimate proof of
ownership over Lot No. 12-C, must prevail over TCT No. 40043.
Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin
Limense, was obtained thru fraud, misrepresentation or falsification of documents
because the donees of said property could not possibly execute any valid transfer of
title to Joaquin Limense, as they were already dead prior to the issuance of TCT No.
96886 in 1969. Respondents further allege that petitioners failed to produce proof
substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense.
Apparently, respondents are questioning the legality of TCT No. 96886, an issue that
this Court cannot pass upon in the present case. It is a rule that the validity of a torrens
title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD) No. 1529
provides that:
[a] certificate of title shall not be subject to collateral attack. It cannot be altered,
modified, or cancelled except in a direct proceeding in accordance with law.
In the case at bar, the action filed before the RTC against respondents was an action
for removal of obstruction and damages. Respondents raised the defense that Joaquin
Limense's title could have been obtained through fraud and misrepresentation in the
trial proceedings before the RTC. Such defense is in the nature of a collateral attack,
which is not allowed by law.
Further, it has been held that a certificate of title, once registered, should not thereafter
be impugned, altered, changed, modified, enlarged or diminished, except in a direct
proceeding permitted by law. Otherwise, the reliance on registered titles would be lost.
The title became indefeasible and incontrovertible after the lapse of one year from the
time of its registration and issuance. Section 32 of PD 1529 provides that "upon the
expiration of said period of one year, the decree of registration and the certificate of title
185

shall become incontrovertible. Any person aggrieved by such decree of registration in

any case may pursue his remedy by action for damages against the applicant or other
persons responsible for the fraud."16 It has, therefore, become an ancient rule that the
issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be
raised in an action expressly instituted for that purpose.17 In the present case, TCT No.
96886 was registered in 1969 and respondents never instituted any direct proceeding
or action to assail Joaquin Limense's title.
Additionally, an examination of TCT No. 40043 would readily show that there is an
annotation that it has been"CANCELLED."18 A reading of TCT No. 96886 would also
reveal that said title is a transfer from TCT No. 4886619and not TCT 40043. Thus, it is
possible that there was a series of transfers effected from TCT No. 40043 prior to the
issuance of TCT No. 96886. Hence, respondents' position that the issuance of TCT No.
96886 in the name of Joaquin Limense is impossible, because the registered owners of
TCT No. 40043 were already dead prior to 1969 and could not have transferred the
property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was
obtained through fraud, misrepresentation or falsification of documents.
Findings of fact of the CA, although generally deemed conclusive, may admit review by
this Court if the CA failed to notice certain relevant facts that, if properly considered,
would justify a different conclusion, and if the judgment of the CA is premised on a
misapprehension of facts.20 As with the present case, the CA's observation that TCT
No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been
disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an
indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best
proof of Joaquin Limenses ownership over Lot No. 12-C. Thus, the CA erred in ruling
that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered
exclusively in the name of Joaquin Limense.
Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his
successors-in-interest, may enclose or fence his land or tenements by means of walls,
ditches, live or dead hedges, or by any other means without detriment to servitudes
constituted thereon.21
However, although the owner of the property has the right to enclose or fence his
property, he must respect servitudes constituted thereon. The question now is whether
respondents are entitled to an easement of right of way.
Petitioners contend that respondents are not entitled to an easement of right of way
over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT
No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that
they are entitled to an easement of right of way over Lot No. 12-C, which has been
continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the
area and the public in general from 1932 up to the present. Since petitioners are fully
aware of the long existence of the said alley or easement of right of way, they are
bound to respect the same.
As defined, an easement is a real right on another's property, corporeal and
immovable, whereby the owner of the latter must refrain from doing or allowing
somebody else to do or something to be done on his property, for the benefit of another
person or tenement.22
Easements may be continuous or discontinuous, apparent or non-apparent.

186

Continuous easements are those the use of which is or may be incessant, without the
intervention of any act of man. Discontinuous easements are those which are used at
intervals and depend upon the acts of man. Apparent easements are those which are
made known and are continually kept in view by external signs that reveal the use and
enjoyment of the same. Non-apparent easements are those which show no external
indication of their existence.23
In the present case, the easement of right of way is discontinuous and apparent. It is
discontinuous, as the use depends upon the acts of respondents and other persons
passing through the property. Being an alley that shows a permanent path going to and
from Beata Street, the same is apparent.
Being a discontinuous and apparent easement, the same can be acquired only by
virtue of a title.24
In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not
contain any annotation that Lot No. 12-D was given an easement of right of way over
Lot No. 12-C. However, Joaquin Limense and his successors-in-interests are fully
aware that Lot No. 12-C has been continuously used and utilized as an alley by
respondents and residents in the area for a long period of time.
Joaquin Limense's Attorney-in-Fact, Teofista L. Reyes, testified that respondents and
several other residents in the area have been using the alley to reach Beata Street
since 1932. Thus:
Atty. Manuel B. Tomacruz:
Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were
issued to the children of Dalmacio Lozada namely Salud Lozada, Catalina
Lozada and Isabel Lozada, is that right?
A: Yes, sir.
Q: And after the said property was adjudicated to his said children the latter
constructed their houses on their lots.
A: Yes, sir.
Q: As a matter of fact, the herein defendants have constructed their houses on
the premises alloted to them since the year 1932?
A: Yes, sir, they were able to construct their house fronting Beata Street.
Q: And that house they have constructed on their lot in 1932 is still existing
today?
A: Yes, sir and they still used the alley in question and they are supposed to use
Beata Street but they are not using Beata Street.
Q: They are using the alley?
A: Yes, sir, they are using the alley and they do not pass through Beata Street.
Q: And they have been using the alley since 1932 up to the present?
A: Yes, sir they have been using the alley since that time. That was their mistake
and they should be using Beata Street because they are fronting Beata Strret.
187

Q: As a matter of fact, it is not only herein defendants who have been using that
alley since 1932 up to the present?
A: Yes, sir they are using the alley up to now.
Q: As a matter of fact, in this picture marked as Exh. "C-1" the alley is very
apparent. This is the alley?
A: Yes, sir.
Q: And there are houses on either side of this alley?
A: Yes, sir.
Q: As a matter of fact, all the residents on either side of the alley are passing
through this alley?
A: Yes, sir, because the others have permit to use this alley and they are now
allowed to use the alley but the Ramos's family are now [not] allowed to use this
alley.25
In Mendoza v. Rosel,26 this Court held that:
Petitioners claim that inasmuch as their transfer certificates of title do not mention any
lien or encumbrance on their lots, they are purchasers in good faith and for value, and
as such have a right to demand from respondents some payment for the use of the
alley. However, the Court of Appeals found, as a fact, that when respondents acquired
the two lots which form the alley, they knew that said lots could serve no other purpose
than as an alley.The existence of the easement of right of way was therefore
known to petitioners who must respect the same, in spite of the fact that their
transfer certificates of title do not mention any burden or easement. It is an
established principle that actual notice or knowledge is as binding as
registration.
Every buyer of a registered land who takes a certificate of title for value and in good
faith shall hold the same free of all encumbrances except those noted on said
certificate. It has been held, however, that "where the party has knowledge of a prior
existing interest that was unregistered at the time he acquired a right to the same land,
his knowledge of that prior unregistered interest has the effect of registration as to
him."27
In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by
Dalmacio Lozada to his heirs. It is undisputed that prior to and after the registration of
TCT No. 96886, Lot No. 12-C has served as a right of way in favor of respondents and
the public in general. We quote from the RTC's decision:
x x x It cannot be denied that there is an alley which shows its existence. It is admitted
that this alley was established by the original owner of Lot 12 and that in dividing his
property the alley established by him continued to be used actively and passively as
such. Even when the division of the property occurred, the non-existence of the
easement was not expressed in the corresponding titles nor were the apparent sign of
the alley made to disappear before the issuance of said titles.
The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he
knew that said lot could serve no other purpose than as an alley. That is why even after
188

he acquired it in 1969 the lot continued to be used by defendants and occupants of the
other adjoining lots as an alley. x x x28
Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even
though no registration of the servitude has been made on TCT No. 96886.
However, respondents right to have access to the property of petitioners does not
include the right to continually encroach upon the latters property. It is not disputed that
portions of respondents' house on Lot No. 12-D encroach upon Lot No. 12-C. Geodetic
Engineer Jose Agres, Jr. testified on the encroachment of respondents' house on Lot
No. 12-C, which he surveyed.29 In order to settle the rights of the parties relative to the
encroachment, We should determine whether respondents were builders in good faith.
Good faith is an intangible and abstract quality with no technical meaning or statutory
definition; and it encompasses, among other things, an honest belief, the absence of
malice and the absence of a design to defraud or to seek an unconscionable
advantage. An individuals personal good faith is a concept of his own mind and,
therefore, may not conclusively be determined by his protestations alone. It implies
honesty of intention, and freedom from knowledge of circumstances which ought to put
the holder upon inquiry. The essence of good faith lies in an honest belief in the validity
of ones right, ignorance of a superior claim, and absence of intention to overreach
another. Applied to possession, one is considered in good faith if he is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it.30
Good faith is always presumed, and upon him who alleges bad faith on the part of the
possessor rests the burden of proof.31 It is a matter of record that respondents'
predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent
to Lot No. 12-C, in 1932.32 Respondents' predecessor-in-interest owned the 1/3 portion
of Lot No. 12-C at the time the property was donated to them by Dalmacio Lozada in
1932. The Deed of Donation executed by the late Dalmacio Lozada, dated March 9,
1932, specifically provides that:
I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero
Natividad, Isabel Lozada married to Isaac Simense and Salud Lozada married to
Francisco Ramos, all Filipinos, of legal age, the parcel of land known as Lot No. 12C, in equal parts.33
The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and
17 meters in length; the stairs; and the concrete structures are all within the 1/3 share
alloted to them by their donor Dalmacio Lozada and, hence, there was absence of a
showing that respondents acted in bad faith when they built portions of their house on
Lot No. 12-C.
Using the above parameters, we are convinced that respondents' predecessors-ininterest acted in good faith when they built portions of their house on Lot 12-C.
Respondents being builders in good faith, we shall now discuss the respective rights of
the parties relative to the portions encroaching upon respondents' house.
Articles 448 and 546 of the New Civil Code provide:
Art. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting,
after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one
who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
189

reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and, in
case of disagreement, the court shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the option
of refunding the amount of the expenses or of paying the increase in value which the
thing may have acquired by reason thereof.
In Spouses Del Campo v. Abesia,34 this provision was applied to one whose house,
despite having been built at the time he was still co-owner, overlapped with the land of
another. In that case, this Court ruled:
The court a quo correctly held that Article 448 of the Civil Code cannot apply where a
co-owner builds, plants or sows on the land owned in common for then he did not build,
plant or sow upon the land that exclusively belongs to another but of which he is a coowner. The co-owner is not a third person under the circumstances, and the situation is
governed by the rules of co-ownership.
However, when, as in this case, the ownership is terminated by the partition and it
appears that the house of defendants overlaps or occupies a portion of 5 square
meters of the land pertaining to plaintiffs which the defendants obviously built in good
faith, then the provisions of Article 448 of the new Civil Code should apply. x x x35
In other words, when the co-ownership is terminated by a partition, and it appears that
the house of an erstwhile co-owner has encroached upon a portion pertaining to
another co-owner, but the encroachment was in good faith, then the provisions of
Article 448 should apply to determine the respective rights of the parties. In this case,
the co-ownership was terminated due to the transfer of the title of the whole property in
favor of Joaquin Limense.
Under the foregoing provision, petitioners have the right to appropriate said portion of
the house of respondents upon payment of indemnity to respondents, as provided for in
Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to pay the
price of the land occupied by their house. However, if the price asked for is
considerably much more than the value of the portion of the house of respondents built
thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay
the reasonable rent to petitioners upon such terms and conditions that they may agree.
In case of disagreement, the trial court shall fix the terms thereof. Of course,
respondents may demolish or remove the said portion of their house, at their own
expense, if they so decide.36
The choice belongs to the owner of the land, a rule that accords with the principle of
accession that the accessory follows the principal and not the other way around.37 Even
as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He
must choose one. He cannot, for instance, compel the owner of the building to instead
remove it from the land.38
The obvious benefit to the builder under this article is that, instead of being outrightly
ejected from the land, he can compel the landowner to make a choice between two
options: (1) to appropriate the building by paying the indemnity required by law, or (2) to
sell the land to the builder.39
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The raison detre for this provision has been enunciated, thus:
Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just
solution by giving the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to pay for the land
and the sower the proper rent. He cannot refuse to exercise either option. It is the
owner of the land who is authorized to exercise the option, because his right is older,
and because, by the principle of accession, he is entitled to the ownership of the
accessory thing.40]
In accordance with Depra v. Dumlao,41 this case must be remanded to the trial court to
determine matters necessary for the proper application of Article 448 in relation to
Article 546. Such matters include the option that petitioners would take and the amount
of indemnity that they would pay, should they decide to appropriate the improvements
on the lots.
Anent the second issue, although it may seem that the portions encroaching upon
respondents' house can be considered a nuisance, because it hinders petitioners' use
of their property, it cannot simply be removed at respondents' expense, as prayed for
by petitioner. This is because respondents built the subject encroachment in good faith,
and the law affords them certain rights as discussed above.
WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated
December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the
following MODIFICATIONS:
1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886,
between petitioners and respondents.
2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for
further proceedings without further delay to determine the facts essential to the
proper application of Articles 448 and 546 of the Civil Code.
SO ORDERED.

LUCIANO BRIONES and NELLY

BRIONES,
Petitioners,

- versus -

JOSE MACABAGDAL, FE D.
MACABAGDAL and VERGON
REALTY
INVESTMENTS

G.R. No. 150666

Present:
CARPIO MORALES, J.,
Chairperson,
BRION,
BERSAMIN,
ABAD, and
VILLARAMA, JR., JJ.
Promulgated:
191

CORPORATION,
August 3, 2010
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:
On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the
Decision[1] dated December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No.
48109 which affirmed the September 29, 1993 Decision [2] of the Regional Trial Court
(RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly Briones to
remove the improvements they have made on the disputed property or to pay respondentspouses Jose and Fe Macabagdal the prevailing price of the land as compensation.
The undisputed factual antecedents of the case are as follows:
Respondent-spouses purchased from Vergon Realty Investments Corporation
(Vergon) Lot No. 2-R, a 325-square-meter land located in Vergonville Subdivision No.
10 at Las Pias City, Metro Manila and covered by Transfer Certificate of Title No.
62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are the
owners of Lot No. 2-S, which is adjacent to Lot No. 2-R.
Sometime in 1984, after obtaining the necessary building permit and the approval
of Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot
No. 2-S. After being informed of the mix up by Vergons manager, respondent-spouses
immediately

demanded

petitioners

to

demolish

the

house

and

vacate

the

property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses

filed an action to recover ownership and possession of the said parcel of land with the
RTC of Makati City.[3]
Petitioners insisted that the lot on which they constructed their house was the lot
which was consistently pointed to them as theirs by Vergons agents over the seven (7)year period they were paying for the lot. They interposed the defense of being buyers in
good faith and impleaded Vergon as third-party defendant claiming that because of the
warranty against eviction, they were entitled to indemnity from Vergon in case the suit is
decided against them.[4]

192

The RTC ruled in favor of respondent-spouses and found that petitioners house
was undoubtedly built on Lot No. 2-R. The dispositive portion of the trial courts
decision reads as follows:
PREMISES CONSIDERED, let judgment be rendered declaring, to wit:
1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan
(LRC) Psd-147392 at Vergonville Subdivision, No. 10, Las Pias,
Metro Manila covered by TCT No. 62181 of the Registry of Deeds of Pasay
City on which defendants have constructed their house;
2. Defendants, jointly and severally, are ordered to demolish
their house and vacate the premises and return the possession of the portion of
Lot No. 2-R as above-described to plaintiffs within thirty (30) days from
receipt of this decision, or in the alternative, plaintiffs should be compensated
by defendants, jointly and severally, by the payment of the prevailing price of
the lot involved as Lot No. 2-R with an area of 325 square meters which should
not be less than P1,500.00 per square meter, in consideration of the fact that
prices of real estate properties in the area concerned have increased rapidly;
3. Defendants, jointly and severally, pay to plaintiffs for moral damages
with plaintiffs plans and dreams of building their own house on their own lot
being severely shattered and frustrated due to defendants incursion as
interlopers of Lot No. 2-R in the sum of P50,000.00;
4. Defendants, jointly and severally, to pay plaintiffs in the amount
of P30,000.00 as attorneys fees; and,
5. to pay the costs of the proceedings.
Defendants counterclaim against plaintiffs is dismissed for lack of merit
and with no cause of action.
Defendants third-party complaint against third-party defendant
Vergonville Realty and Investments Corporation is likewise ordered dismissed
for lack of cause of action and evidently without merit.
On the other hand, defendants, jointly and severally, are liable for the
litigation expenses incurred by Vergonville Realty by way of counterclaim,
which is also proven by the latter with a mere preponderance of evidence, and
are hereby ordered to pay the sum of P20,000.00 as compensatory damage; and
attorneys fees in the sum of P10,000.00
SO ORDERED.[5]

On appeal, the CA affirmed the RTCs finding that the lot upon which petitioners
built their house was not the one (1) which Vergon sold to them. Based on the
documentary evidence, such as the titles of the two (2) lots, the contracts to sell, and the
survey report made by the geodetic engineer, petitioners house was built on the lot of the
respondent-spouses.[6] There was no basis to presume that the error was Vergons
fault. Also the warranty against eviction under Article 1548 of the Civil Code was not
applicable as there was no deprivation of property: the lot on which petitioners built their
house was not the lot sold to them by Vergon, which remained vacant and ready for
193

occupation.[7] The CA further ruled that petitioners cannot use the defense of allegedly
being a purchaser in good faith for wrongful occupation of land.[8]
Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the
appellate court.[9] Hence, this petition for review on certiorari.
Petitioners raise the following assignment of errors:
I.
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE
CONTRARY TO LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL
COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY
HOUSE AND VACATE THE LOT AND TO PAY MORAL AND
COMPENSATORY DAMAGES AS WELL AS ATTORNEYS FEE IN THE
TOTAL AMOUNT OF PS[P] 110,000; AND
II.
THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF
THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION.[10]

In the main, it is petitioners position that they must not bear the damage alone.
Petitioners insist that they relied with full faith and confidence in the reputation of
Vergons agents when they pointed the wrong property to them. Even the President of
Vergon, Felix Gonzales, consented to the construction of the house when he signed the
building permit.[11] Also, petitioners are builders in good faith.[12]
The petition is partly meritorious.
At the outset, we note that petitioners raise factual issues, which are beyond the
scope of a petition for review on certiorari under Rule 45 of the Rules. Well settled is
the rule that the jurisdiction of this Court in cases brought to it from the CA via a petition
for review on certiorari under Rule 45 is limited to the review of errors of law. The
Court is not bound to weigh all over again the evidence adduced by the parties,
particularly where the findings of both the trial court and the appellate court coincide.
The resolution of factual issues is a function of the trial court whose findings on these
matters are, as a general rule, binding on this Court, more so where these have been
affirmed by the CA.[13] We note that the CA and RTC did not overlook or fail to
appreciate any material circumstance which, when properly considered, would have

194

altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly
constructed their house on Lot No. 2-R which they thought was Lot No. 2-S.
However, the conclusiveness of the factual findings notwithstanding, we find that
the trial court nonetheless erred in outrightly ordering petitioners to vacate the subject
property or to pay respondent spouses the prevailing price of the land as
compensation. Article 527[14] of the Civil Code presumes good faith, and since no proof
exists to show that the mistake was done by petitioners in bad faith, the latter should be
presumed to have built the house in good faith.
When a person builds in good faith on the land of another, Article 448 of the Civil
Code governs. Said article provides,
ART. 448. The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate as his own
the works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably
more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease
and in case of disagreement, the court shall fix the terms thereof. (Emphasis
ours.)

The above-cited article covers cases in which the builders, sowers or planters
believe themselves to be owners of the land or, at least, to have a claim of title
thereto.[15] The builder in good faith can compel the landowner to make a choice between
appropriating the building by paying the proper indemnity or obliging the builder to pay
the price of the land. The choice belongs to the owner of the land, a rule that accords
with the principle of accession, i.e., that the accessory follows the principal and not the
other way around. However, even as the option lies with the landowner, the grant to
him, nevertheless, is preclusive. He must choose one.[16] He cannot, for instance, compel
the owner of the building to remove the building from the land without first exercising
either option. It is only if the owner chooses to sell his land, and the builder or planter
fails to purchase it where its value is not more than the value of the improvements, that
the owner may remove the improvements from the land. The owner is entitled to such
remotion only when, after having chosen to sell his land, the other party fails to pay for
the same.[17]

195

Moreover, petitioners have the right to be indemnified for the necessary and useful
expenses they may have made on the subject property. Articles 546 and 548 of the Civil
Code provide,
ART. 546. Necessary expenses shall be refunded to every possessor; but
only the possessor in good faith may retain the thing until he has been
reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith
with the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of
paying the increase in value which the thing may have acquired by reason
thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be
refunded to the possessor in good faith; but he may remove the ornaments with
which he has embellished the principal thing if it suffers no injury thereby, and
if his successor in the possession does not prefer to refund the amount
expended.

Consequently, the respondent-spouses have the option to appropriate the house on

the subject land after payment to petitioners of the appropriate indemnity or to oblige
petitioners to pay the price of the land, unless its value is considerably more than the
value of the structures, in which case petitioners shall pay reasonable rent.
In accordance with Depra v. Dumlao,[18] this case must be remanded to the RTC
which shall conduct the appropriate proceedings to assess the respective values of the
improvement and of the land, as well as the amounts of reasonable rentals and indemnity,
fix the terms of the lease if the parties so agree, and to determine other matters necessary
for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil
Code.
As to the liability of Vergon, petitioners failed to present sufficient evidence to
show negligence on Vergons part. Petitioners claim is obviously one (1) for tort,
governed by Article 2176 of the Civil Code, which provides:
ART. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no preexisting contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Emphasis ours.)

Under this provision, it is the plaintiff who has to prove by a preponderance of

evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the
defendant or some other person for whose act he must respond; and (3) the connection of
196

cause and effect between the fault or negligence and the damages incurred. [19] This the
petitioners failed to do. The President of Vergon signed the building permit as a
precondition for its approval by the local government, but it did not guarantee that
petitioners were constructing the structure within the metes and bounds of petitioners lot.
The signature of the President of Vergon on the building permit merely proved that
petitioners were authorized to make constructions within the subdivision project of
Vergon. And while petitioners acted in good faith in building their house on Lot No. 2-R,
petitioners did not show by what authority the agents or employees of Vergon were
acting when they pointed to the lot where the construction was made nor was petitioners
claim on this matter corroborated by sufficient evidence.
One (1) last note on the award of damages. Considering that petitioners acted in
good faith in building their house on the subject property of the respondent-spouses, there
is no basis for the award of moral damages to respondent-spouses. Likewise, the Court
deletes the award to Vergon of compensatory damages and attorneys fees for the
litigation expenses Vergon had incurred as such amounts were not specifically prayed for
in its Answer to petitioners third-party complaint. Under Article 2208[20] of the Civil
Code, attorneys fees and expenses of litigation are recoverable only in the concept of
actual damages, not as moral damages nor judicial costs. Hence, such must be
specifically prayed foras was not done in this caseand may not be deemed
incorporated within a general prayer for such other relief and remedy as this court may
deem just and equitable.[21] It must also be noted that aside from the following, the body
of the trial courts decision was devoid of any statement regarding attorneys fees.
In Scott Consultants & Resource Development Corporation, Inc. v. Court of
Appeals,[22] we reiterated that attorneys fees are not to be awarded every time a party
wins a suit. The power of the court to award attorneys fees under Article 2208 of
the Civil Code demands factual, legal, and equitable justification; its basis cannot be left
to speculation or conjecture. Where granted, the court must explicitly state in the body of
the decision, and not only in the dispositive portion thereof, the legal reason for the award
of attorneys fees.
WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in
CA-G.R. CV No. 48109 is AFFIRMED WITH MODIFICATION. The award of moral
damages in favor of respondent-spouses Jose and Fe Macabagdal and the award of
compensatory damages and attorneys fees to respondent Vergon Realty Investments
Corporation

are DELETED. The

case

is REMANDED to

197

the Regional Trial Court of Makati City, Branch 135, for further proceedings consistent
with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:
1.

The trial court shall determine:

a. the present fair price of the respondent-spouses lot;
b. the amount of the expenses spent by petitioners for the building of their house;
c. the increase in value (plus value) which the said lot may have acquired by
reason thereof; and
d. whether the value of said land is considerably more than that of the house built
thereon.

2.

After said amounts shall have been determined by competent evidence, the

Regional Trial Court shall render judgment, as follows:

a. The trial court shall grant the respondent-spouses a period of fifteen (15) days
within which to exercise their option under Article 448 of the Civil Code,
whether to appropriate the house as their own by paying to petitioners either the
amount of the expenses spent by petitioners for the building of the house, or the
increase in value (plus value) which the said lot may have acquired by reason
thereof, or to oblige petitioners to pay the price of said land. The amounts to be
respectively paid by the respondent-spouses and petitioners, in accordance with
the option thus exercised by written notice of the other party and to the Court,
shall be paid by the obligor within fifteen (15) days from such notice of the
option by tendering the amount to the Court in favor of the party entitled to
receive it;
b. The trial court shall further order that if the respondent-spouses exercises the
option to oblige petitioners to pay the price of the land but the latter rejects such
purchase because, as found by the trial court, the value of the land is
considerably more than that of the house, petitioners shall give written notice of
such rejection to the respondent-spouses and to the Court within fifteen (15)
days from notice of the respondent-spouses option to sell the land. In that
event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the Court
formal written notice of such agreement and its provisos. If no agreement is
reached by the parties, the trial court, within fifteen (15) days from and after the
termination of the said period fixed for negotiation, shall then fix the terms of
the lease, payable within the first five (5) days of each calendar month. The
period for the forced lease shall not be more than two (2) years, counted from
198

the finality of the judgment, considering the long period of time since
petitioners have occupied the subject area. The rental thus fixed shall be
increased by ten percent (10%) for the second year of the forced lease.
Petitioners shall not make any further constructions or improvements on the
house. Upon expiration of the two (2)-year period, or upon default by
petitioners in the payment of rentals for two (2) consecutive months, the
respondent-spouses shall be entitled to terminate the forced lease, to recover
their land, and to have the house removed by petitioners or at the latters
expense. The rentals herein provided shall be tendered by petitioners to the
Court for payment to the respondent-spouses, and such tender shall constitute
evidence of whether or not compliance was made within the period fixed by the
Court.
c. In any event, petitioners shall pay the respondent-spouses reasonable
compensation for the occupancy of the respondent-spouses land for the period
counted from the year petitioners occupied the subject area, up to the
commencement date of the forced lease referred to in the preceding paragraph;
d. The periods to be fixed by the trial court in its Decision shall be inextendible,
and upon failure of the party obliged to tender to the trial court the amount due
to the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for
compliance with such other acts as may be required by the prestation due the
obligee.
No costs.
SO ORDERED.
G.R. No. L-54526 August 25, 1986
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
THE COURT OF APPEALS and THE CITY OF DAGUPAN, respondents.
Miguel T. Caguioa, Ireneo B. Orlino and Manuel D. Victorio for respondent City of
Dagupan.

FERIA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals which
affirmed the decision of the then Court of First Instance of Pangasinan. The lower court
had declared respondent City of Dagupan the lawful owner of the Dagupan Waterworks
199

System and held that the National Waterworks and Sewerage Authority, now petitioner
Metropolitan Waterworks and Sewerage System, was a possessor in bad faith and
hence not entitled to indemnity for the useful improvements it had introduced.
Before proceeding further, it may be necessary to invite attention to the common error
of joining the court (be it a Regional Trial Court, the Intermediate Appellate Court, or the
Sandiganbayan) as a party respondent in an appeal by certiorari to this Court under
Rule 45 of the Rules of Court. The only parties in an appeal by certiorari are the
appellant as petitioner and the appellee as respondent. (Cf. Elks Club vs. Rovira, 80
Phil. 272) The court which rendered the judgment appealed from is not a party in said
appeal. It is in the special civil action of certiorari under Section 5 of Rule 65 of the
Rules of Court where the court or judge is required to be joined as party defendant or
respondent. The joinder of the Intermediate Appellate Court or the Sandiganbayan as
party respondent in an appeal by certiorari is necessary in cases where the petitionerappellant claims that said court acted without or in excess of its jurisdiction or with
grave abuse of discretion. An example of this is a case where the petitioner-appellant
claims that the Intermediate Appellate Court or the Sandiganbayan acted with grave
abuse of discretion in making its findings of fact, thus justifying the review by this court
of said findings of fact. (See the exceptions to the rule of conclusiveness of the findings
of fact of the Intermediate Appellate Court or the Sandiganbayan in the case of Sacay
vs. Sandiganbayan, G.R. Nos. 66497-98, July 10, 1986.) In such a case, the petition for
review on certiorari under Rule 45 of the Rules of Court is at the same time a petition
for certiorari under Rule 65, and the joinder of the Intermediate Appellate Court or the
Sandiganbayan becomes necessary. (Cf. Lianga Lumber Company vs. Lianga Timber
Co., Inc., March 31, 1977, 76 SCRA 197).
The City of Dagupan (hereinafter referred to as the CITY) filed a complaint against the
former National Waterworks and Sewerage Authority (hereinafter referred to as the
NAWASA), now the Metropolitan Waterworks and Sewerage System (hereinafter
referred to as MWSS), for recovery of the ownership and possession of the Dagupan
Waterworks System. NAWASA interposed as one of its special defenses R.A. 1383
which vested upon it the ownership, possession and control of all waterworks systems
throughout the Philippines and as one of its counterclaims the reimbursement of the
expenses it had incurred for necessary and useful improvements amounting to
P255,000.00. Judgment was rendered by the trial court in favor of the CITY on the
basis of a stipulation of facts. The trial court found NAWASA to be a possessor in bad
faith and hence not entitled to the reimbursement claimed by it. NAWASA appealed to
the then Court of Appeals and argued in its lone assignment of error that the CITY
should have been held liable for the amortization of the balance of the loan secured by
NAWASA for the improvement of the Dagupan Waterworks System. The appellate
court affirmed the judgment of the trial court and ruled as follows:
However, as already found above, these useful expenses were made in
utter bad faith for they were instituted after the complaint was filed and
after numerous Supreme Court decisions were promulgated declaring
unconstitutional the taking by NAWASA of the patrimonial waterworks
systems of cities, municipalities and provinces without just compensation.
Under Article 546 of the New Civil Code cited by the appellant, it is clear
that a builder or a possessor in bad faith is not entitled to indemnity for any
useful improvement on the premises. (Santos vs. Mojica, L-25450, Jan. 31,
1969). In fact, he is not entitled to any right regarding the useful expenses
(II Paras (1971) 387). He shall not have any right whatsoever.
Consequently, the owner shall be entitled to all of the useful improvements
without any obligation on his part (Jurado, Civil Law Reviewer (1974) 223).
200

Petitioner-Appellant MWSS, successor-in-interest of the NAWASA, appealed to this

Court raising the sole issue of whether or not it has the right to remove all the useful
improvements introduced by NAWASA to the Dagupan Waterworks System,
notwithstanding the fact that NAWASA was found to be a possessor in bad faith. In
support of its claim for removal of said useful improvements, MWSS argues that the
pertinent laws on the subject, particularly Articles 546, 547 and 549 of the Civil Code of
the Philippines, do not definitely settle the question of whether a possessor in bad faith
has the right to remove useful improvements. To bolster its claim MWSS further cites
the decisions in the cases of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) and
Carbonell vs. Court of Appeals (69 SCRA 99).
The CITY in its brief questions the raising of the issue of the removal of useful
improvements for the first time in this Court, inasmuch as it was not raised in the trial
court, much less assigned as an error before the then Court of Appeals. The CITY
further argues that petitioner, as a possessor in bad faith, has absolutely no right to the
useful improvements; that the rulings in the cases cited by petitioner are not applicable
to the case at bar; that even assuming that petitioner has the right to remove the useful
improvements, such improvements were not actually identified, and hence a rehearing
would be required which is improper at this stage of the proceedings; and finally, that
such improvements, even if they could be identified, could not be separated without
causing substantial injury or damage to the Dagupan Waterworks System.
The procedural objection of the CITY is technically correct. NAWASA should have
alleged its additional counterclaim in the alternative-for the reimbursement of the
expenses it had incurred for necessary and useful improvements or for the removal of
all the useful improvements it had introduced.
Petitioner, however, argues that although such issue of removal was never pleaded as
a counterclaim nevertheless it was joined with the implied consent of the CITY,
because the latter never filed a counter-manifestation or objection to petitioner's
manifestation wherein it stated that the improvements were separable from the system,
and quotes the first part of Sec. 5 of Rule 10 of the Rules of Court to support its
contention. Said provision reads as follows:
SEC. 5. Amendment to conform to or authorize presentation of evidence.When issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects, as if they had
been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after
judgment; but failure so to amend does not affect the result of the trial of
these issues. ...
This argument is untenable because the above-quoted provision is premised on the
fact that evidence had been introduced on an issue not raised by the pleadings without
any objection thereto being raised by the adverse party. In the case at bar, no evidence
whatsoever had been introduced by petitioner on the issue of removability of the
improvements and the case was decided on a stipulation of facts. Consequently, the
pleadings could not be deemed amended to conform to the evidence.
However, We shall overlook this procedural defect and rule on the main issue raised in
this appeal, to wit: Does a possessor in bad faith have the right to remove useful
improvements? The answer is clearly in the negative. Recognized authorities on the
subject are agreed on this point. *

201

Article 449 of the Civil Code of the Philippines provides that "he who builds, plants or
sows in bad faith on the land of another, loses what is built, planted or sown without
right to indemnity." As a builder in bad faith, NAWASA lost whatever useful
improvements it had made without right to indemnity (Santos vs. Mojica, Jan. 31, 1969,
26 SCRA 703).
Moreover, under Article 546 of said code, only a possessor in good faith shall be
refunded for useful expenses with the right of retention until reimbursed; and under
Article 547 thereof, only a possessor in good faith may remove useful improvements if
this can be done without damage to the principal thing and if the person who recovers
the possession does not exercise the option of reimbursing the useful expenses. The
right given a possessor in bad faith is to remove improvements applies only to
improvements for pure luxury or mere pleasure, provided the thing suffers no injury
thereby and the lawful possessor does not prefer to retain them by paying the value
they have at the time he enters into possession (Article 549, Id.).
The decision in the case of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) cited by
petitioner does not support its stand. On the contrary, this Court ruled in said case that
"if the defendant constructed a new building, as he alleges, he cannot recover its value
because the construction was done after the filing of the action for annulment, thus
rendering him a builder in bad faith who is denied by law any right of reimbursement."
What this Court allowed appellant Yap to remove were the equipment, books, furniture
and fixtures brought in by him, because they were outside of the scope of the judgment
and may be retained by him.
Neither may the decision in the case of Carbonell vs. Court of Appeals (69 SCRA 99),
also cited by petitioner, be invoked to modify the clear provisions of the Civil Code of
the Philippines that a possessor in bad faith is not entitled to reimbursement of useful
expenses or to removal of useful improvements.
In said case, both the trial court and the Court of Appeals found that respondents
Infantes were possessors in good faith. On appeal, the First Division of this Court
reversed the decision of the Court of Appeals and declared petitioner Carbonell to have
the superior right to the land in question. On the question of whether or not respondents
Infantes were possessors in good faith four Members ruled that they were not, but as a
matter of equity allowed them to remove the useful improvements they had introduced
on the land. Justice Teehankee (now Chief Justice) concurred on the same premise as
the dissenting opinion of Justice Munoz Palma that both the conflicting buyers of the
real property in question, namely petitioner Carbonell as the first buyer and
respondents Infantes as the second buyer, may be deemed purchasers in good faith at
the respective dates of their purchase. Justice Munoz Palma dissented on the ground
that since both purchasers were undoubtedly in good faith, respondents Infantes' prior
registration of the sale in good faith entitled them to the ownership of the land.
Inasmuch as only four Members concurred in ruling that respondents Infantes were
possessors in bad faith and two Members ruled that they were possessors in good faith
said decision does not establish a precedent. Moreover, the equitable consideration
present in said case are not present in the case at bar.
WHEREFORE, the decision of the appellate court is affirmed with costs against
petitioner.
SO ORDERED.

[G.R. No. 117642. April 24, 1998]

202

EDITHA ALVIOLA and PORFERIO ALVIOLA, petitioners, vs. HONORABLE

COURT OF APPEALS, FLORENCIA BULING VDA DE TINAGAN,
DEMOSTHENES TINAGAN, JESUS TINAGAN, ZENAIDA T. JOSEP
AND JOSEPHINE TINAGAN, respondents.
DECISION
MARTINEZ, J.:

In this petition for review on certiorari, petitioners assail the decision of the
Court of Appeals dated April 8, 1994 which affirmed the decision of the lower court
ordering petitioners to peacefully vacate and surrender the possession of the
disputed properties to the private respondents.
[1]

Culled from the record are the following antecedent facts of this case to wit:
On April 1, 1950, Victoria Sonjaconda Tinagan purchased from Mauro Tinagan
two (2) parcels of land situated at Barangay Bongbong, Valencia, Negros
Oriental. One parcel of land contains an area of 5,704 square meters, more or
less; while the other contains 10,860 square meters. Thereafter, Victoria and her
son Agustin Tinagan, took possession of said parcels of land.
[2]

[3]

[4]

Sometime in 1960, petitioners occupied portions thereof whereat they built a

copra dryer and put up a store wherein they engaged in the business of buying and
selling copra.
On June 23, 1975, Victoria died. On October 26, 1975, Agustin died, survived by
herein private respondents, namely his wife, Florencia Buling Vda. de Tinagan and
their children Demosthenes, Jesus, Zenaida and Josephine, all surnamed Tinagan.
On December 24, 1976, petitioner Editha assisted by her husband filed a
complaint for partition and damages before the then Court of First Instance of
Negros Oriental, Branch 1, Dumaguete City, docketed as Civil Case No. 6634,
claiming to be an acknowledged natural child of deceased Agustin
Tinagan and demanding the delivery of her shares in the properties left by the
deceased.
[5]

On October 4, 1979, the aforesaid case was dismissed by the trial court on the
ground that recognition of natural children may be brought only during the lifetime of
the presumed parent and petitioner Editha did not fall in any of the exceptions
enumerated in Article 285 of the Civil Code.
[6]

Petitioners assailed the order of dismissal by filing a petition for certiorari and
mandamus before this Court. On August 9, 1982, this Court dismissed the petition
for lack of merit. Petitioners filed a motion for reconsideration but the same was
denied on October 19, 1982.
[7]

[8]

[9]

On March 29, 1988, private respondents filed a complaint for recovery of

possession against Editha and her husband Porferio Alviola before the Regional
Trial Court of Negros Oriental, Branch 35, Dumaguete City, docketed as Civil Case
No. 9148, praying, among others, that they be declared absolute owners of the said
parcels of land, and that petitioners be ordered to vacate the same, to remove their
copra dryer and store, to pay actual damages (in the form of rentals), moral and
punitive damages, litigation expenses and attorneys fees.
[10]

In their answer, petitioners contend that they own the improvements in the
disputed properties which are still public land; that they are qualified to be
beneficiaries of the comprehensive agrarian reform program and that they are
203

rightful possessors by occupation of the said properties for more than twenty
years.
[11]

After trial, the lower court rendered judgment in favor of the private respondents,
the dispositive portion of which reads:
WHEREFORE, premises considered, in Civil Case No. 9148, for Recovery of Property,
the court hereby renders judgment:
a) Declaring plaintiffs as the absolute owners of the land in question including the
portion claimed and occupied by defendants;
b) Ordering defendants Editha Alviola and her husband Porfirio Alviola to peacefully
vacate and to surrender the possession of the premises in question to plaintiffs;
Defendants may remove their store and dryer on the premises without injury and
prejudice to the plaintiffs;
c) Ordering defendants to pay the following amounts to the plaintiffs:
1. P150.00 monthly rentals from April 1988 up to the time the improvements in the
questioned portions are removed;
2. P5,000.00 for attorneys fees;
3. P3,000.00 for litigation expenses and to pay the costs.
SO ORDERED.

[12]

Petitioners appealed to the Court of Appeals. On April 8, 1994, the

respondent court rendered its decision, affirming the judgment of the lower court.
Petitioners filed a motion for reconsideration but the same was denied by the
respondent court in an order dated October 6, 1994.
[13]

[14]

[15]

Hence, this petition.

Petitioners aver that respondent court erred in declaring private respondents the
owners of the disputed properties. They contend that ownership of a public land
cannot be declared by the courts but by the Executive Department of the
Government, citing the case of Busante vs. Hon. Court of Appeals, Oct. 20, 1992,
214 SCRA 774; and that the respondent court erred in not considering that private
respondents predecessor-in-interest, Victoria Sonjaco Tinagan, during her lifetime,
ceded her right to the disputed properties in favor of petitioners.
Moreover, petitioners maintain that the respondent court erred in holding that
they were in bad faith in possessing the disputed properties and in ruling that the
improvements thereon are transferable. They claim that the copra dryer and the
store are permanent structures, the walls thereof being made of hollow-blocks and
the floors made of cement.
Private respondents counter that the question of whether or not the disputed
properties are public land has been resolved by overwhelming evidence showing
ownership and possession by the Tinagans and their predecessors-in-interest prior
to 1949. They further aver that they merely tolerated petitioners possession of the
disputed properties for a period which was less than that required for extraordinary
prescription.
The petition must fail.
204

Petitioners claim that the disputed properties are public lands. This is a factual
issue. The private respondents adduced overwhelming evidence to prove their
ownership and possession of the two (2) parcels of land on portions of which
petitioners built the copra dryer and a store. Private respondents tax declarations
and receipts of payment of real estate taxes, as well as other related documents,
prove their ownership of the disputed properties. As stated previously in the
narration of facts, these two (2) parcels of land were originally owned by Mauro
Tinagan, who sold the same to Victoria S. Tinagan on April 1, 1950, as evidenced
by a Deed of Sale, wherein the two (2) lots, Parcels 1 and 2, are
described. Anent Parcel 1, tax declarations indicate that the property has always
been declared in the name of the Tinagans. The first, Tax Declaration No. 3335 is
in the name of Mauro Tinagan. It was thereafter cancelled by Tax Declaration No.
19534 effective 1968, still in the name of Mauro. This declaration was cancelled by
Tax Declaration No. 016740 now in the name of Agustin Tinagan, effective 1974,
followed by Tax Declaration No. 08-421 in the name of Jesus Tinagan, effective
1980; and finally by Tax Declaration No. 08-816 in the name of Jesus Tinagan,
effective 1985.
[16]

[17]

[18]

[19]

[20]

[21]

[22]

With regard to Parcel 2, private respondents presented Tax Declaration No.

20973 in the name of Mauro Tinagan, effective 1959, Tax Declaration No. 016757,
effective 1974; Tax Declaration No. 08-405-C in the name of Agustin Tinagan,
effective 1980 and Tax Declaration No. 08-794 in the name of Agustin Tinagan,
effective 1985. Moreover, the realty taxes on the two lots have always been paid
by the private respondents. There can be no doubt, therefore, that the two parcels
of land are owned by the private respondents.
[23]

[24]

[25]

[26]

[27]

The record further discloses that Victoria S. Tinagan and her son, Agustin
Tinagan, took possession of the said properties in 1950, introduced improvements
thereon, and for more than 40 years, have been in open, continuous, exclusive and
notorious occupation thereof in the concept of owners.
Petitioners own evidence recognized the ownership of the land in favor of
Victoria Tinagan. In their tax declarations, petitioners stated that the house and
copra dryer are located on the land of Victoria S. Tinagan/Agustin Tinagan. By
acknowledging that the disputed portions belong to Victoria/Agustin Tinagan in their
tax declarations, petitioners claim as owners thereof must fail.
[28]

The assailed decision of the respondent court states that Appellants do not
dispute that the two parcels of land subject matter of the present complaint for
recovery of possession belonged to Victoria S. Tinagan, the grandmother of herein
plaintiffs-appellees; that Agustin Tinagan inherited the parcels of land from his
mother Victoria; and that plaintiffs-appellees, in turn, inherited the same from
Agustin.
[29]

Taking exception to the aforequoted finding, petitioners contend that while the 2
parcels of land are owned by private respondents, the portions wherein the copra
dryers and store stand were ceded to them by Victoria S. Tinagan in exchange for
an alleged indebtedness of Agustin Tinagan in the sum of P7,602.04.
[30]

This claim of the petitioners was brushed aside by the respondent court as
merely an afterthought, thus Appellants claim that they have acquired ownership over the floor areas of the store and
dryer 'in consideration of the account of Agustin Tinagan in the sum of P7,602.04' is not
plausible. It is more of an 'after-thought' defense which was not alleged in their
answer. Although the evidence presented by them in support of this particular claim was not
duly objected to by counsel for appellees at the proper time and therefore deemed admissible
205

in evidence, an examination of the oral and documentary evidence submitted in support

thereof, reveals the weakness of their claim.
Appellant testified that the areas on which their store and dryer were located were
exchanged for the amount of P7,602.04 owed to them by Agustin in 1967 (TSN, Hearing of
April 14, 1989, p. 9); that he did not bother to execute a document reflecting such agreement
`because they were our parents and we had used the land for quite sometime already they
had also sold their copra to us for a long time. (Id.) Yet, as earlier discussed, the tax
declarations in appellants answer show that even after 1967, they expressly declared that the
parcels of land on which their store and dryer were constructed, belonged to Victoria and
Agustin (Exhs. 2-A, 2-B, 2-C, 3-A, 3-B). If appellants really believed that they were in
possession of the said particular areas in the concept of owners, they could have easily
declared it in said tax declarations.
[31]

Concededly, petitioners have been on the disputed portions since

1961. However, their stay thereon was merely by tolerance on the part of the
private respondents and their predecessor-in-interest. The evidence shows that the
petitioners were permitted by Victoria Sanjoco Tinagan to build a copra dryer on the
land when they got married. Subsequently, petitioner Editha Alviola, claiming to be
the illegitimate daughter of Agustin Tinagan, filed a petition for partition demanding
her share in the estate of the deceased Agustin Tinagan on December 6,
1976. However, the petition was dismissed since it was brought only after the death
of
Agustin
Tinagan.
This
Court
dismissed
the
petition
for certiorari and mandamus filed by petitioner Editha Alviola on August 9, 1982. It
was on March 29, 1988, when private respondents filed this complaint for recovery
of possession against petitioners. Considering that the petitioners occupation of the
properties in dispute was merely tolerated by private respondents, their posture that
they have acquired the property by occupation for 20 years does not have any
factual or legal foundation.
As correctly ruled by the respondent court, there was bad faith on the part of the
petitioners when they constructed the copra dryer and store on the disputed portions
since they were fully aware that the parcels of land belonged to Victoria
Tinagan. And, there was likewise bad faith on the part of the private respondents,
having knowledge of the arrangement between petitioners and Victoria Tinagan
relative to the construction of the copra dryer and store. Thus, for purposes of
indemnity, Article 448 of the New Civil Code should be applied. However, the
copra dryer and the store, as determined by the trial court and respondent court, are
transferable in nature. Thus, it would not fall within the coverage of Article 448. As
the noted civil law authority, Senator Arturo Tolentino, aptly explains: To fall within
the provision of this Article, the construction must be of permanent character,
attached to the soil with an idea of perpetuity; but if it is of a transitory character or is
transferable, there is no accession, and the builder must remove the
construction. The proper remedy of the landowner is an action to eject the builder
from the land.
[32]

[33]

The private respondents action for recovery of possession was the suitable
solution to eject petitioners from the premises.
WHEREFORE, this petition should be, as it is hereby, DISMISSED. The
assailed decision is hereby AFFIRMED.
SO ORDERED.

206

ELVIRA T. ARANGOTE,

G.R. No. 178906

Petitioner,
Present:
- versus -

SPS.
MARTIN
MAGLUNOBand LOURDES S.
MAGLUNOB, and ROMEO
SALIDO,
Respondents.

QUISUMBING, J.,*
AUSTRIA-MARTINEZ,
Acting Chairperson,
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.

Promulgated:

February 18, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to reverse and set aside the Decision[1] dated27
October 2006 and Resolution[2] dated 29 June 2007 of the Court of Appeals in CA-G.R. SP
No. 64970. In its assailed Decision, the appellate court affirmed the Decision[3]dated 12
September 2000 of the Regional Trial Court (RTC), 6th Judicial Region, Branch 1, Kalibo,
Aklan, in Civil Case No. 5511, which reversed the Decision[4] dated 6 April 1998 of the
7th Municipal Circuit Trial Court (MCTC) of Ibajay-Nabas, Ibajay, Aklan, in Civil Case No.
156; and declared[5] the herein respondent-Spouses Martin and Lourdes Maglunob
(Spouses Maglunob) and respondent Romeo Salido (Romeo) as the lawful owners and
207

possessors of Lot 12897 with an area of 982 square meters, more or less, located in
Maloco, Ibajay, Aklan (subject property). In its assailed Resolution, the appellate court
denied herein petitioner Elvira T. Arangotes Motion for Reconsideration.

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the

registered owner of the subject property, as evidenced by Original Certificate of Title
(OCT) No. CLOA-1748.[6] Respondents Martin (Martin II) and Romeo are first cousins and
the grandnephews of Esperanza Maglunob-Dailisan (Esperanza), from whom petitioner
acquired the subject property.

The Petition stems from a Complaint[7] filed by petitioner and her husband against
the respondents for Quieting of Title, Declaration of Ownership and Possession,
Damages with Preliminary Injunction, and Issuance of Temporary Restraining Order
before the MCTC, docketed as Civil Case No. 156.

The Complaint alleged that Esperanza inherited the subject property from her
uncle Victorino Sorrosa by virtue of a notarized Partition Agreement[8] dated 29 April
1985, executed by the latters heirs. Thereafter, Esperanza declared the subject
property in her name for real property tax purposes, as evidenced by Tax Declaration
No. 16218 (1985).[9]

The Complaint further stated that on 24 June 1985, Esperanza executed a Last Will
and Testament[10] bequeathing the subject property to petitioner and her husband, but
it was never probated. On 9 June 1986, Esperanza executed another document, an
Affidavit,[11] in which she renounced, relinquished, waived and quitclaimed all her rights,
share, interest and participation whatsoever in the subject property in favor of
petitioner and her husband. On the basis thereof, Tax Declaration No. 16218 in the
name of Esperanza was cancelled and Tax Declaration No. 16666[12] (1987) was issued in
the name of the petitioner and her husband.

In 1989, petitioner and her husband constructed a house on the subject

property. On 26 March 1993, OCT No. CLOA-1748 was issued by the Secretary of the
208

Department of Agrarian Reform (DAR) in the name of petitioner, married to Ray Mars E.
Arangote. However, respondents, together with some hired persons, entered the
subject property on3 June 1994 and built a hollow block wall behind and in front of
petitioners house, which effectively blocked the entrance to its main door.

As a consequence thereof, petitioner and her husband were compelled to institute

Civil Case No. 156.

In their Answer with Counterclaim in Civil Case No. 156, respondents averred that
they co-owned the subject property with Esperanza. Esperanza and her siblings, Tomas
and Inocencia, inherited the subject property, in equal shares, from their father Martin
Maglunob (Martin I). When Tomas and Inocencia passed away, their shares passed on
by inheritance to respondents Martin II and Romeo, respectively. Hence, the subject
property was co-owned by Esperanza, respondent Martin II (together with his
wife Lourdes), and respondent Romeo, each holding a one-third pro-indiviso share
therein. Thus, Esperanza could not validly waive her rights and interest over the entire
subject property in favor of the petitioner.

Respondents also asserted in their Counterclaim that petitioner and her husband,
by means of fraud, undue influence and deceit were able to make Esperanza, who was
already old and illiterate, affix her thumbmark to the Affidavit dated 9 June 1986,
wherein she renounced all her rights and interest over the subject property in favor of
petitioner and her husband. Respondents thus prayed that the OCT issued in
petitioners name be declared null and void insofar as their two-thirds shares are
concerned.

After trial, the MCTC rendered its Decision dated 6 April 1998 in Civil Case No. 156,
declaring petitioner and her husband as the true and lawful owners of the subject
property. The decretal portion of the MCTC Decision reads:

WHEREFORE, judgment is hereby rendered:

209

A.
Declaring the [herein petitioner and her husband]
true,
lawful and exclusive owners and entitled to the possession of
[subject property] described and referred to under paragraph 2 of
[C]omplaint and covered by Tax Declaration No. 16666 in the names of
[petitioner
and her husband];

the
the
the
the

B.
Ordering the [herein respondents] and anyone hired by, acting
or working for them, to cease and desist from asserting or claiming any right
or interest in, or exercising any act of ownership or possession over the
[subject property];

C.
Ordering the [respondents] to pay the [petitioner and her
husband] the amount of P10,000.00 as attorneys fee. With cost against the
[respondents].[13]

The respondents appealed the aforesaid MCTC Decision to the RTC. Their appeal
was docketed as Civil Case No. 5511.

Respondents argued in their appeal that the MCTC erred in not dismissing the
Complaint filed by the petitioner and her husband for failure to identify the subject
property therein. Respondents further faulted the MCTC for not declaring Esperanzas
Affidavit dated 9 June 1986 -- relinquishing all her rights and interest over the subject
property in favor of petitioner and her husband -- as null and void insofar as
respondents two-thirds share in the subject property is concerned.

On 12 September 2000, the RTC rendered its Decision reversing the MCTC Decision
dated 6 April 1998. The RTC adjudged respondents, as well as the other heirs of Martin
Maglunob, as the lawful owners and possessors of the entire subject property. The RTC
decreed:

WHEREFORE, judgment is hereby rendered as follows:

210

1) The appealed [D]ecision is REVERSED;

2) [Herein respondents] and the other heirs of Martin Maglunob are

declared the lawful owners and possessors of the whole [subject property] as
described in Paragraph 2 of the [C]omplaint, as against the [herein petitioner
and her husband].

3) [Petitioner and her husband] are ordered to immediately turn over

possession of the [subject property] to the [respondents] and the other heirs
of Martin Maglunob; and

4) [Petitioner and her husband] are ordered to pay [respondents]

attorneys fees of P5,000.00, other litigation expenses of P5,000.00, moral
damages of P10,000.00 and exemplary damages of P5,000.00.[14]

Petitioner and her husband filed before the RTC, on 26 September 2000, a Motion
for New Trial or Reconsideration[15] on the ground of newly discovered evidence
consisting of a Deed of Acceptance[16] dated 23 September 2000, and notice[17] of the
same, which were both made by the petitioner, for herself and in behalf of her
husband,[18] during the lifetime of Esperanza. In the RTC Order[19] dated 2 May 2001,
however, the RTC denied the aforesaid Motion for New Trial or Reconsideration.

The petitioner and her husband then filed a Petition for Review, under Rule 42 of
the 1997 Revised Rules of Civil Procedure, before the Court of Appeals, where the
Petition was docketed as CA-G.R. SP No. 64970.

In their Petition before the appellate court, petitioner and her husband raised the
following errors committed by the RTC in its 12 September 2000 Decision:

I. It erred in reversing the [D]ecision of the [MCTC];

211

II. It erred in declaring the [herein respondents] and the other heirs of
Martin Maglunob as the lawful owners and possessors of the whole
[subject property];

III. It erred in declaring [OCT] No. CLOA-1748 in the name of [herein

petitioner] Elvie T. Arangote as null and void;

IV. It erred in denying *petitioner and her husbands+ *M+otion for *N+ew
[T]rial or [R]econsideration dated [26 September 2000; and

V. It erred in not declaring the [petitioner and her husband] as

possessors in good faith.[20]

On 27 October 2006, the Court of Appeals rendered a Decision denying the

Petition for Review of petitioner and her husband and affirming the RTC Decision
dated 12 September 2000. Petitioner and her husbands subsequent Motion for
Reconsideration was similarly denied by the Court of Appeals in its Resolution dated 29
June 2007.

Hence, petitioner[21] now comes before this Court raising in her Petition the
following issues:

I.

Whether the [RTC] acted with grave abuse of discretion amounting to

lack or excess of jurisdiction when it declared the [petitioner and her
husbands title to the subject property+ null and void;

II.

Whether the [RTC] acted with grave abuse of discretion amounting to

lack of jurisdiction when it declared the Affidavit of Quitclaim null and
void; and

III.

Whether the [RTC] and the Honorable Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of jurisdiction
212

when it rejected petitioners claim as possessors (sic) in good faith,

hence, entitled to the rights provided in [Article] 448 and [Article] 546
of the Civil Code.[22]

Petitioner contends that the aforesaid OCT No. CLOA-1748 was issued in her
name on 26 March 1993 and was registered in the Registry of Deeds of Aklan on 20 April
1993. From 20 April 1993 until the institution of Civil Case No. 156 on 10 June
1994 before the MCTC, more than one year had already elapsed. Considering that a
Torrens title can only be attacked within one year after the date of the issuance of the
decree of registration on the ground of fraud and that such attack must be through a
direct proceeding, it was an error on the part of the RTC and the Court of Appeals to
declare OCT No. CLOA-1748 null and void.

Petitioner additionally posits that both the RTC and the Court of Appeals
committed a mistake in declaring null and void the Affidavit dated 9 June 1986 executed
by Esperanza, waiving all her rights and interest over the subject property in favor of
petitioner and her husband. Esperanzas Affidavit is a valid and binding proof of the
transfer of ownership of the subject property in petitioners name, as it was also
coupled with actual delivery of possession of the subject property to petitioner and her
husband. The Affidavit is also proof of good faith on the part of petitioner and her
husband.

Finally, petitioner argues that, assuming for the sake of argument, that Esperanzas
Affidavit is null and void, petitioner and her husband had no knowledge of any flaw in
Esperanzas title when the latter relinquished her rights to and interest in the subject
property in their favor. Hence, petitioner and her husband can be considered as
possessors in good faith and entitled to the rights provided under Articles 448 and 546
of the Civil Code.

This present Petition is devoid of merit.

213

It is a hornbook doctrine that the findings of fact of the trial court are entitled to
great weight on appeal and should not be disturbed except for strong and valid reasons,
because the trial court is in a better position to examine the demeanor of the witnesses
while testifying. It is not a function of this Court to analyze and weigh evidence by the
parties all over again. This Courts jurisdiction is, in principle, limited to reviewing errors
of law that might have been committed by the Court of Appeals.[23] This rule, however,
is subject to several exceptions,[24] one of which is present in this case, i.e., when the
factual findings of the Court of Appeals and the trial court are contradictory.

In this case, the findings of fact of the MCTC as regards the origin of the subject
property are in conflict with the findings of fact of both the RTC and the Court of
Appeals. Hence, this Court will have to examine the records to determine first the true
origin of the subject property and to settle whether the respondents have the right over
the same for being co-heirs and co-owners, together with their grand aunt, Esperanza,
before this Court can resolve the issues raised by the petitioner in her Petition.

After a careful scrutiny of the records, this Court affirms the findings of both the
RTC and the Court of Appeals as regards the origin of the subject property and the fact
that respondents, with their grand aunt Esperanza, were co-heirs and co-owners of the
subject property.

The records disclosed that the subject property was part of a parcel of
land[25] situated in Maloco, Ibajay, Aklan, consisting of 7,176 square meters and
commonly owned in equal shares by the siblings Pantaleon Maglunob (Pantaleon) and
Placida Maglunob-Sorrosa (Placida). Upon the death of Pantaleon and Placida, their
surviving and legal heirs executed a Deed of Extrajudicial Settlement and Partition of
Estate in July 1981,[26] however, the Deed was not notarized. Considering that
Pantaleon died without issue, his one-half share in the parcel of land he co-owned with
Placida passed on to his four siblings (or their respective heirs, if already deceased),
namely: Placida, Luis, Martin I, and Victoria, in equal shares.

According to the aforementioned Deed of Extrajudicial Settlement and Partition

of Estate, the surviving and legal heirs of Pantaleon and Placida agreed to have the
214

parcel of land commonly owned by the siblings declared for real property tax purposes
in the name of Victorino Sorrosa (Victorino), Placidas husband. Thus, Tax Declarations
No. 5988 (1942),[27] No. 6200 (1945)[28] and No. 7233 (1953)[29] were all issued in the
name of Victorino.

Since Martin I already passed away when the Deed of Extrajudicial Settlement and
Partition of Estate was executed, his heirs[30] were represented therein by Esperanza. By
virtue of the said Deed, Martin I received as inheritance a portion of the parcel of land
measuring 897 square meters.

After the death of Victorino, his heirs[31] executed another Partition Agreement
on 29 April 1985, which was notarized on the same date. The Partition Agreement
mentioned four parcels of land. The subject property, consisting of a portion of the
consolidated parcels 1, 2, and 3, and measuring around 982 square meters, was allocated
to Esperanza. In comparison, the property given to Esperanza under the Partition
Agreement is bigger than the one originally allocated to her earlier under the Deed of
Extrajudicial Settlement and Partition of Estate dated July 1981, which had an area of
only 897 square meters. It may be reasonably assumed, however, that the subject
property, measuring 982 square meters, allocated to Esperanza under the Partition
Agreement dated 29 April 1985, is already inclusive of the smaller parcel of 897 square
meters assigned to her under the Deed of Extrajudicial Settlement and Partition of Estate
dated July 1981. As explained by the RTC in its 12 September 2000 Decision:

The [subject property] which is claimed by the [herein petitioner and

her husband] and that which is claimed by the [herein respondents] are one
and the same, the difference in area and technical description being due to
the repartition and re-allocation of the parcel of land originally co-owned by
Pantaleon Maglunob and his sister Placida Maglunob and subsequently
declared in the name of [Victorino] under Tax Declaration No. 5988 of 1949.[32]

215

It is clear from the records that the subject property was not Esperanzas
exclusive share, but also that of the other heirs of her father, Martin
I. Esperanza expressly affixed her thumbmark to the Deed of Extrajudicial Settlement of
July 1981 not only for herself, but also on behalf of the other heirs of Martin I. Though
in the Partition Agreement dated29 April 1985 Esperanza affixed her thumbmark
without stating that she was doing so not only for herself, but also on behalf of the
other heirs of Martin I, this does not mean that Esperanza was already the exclusive
owner thereof. The evidence shows that the subject property is the share of the heirs of
Martin I. This is clear from the sketch[33] attached to the Partition Agreement dated 29
April 1985, which reveals the proportionate areas given to the heirs of the two siblings,
Pantaleon and Placida, who were the original owners of the whole parcel of land[34] from
which the subject property was taken.

Further, it bears emphasis that the Partition Agreement was executed by and
among the son, grandsons, granddaughters and cousins of Victorino. Esperanza was
neither the granddaughter nor the cousin of Victorino, as she was only Victorinos
grandniece. The cousin of Victorino is Martin I, Esperanzas father. In effect, therefore,
the subject property allotted to Esperanza in the Partition Agreement was not her
exclusive share, as she holds the same for and on behalf of the other heirs of Martin I,
who was already deceased at the time the Partition Agreement was made.

To further bolster the truth that the subject property was not exclusively owned
by Esperanza, the Affidavit she executed in favor of petitioner and her husband on 6
June 1985 was worded as follows:

That I hereby renounce, relinquish, waive and quitclaim all my

rights, share, interest and participation whatsoever in the [subject property]
unto the said Sps. Ray Mars Arangote and Elvira T. Arangote, their heirs,
successors, and assigns including the improvement found thereon;[35]

Logically, if Esperanza fully owned the subject property, she would have simply
waived her rights to and interest in the subject property, without mentioning her
share and participation in the same. By including such words in her Affidavit,
216

Esperanza was aware of and was limiting her waiver, renunciation, and quitclaim to her
one-third share and participation in the subject property.

Going to the issues raised by the petitioner in this Petition, this Court will resolve
the same concurrently as they are interrelated.

In this case, the petitioner derived her title to the subject property from the
notarized Affidavit executed by Esperanza, wherein the latter relinquished her rights,
share, interest and participation over the same in favor of the petitioner and her
husband.

A careful perusal of the said Affidavit reveals that it is not what it purports to
be. Esperanzas Affidavit is, in fact, a Donation. Esperanzas real intent in executing the
said Affidavit was to donate her share in the subject property to petitioner and her
husband.

As no onerous undertaking is required of petitioner and her husband under the

said Affidavit, the donation is regarded as a pure donation of an interest in a real
property covered by Article 749 of the Civil Code.[36]

Article 749 of the Civil Code

provides:

Art. 749. In order that the donation of an immovable may be valid, it must be
made in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a

separate public document, but it shall not take effect unless it is done during
the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be

notified thereof in an authentic form, and this step shall be noted in both
instruments.

217

From the aforesaid provision, there are three requisites for the validity of a simple
donation of a real property, to wit: (1) it must be made in a public instrument; (2) it
must be accepted, which acceptance may be made either in the same Deed of Donation
or in a separate public instrument; and (3) if the acceptance is made in a separate
instrument, the donor must be notified in an authentic form, and the same must be
noted in both instruments.

This Court agrees with the RTC and the Court of Appeals that the Affidavit
executed by Esperanza relinquishing her rights, share, interest and participation over
the subject property in favor of the petitioner and her husband suffered from legal
infirmities, as it failed to comply with the aforesaid requisites of the law.

In Sumipat v. Banga,[37] this Court declared that title to immovable property does
not pass from the donor to the donee by virtue of a Deed of Donation until and unless it
has been accepted in a public instrument and the donor duly notified thereof. The
acceptance may be made in the very same instrument of donation. If the acceptance
does not appear in the same document, it must be made in another. Where the Deed of
Donation fails to show the acceptance, or where the formal notice of the acceptance,
made in a separate instrument, is either not given to the donor or else not noted in the
Deed of Donation and in the separate acceptance, the donation is null and void.[38]

In the present case, the said Affidavit, which is tantamount to a Deed of Donation,
met the first requisite, as it was notarized; thus, it became a public
instrument. Nevertheless, it failed to meet the aforesaid second and third
requisites. The acceptance of the said donation was not made by the petitioner and her
husband either in the same Affidavit or in a separate public instrument. As there was no
acceptance made of the said donation, there was also no notice of the said acceptance
given to the donor, Esperanza. Therefore, the Affidavit executed by Esperanza in favor
of petitioner and her husband is null and void.

The subsequent notarized Deed of Acceptance[39] dated 23 September 2000, as

well as the notice[40] of such acceptance, executed by the petitioner did not cure the
defect. Moreover, it was only made by the petitioner several years after the Complaint
218

was filed in court, or when the RTC had already rendered its Decision dated 12
September 2000, although it was still during Esperanzas lifetime. Evidently, its
execution was a mere afterthought, a belated attempt to cure what was a defective
donation.

It is true that the acceptance of a donation may be made at any time during the
lifetime of the donor. And granting arguendo that such acceptance may still be
admitted in evidence on appeal, there is still need for proof that a formal notice of
such acceptance was received by the donor and noted in both the Deed of Donation
and the separate instrument embodying the acceptance.[41] At the very least, this last
legal requisite of annotation in both instruments of donation and acceptance was not
fulfilled by the petitioner. Neither the Affidavit nor the Deed of Acceptance bears the
fact that Esperanza received notice of the acceptance of the donation by petitioner. For
this reason, even Esperanzas one-third share in the subject property cannot be
adjudicated to the petitioner.

With the foregoing, this Court holds that the RTC and the Court of Appeals did not
err in declaring null and void Esperanzas Affidavit.

The next issue to be resolved then is whether the RTC, as well as the Court of
Appeals, erred in declaring OCT No. CLOA-1748 in the name of petitioner and her
husband null and void.

Again, this Court answers the said issue in the negative.

Section 48 of Presidential decree No. 1529 states:

SEC. 48. Certificate not subject to collateral attack. - A certificate of

title shall not be subject to collateral attack. It cannot be altered, modified, or
cancelled except in a direct proceeding in accordance with law.

219

Such proscription has long been enshrined in Philippine jurisprudence. The judicial
action required to challenge the validity of title is a direct attack, not a collateral
attack.[42]

The attack is considered direct when the object of an action is to annul or set
aside such proceeding, or enjoin its enforcement. Conversely, an attack is indirect or
collateral when, in an action to obtain a different relief, an attack on the proceeding is
nevertheless made as an incident thereof. Such action to attack a certificate of title
may be an original action or a counterclaim, in which a certificate of title is assailed as
void.[43]

A counterclaim is considered a new suit in which the defendant is the plaintiff and
the plaintiff in the complaint becomes the defendant. It stands on the same footing as,
and is to be tested by the same rules as if it were, an independent action.[44]

In their Answer to the Complaint for Quieting of Title filed by the petitioner and
her husband before the MCTC, respondents included therein a Counterclaim wherein
they repleaded all the material allegations in their affirmative defenses, the most essential
of which was their claim that petitioner and her husband -- by means of fraud, undue
influence and deceit -- were able to make their grand aunt, Esperanza, who was already
old and illiterate, affix her thumbmark to the Affidavit, wherein she renounced, waived,
and quitclaimed all her rights and interest over the subject property in favor of petitioner
and her husband. In addition, respondents maintained in their Answer that as petitioner
and her husband were not tenants either of Esperanza or of the respondents, the DAR
could not have validly issued in favor of petitioner and her husband OCT No. CLOA1748. Thus, the respondents prayed, in their counterclaim in Civil Case No. 156 before
the MCTC, that OCT No. CLOA-1748 issued in the name of petitioner, married to Ray
Mars E. Arangote, be declared null and void, insofar as their two-thirds shares in the
subject property are concerned.

220

It is clear, thus, that respondents Answer with Counterclaim was a direct attack
on petitioners certificate of title. Furthermore, since all the essential facts of the case
for the determination of the validity of the title are now before this Court, to require
respondents to institute a separate cancellation proceeding would be pointlessly
circuitous and against the best interest of justice.

Esperanzas Affidavit, which was the sole basis of petitioners claim to the subject
property, has been declared null and void. Moreover, petitioner and her husband were
not tenants of the subject property. In fact, petitioner herself admitted in her
Complaint filed before the MCTC that her husband is out of the country, rendering it
impossible for him to work on the subject property as a tenant. Instead of cultivating
the subject property, petitioner and her husband possessed the same by constructing a
house thereon. Thus, it is highly suspicious how the petitioner was able to secure from
the DAR a Certificate of Land Ownership Award (CLOA) over the subject property. The
DAR awards such certificates to the grantees only if they fulfill the requirements of
Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform
Program (CARP).[45] Hence, the RTC and the Court of Appeals did not err in declaring null
and void OCT No. CLOA-1748 in the name of the petitioner, married to Ray Mars E.
Arangote.

Considering that Esperanza died without any compulsory heirs and that the
supposed donation of her one-third share in the subject property per her Affidavit dated
9 June 1985 was already declared null and void, Esperanzas one-third share in the
subject property passed on to her legal heirs, the respondents.

As petitioners last-ditch effort, she claims that she is a possessor in good faith
and, thus, entitled to the rights provided for under Articles 448 and 546 of the Civil
Code.

This claim is untenable.

The Civil Code describes a possessor in good faith as follows:

221

Art. 526. He is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case

contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of

good faith.

Art. 1127. The good faith of the possessor consists in the reasonable
belief that the person from whom he received the thing was the owner
thereof, and could transmit his ownership.

Possession in good faith ceases from the moment defects in the title are made
known to the possessor by extraneous evidence or by a suit for recovery of the property
by the true owner. Every possessor in good faith becomes a possessor in bad faith from
the moment he becomes aware that what he believed to be true is not so.[46]

In the present case, when respondents came to know that an OCT over the
subject property was issued and registered in petitioners name on 26 March 1993,
respondents

brought

Complaint

on

August

1993

before

the Lupon of Barangay Maloco, Ibajay, Aklan, challenging the title of petitioner to the
subject property on the basis that said property constitutes the inheritance of
respondent, together with their grandaunt Esperanza, so Esperanza had no authority to
relinquish the entire subject property to petitioner. From that moment, the good faith
of the petitioner had ceased.

Petitioner cannot be entitled to the rights under Articles 448 and 546 of the Civil
Code, because the rights mentioned therein are applicable only to builders in good faith
and not to possessors in good faith.
222

Moreover, the petitioner cannot be considered a builder in good faith of the

house on the subject property. In the context that such term is used in particular
reference to Article 448 of the Civil Code, a builder in good faith is one who, not being
the owner of the land, builds on that land, believing himself to be its owner and
unaware of any defect in his title or mode of acquisition.[47]

The various provisions of the Civil Code, pertinent to the subject, read:

Article 448. The owner of the land on which anything has been built,
sown, or planted in good faith, shall have the right to appropriate as his own
the works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such a case, he shall pay reasonable rent, if
the owner of the land does not choose to appropriate the building or trees
after proper indemnity. The parties shall agree upon the terms of the lease
and in case of disagreement, the court shall fix the terms thereof.

Article 449. He who builds, plants, or sows in bad faith on the land of
another, loses what is built, planted or sown without right to indemnity.

Article 450. The owner of the land on which anything has been built,
planted or sown in bad faith may demand the demolition of the work, or that
the planting or sowing be removed, in order to replace things in their former
condition at the expense of the person who built, planted or sowed; or he may
compel the builder or planter to pay the price of the land, and the sower the
proper rent.

Under the foregoing provisions, the builder in good faith can compel the
landowner to make a choice between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land. The choice belongs to the
owner of the land, a rule that accords with the principle of accession, i.e., that the
223

accessory follows the principal and not the other way around. Even as the option lies
with the landowner, the grant to him, nevertheless, is preclusive. He must choose
one. He cannot, for instance, compel the owner of the building to instead remove it
from the land. In order, however, that the builder can invoke that accruing benefit and
enjoy his corresponding right to demand that a choice be made by the landowner, he
should be able to prove good faith on his part.[48]

Good faith, here understood, is an intangible and abstract quality with no

technical meaning or statutory definition, and it encompasses, among other things, an
honest belief, the absence of malice and the absence of design to defraud or to seek an
unconscionable advantage. An individuals personal good faith is a concept of his own
mind and, therefore, may not conclusively be determined by his protestations alone. It
implies honesty of intention, and freedom from knowledge of circumstances which
ought to put the holder upon inquiry. The essence of good faith lies in an honest belief
in the validity of ones right, ignorance of a superior claim, and absence of intention to
overreach another. Applied to possession, one is considered in good faith if he is not
aware that there exists in his title or mode of acquisition any flaw which invalidates it.[49]

In this case, the subject property waived and quitclaimed by Esperanza to the
petitioner and her husband in the Affidavit was only covered by a tax declaration in the
name of Esperanza. Petitioner did not even bother to look into the origin of the subject
property and to probe into the right of Esperanza to relinquish the same. Thus, when
petitioner and her husband built a house thereon in 1989 they cannot be considered to
have acted in good faith as they were fully aware that when Esperanza executed an
Affidavit relinquishing in their favor the subject property the only proof of Esperanzas
ownership over the same was a mere tax declaration. This fact or circumstance alone
was enough to put the petitioner and her husband under inquiry. Settled is the rule that
a tax declaration does not prove ownership. It is merely an indicium of a claim of
ownership. Payment of taxes is not proof of ownership; it is, at best, an indicium of
possession in the concept of ownership. Neither tax receipts nor a declaration of
ownership for taxation purposes is evidence of ownership or of a right to possess realty
when not supported by other effective proofs.[50]

224

With the foregoing, the petitioner is not entitled to the rights under Article 448
and 546 as the petitioner is not a builder and possessor in good faith.

WHEREFORE, premises considered, the instant Petition is hereby DENIED. The

Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64970, dated 27
October 2006 and 29 June 2007, respectively, affirming the RTC Decision dated 12
September 2000 in Civil Case No. 5511 and declaring the respondents the lawful owners
and possessors of the subject property are hereby AFFIRMED. No costs.

SO ORDERED.
ALIDA MORES,
Petitioner,

G.R. No. 172292

Present:

- versus -

CARPIO, J., Chairperson,

NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

SHIRLEY M. YU-GO,
MA. VICTORIA M. YU-LIM, and
Promulgated:
MA. ESTRELLA M. YU,
Respondents.
July 23, 2010
x-------------------------------------------------- x

DECISION
CARPIO, J.:

225

G.R. No. 172292 is a petition for review[1] assailing the Decision[2] promulgated on
26 August 2005 by the Court of Appeals (appellate court) as well as the
Resolution[3]promulgated on 14 March 2006 in CA-G.R. CV No. 76076. The appellate
court partially granted the petition filed by Shirley M. Yu-Go, Ma. Victoria M. Yu-Lim,
and Ma. Estrella M. Yu (Yu siblings) and reversed the decision of the Regional Trial
Court of Naga City, Branch 27 (trial court), dated 28 June 2002 in Civil Case No. 994216. The appellate court ordered spouses Antonio and Alida Mores (spouses Mores) to
pay the Yu siblings moral damages in the amount of P100,000.

The Facts
Antonio Mores passed away during the pre-trial stage. Hence, Alida Mores
remained as the only defendant, per the trial courts order dated 3 May 2000.[4]
The appellate court narrated the facts as follows:
On January 21, 1998, plaintiffs-appellants Shirley M. Yu-Go, Ma.
Victoria M. Yu-Lim and Ma. Estrella M. Yu (appellants) filed a Complaint
for Injunction and Damages with Prayer for Issuance of a Temporary
Restraining Order and Preliminary Injunction before the Regional Trial Court
in Naga City against defendants-appellees, spouses Antonio and Alida Mores
(appellees). Appellants alleged that they co-owned a parcel of land located in
Sto. Tomas, Magarao, Camarines Sur on which a building of strong materials
(subject property) was built. In March 1983, appellees pleaded to appellants
that they be allowed to stay in the subject property in the meantime that they
did not own a house yet. Since appellee Antonio Mores used to be an errand
boy of appellants family, they readily agreed without asking for any rental but
subject only to the condition that the said stay would last until anyone of
appellants would need the subject property. Forthwith, appellees and their
children occupied the same as agreed upon.
In November 1997, appellants made known to appellees that they were
already in need of the subject property. They explained that appellant Shirley
Yu-Go needed the same and, besides, appellees already have their own house in
Villa Grande Homes, Naga City. Yet, appellees begged that they be given a 6month extension to stay thereat or until May 1998. However, even after May
1998, appellees failed to make good their promise and even further asked that
they be allowed to stay therein until October 1998, which was again extended
until the end of the same year. Thus, sometime in the first week of January
1999, appellants gave their final demand for appellees to vacate the subject
property. However, instead of heeding such demand, appellees hired some
laborers and started demolishing the improvements on the subject property on
January 20, 1999.

226

Appellants protest fell on deaf ears because appellees continued their

demolition and even took away and appropriated for themselves the materials
derived from such unlawful demolition. Consequently, appellants instituted the
said action for injunction where they also prayed for the reimbursement of the
value of the residential building illegally demolished as well as for the payment
of moral damages, attorneys fees, litigation expenses and costs of suit.
On February 5, 1999, appellees filed their Answer where they denied
the material averments of the complaint. They claimed that appellee Antonio
Mores, who was appellants uncle, used to be the assistant manager and cashier
of appellants father at their Caltex Service Station until the laters death
sometime in 1980. Appellants Caltex Filling Station had stopped operation
and was just rented out toHerce Trucking Service. Upon the expiration of such
lease contract, appellees were allowed to occupy the subject property as their
dwelling places. They were the ones who caused its renovation consisting of a
3-bedroom annex, a covered veranda and a concrete hollow block fence, at
their own expense, and with appellants consent, which renovation was made
without altering the form and substance of the subject property. They denied
that appellants made a demand for them to vacate the subject property, insisting
that it was merely a sort of reminder that sooner or later appellees should yield
possession thereof since, after all, they had already bought a second-hand house
which was undergoing repair. Appellees argued that what they removed was
merely the improvements made on the subject property, which removal had not
caused any substantial damage thereto as, in fact, it remained intact. By way of
counterclaims, they demanded payment of actual damages, attorneys fees and
litigation expenses.[5]

The Trial Courts Ruling

On 28 June 2002, the trial court promulgated its Decision in favor of the spouses
Mores. The trial court ratiocinated and ruled thus:
Defendants, who are possessors in good faith, were able to prove by
preponderance of evidence that they removed only the improvements they
introduced without destroying the principal building, after the plaintiffs refused
to pay them the reasonable value of the improvements. x x x
But defendants failed to prove the allegations in their counterclaims that
plaintiffs acted in bad faith and/or through gross and reckless negligence in
filing this complaint, and the damages defendants allegedly suffered. Failing in
this, plaintiffs must also be presumed to have acted in good faith when they
filed this complaint with the honest belief that their rights were violated when
defendants removed the useful improvements from the principal building and
land of plaintiffs. Applying the same principle, the equipoise rule, defendants
counterclaims must necessarily fail.
Both parties having acted in good faith, the court will not disturb the
present status, and will leave the parties where it found them. Wounds should
not be scratched in order to hasten the healing process, and neither should this
Court scratch herein parties rift that torn [sic] them apart from being close
relatives before this controversy started. Parties owe to their siblings and to
227

their posterity to reconcile. Anyway, this case was started because parties were
very close relatives.
The courts are not only courts of justice but also courts of equity.
WHEREFORE, the complaint and the counterclaims are hereby
dismissed. No pronouncement as to cost.
SO ORDERED.[6]

The trial court gave due course to the Yu siblings Notice of Appeal in an Order
dated 22 July 2002.

The Appellate Courts Ruling

The appellate court partially granted the Yu siblings appeal. The appellate court
disagreed with the trial courts conclusion that the spouses Mores were builders in good
faith and have the right of accession under Articles 546 and 547 of the Civil
Code. Instead, the appellate court believed that the relationship between the Yu siblings
and the spouses Mores is one between a lessor and a lessee, making Article 1678 of the
Civil Code applicable to the present case. The options given by Article 1678, the right
of appropriating the useful improvements after reimbursing 50% of its value or the right
of removal of the useful improvements, are given by law to the lessor - the Yu
siblings. The spouses Mores, however, failed to give the Yu siblings the opportunity to
choose from these two options. The appellate court thus ordered the spouses Mores to
pay the Yu siblings moral damages worth P100,000.
The appellate court resolved to deny Alida Mores Motion for Reconsideration for
want of merit.[7]

The Issues

In her petition, Alida Mores stated that the decision of the appellate court awarding
the Yu siblings moral damages in the amount of P100,000 is rendered with grave abuse
of discretion and is not in accord with the decisions of this Court.[8]

228

The Courts Ruling

The petition has merit.
Alida Mores argues that in case of breach of contract between a lessor and a lessee,
moral damages are not awarded to the lessor if the lessee is not shown to have acted in
bad faith. She proves her and her husbands alleged good faith by quoting the appellate
courts decision which stated that:
[The Spouses Mores] good faith is underscored by the fact that no one
from appellants had objected or prevented appellees from effecting said
improvements which, obviously, were undertaken in quite a span of time. Even
if we believe appellant Victoria Yu-Lims testimony that they would only learn
of the introduction of such improvements after each of such improvements had
already been built, [the Yu siblings] never made known their objections thereto
nor did they pose a warning against future introduction of any
improvement. After all, the said improvements were not introduced
simultaneously.[9]

The good faith referred to by Alida Mores was about the building of the
improvements on the leased subject property. However, tenants like the spouses Mores
cannot be said to be builders in good faith as they have no pretension to be owners of the
property.[10] Indeed, full reimbursement of useful improvements and retention of the
premises until reimbursement is made applies only to a possessor in good faith, i.e., one
who builds on land with the belief that he is the owner thereof. It does not apply where
ones only interest is that of a lessee under a rental contract; otherwise, it would always
be in the power of the tenant to improve his landlord out of his property.[11]
The appellate court is correct in ruling that Article 1678 of the Civil Code should
apply in the present case. Article 1678 reads:
If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form or
substance of the property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the value of the improvements at that
time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage
thereby. He shall not, however, cause any more impairment upon the property
leased than is necessary.
With regard to the ornamental expenses, the lessee shall not be entitled
to any reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to retain
them by paying their value at the time the lease is extinguished.
229

It is incorrect, however, for the appellate court to state that the spouses Mores did
not give the Yu siblings the option to retain the improvements.

The appellate court

stated that nothing in the records reveal that [the Yu siblings] were given the chance to
choose from the options of either paying one-half () of the value of the improvements at
the time they were made on the subject property, or to demand the removal by [the
spouses Mores] of such improvements at their expense.[12] The trial court even quoted
from the transcript of Alida Mores direct testimony on 10 October 2001 on the subject:
Q:
Plaintiff Yu-Lim likewise testified that the plaintiffs demanded in 1998
that you vacate the premises because it will be needed by plaintiff Shirley YuCo, what can you say to that?
A:
It was in November 1998 that the plaintiff intimated that we will soon
vacate the place because by that time we had already bought a second-hand
house.
Q:
What happened after that?
A:
My husband good-naturedly asked for reimbursement for the
improvements we constructed at our expense.
Q:
What happened to that demand?
A:
The plaintiffs became mad at us and refused to pay.
Q:
What happened after that, what did your husband do?
A:
My husband removed the roofing, coco lumber, trusses, the electrical
installation and the improvements constructed, glass panel and window panel.
Q:
By the way, who spent for the introduction of these improvements?
A:
My husband and I.[13]

There is thus no reason for the appellate courts award of moral damages to the Yu
siblings. We agree with the trial courts finding that the spouses Mores removed only
the improvements they introduced without destroying the principal building, after the [Yu
siblings] refused to pay them the reasonable value of the improvements.[14] When the
spouses Mores demanded reimbursement, the Yu siblings should have offered to pay the
spouses Mores one-half of the value of the improvements. Since the Yu siblings failed to
make such offer, the spouses Mores had the right to remove the improvements.
WHEREFORE,

we GRANT the

petition. We AFFIRM

with

MODIFICATION the Decision of the Court of Appeals promulgated on 26 August

2005 as well as the Resolution promulgated on 14 March 2006 in CA-G.R. CV No.
76076. Article 1678 of the Civil Code is applicable to the present case. The award of
moral damages worthP100,000 to the Yu siblings is deleted.
SO ORDERED.
230

G.R. No. 116290. December 8, 2000]

DIONISIA P. BAGAIPO, petitioner, vs. THE HON. COURT OF APPEALS and

LEONOR LOZANO, respondents.
QUISUMBING, J.:
This petition assails the decision dated June 30, 1994 of the Court of Appeals affirming the
dismissal by the Regional Trial Court of Davao City, Branch 8, in Civil Case No. 555-89, of
petitioners complaint for recovery of possession with prayer for preliminary mandatory
injunction and damages.
The undisputed facts of the case are as follows:
Petitioner Dionisia P. Bagaipo is the registered owner of Lot No. 415, a 146,900 square
meter agricultural land situated in Ma-a, Davao City under Transfer Certificate of Title No. T15757 particularly described as follows:

Bounded on the NE., by Lots Nos. 419 and 416; on the SE by the Davao River;
on the SE., (sic) by Lots Nos. 1092 and 1091; and on the NW., by Lots Nos. 413
and 418
[1]

Respondent Leonor Lozano is the owner of a registered parcel of land located across and
opposite the southeast portion of petitioners lot facing the Davao River. Lozano acquired and
occupied her property in 1962 when his wife inherited the land from her father who died that
year.
On May 26, 1989, Bagaipo filed a complaint[2] for Recovery of Possession with Mandatory
Writ of Preliminary Injunction and Damages against Lozano for: (1) the surrender of
possession by Lozano of a certain portion of land measuring 29,162 square meters which is
supposedly included in the area belonging to Bagaipo under TCT No. T-15757; and (2) the
recovery of a land area measuring 37,901 square meters which Bagaipo allegedly lost when
the Davao River traversed her property. Bagaipo contended that as a result of a change in
course of the said river, her property became divided into three lots, namely: Lots 415-A, 415B and 415-C.
In January 1988, Bagaipo commissioned a resurvey of Lot 415 and presented before the
trial court a survey plan[3] prepared by Geodetic Engineer Gersacio A. Magno. The survey plan
allegedly showed that: a) the area presently occupied by Bagaipo, identified as Lot 415-A, now
had an area of only 79,843 square meters; b) Lot 415-B, with an area measuring 37,901
square meters, which cut across Bagaipos land was taken up by the new course of the Davao
River; and c) an area of 29,162 square meters designated as Lot 415-C was illegally occupied
by respondent Lozano. The combined area of the lots described by Engineer Magno in the
survey plan tallied with the technical description of Bagaipos land under TCT No. T15757. Magno concluded that the land presently located across the river and parallel to
Bagaipos property still belonged to the latter and not to Lozano, who planted some 350 fruitbearing trees on Lot 415-C and the old abandoned river bed.
Bagaipo also presented Godofredo Corias, a former barangay captain and long-time
resident of Ma-a to prove her claim that the Davao River had indeed changed its
course. Corias testified that the occurrence was caused by a big flood in 1968 and a bamboo
grove which used to indicate the position of the river was washed away. The river which
flowed previously in front of a chapel located 15 meters away from the riverbank within
Bagaipos property now flowed behind it. Corias was also present when Magno conducted the
relocation survey in 1988.
For his part, Lozano insisted that the land claimed by Bagaipo is actually an accretion to
their titled property. He asserted that the Davao River did not change its course and that the
reduction in Bagaipos domain was caused by gradual erosion due to the current of the Davao
River. Lozano added that it is also because of the rivers natural action that silt slowly
deposited and added to his land over a long period of time. He further averred that this
231

accretion continues up to the present and that registration proceedings instituted by him over
the alluvial formation could not be concluded precisely because it continued to increase in size.
Lozano presented three witnesses: Atty. Pedro Castillo, his brother-in-law; Cabitunga
Pasanday, a tenant of Atty. Castillo; and Alamin Catucag, a tenant of the Lozanos.
Atty. Castillo testified that the land occupied by the Lozanos was transferred to his sister,
Ramona when they extra-judicially partitioned their parents property upon his fathers
death. On September 9, 1973, Atty. Castillo filed a land registration case involving the
accretion which formed on the property and submitted for this purpose, a survey
plan[4] approved by the Bureau of Lands as well as tax declarations [5] covering the said
accretion. An Order of General Default[6] was already issued in the land registration case on
November 5, 1975, but the case itself remained pending since the petition had to be amended
to include the continuing addition to the land area.
Mr. Cabitunga Pasanday testified that he has continuously worked on the land as tenant of
the Castillos since 1925, tilling an area of about 3 hectares. However, the land he tilled
located opposite the land of the Lozanos and adjacent to the Davao River has decreased over
the years to its present size of about 1 hectare. He said the soil on the bank of the river, as
well as coconut trees he planted would be carried away each time there was a flood. This
similar erosion occurs on the properties of Bagaipo and a certain Dr. Rodriguez, since the
elevation of the riverbank on their properties is higher than the elevation on Lozanos side.
Alamin Catucag testified that he has been a tenant of the Castillos since 1939 and that the
portion he occupies was given to Ramona, Lozanos wife. It was only 1 hectare in 1939 but
has increased to 3 hectares due to soil deposits from the mountains and river. Catucag said
that Bagaipos property was reduced to half since it is in the curve of the river and its soil
erodes and gets carried away by river water.
On April 5, 1991, the trial court conducted an ocular inspection. It concluded that the
applicable law is Article 457[7]. To the owners of lands adjoining the banks of rivers belong the
accretion which they gradually receive from the effects of the current of the waters.7 of the
New Civil Code and not Art. 461[8] The reduction in the land area of plaintiff was caused by
erosion and not by a change in course of the Davao River. Conformably then, the trial court
dismissed the complaint.
On appeal, the Court of Appeals affirmed the decision of the trial court and decreed as
follows:

WHEREFORE, the decision appealed from is hereby affirmed, with costs against
the plaintiff-appellant.
[9]

Hence, this appeal.

Petitioner asserts that the Court of Appeals erred in:

....NOT GIVING PROBATIVE VALUE TO THE RELOCATION SURVEY

(EXHIBIT B) PREPARED BY LICENSED GEODETIC ENGINEER GERSACIO
MAGNO. THE CASE OF DIRECTOR OF LANDS VS. HEIRS OF JUANA
CAROLINA 140 SCRA 396 CITED BY THE RESPONDENT COURT IN
DISREGARDING EXHIBIT B IS NOT APPLICABLE TO THE CASE AT BAR.
....NOT FINDING THAT ASSUMING WITHOUT ADMITTING THAT THE
QUESTIONED LOT 415-C (EXHIBIT B-1) OCCUPIED BY RESPONDENT
LEONOR LOZANO WAS THE RESULT OF AN ACCRETION, THE PRINCIPLE
OF ACCRETION CANNOT AND DOES NOT APPLY IN THE INSTANT CASE
TO FAVOR SAID RESPONDENT BECAUSE SAID LOT 415-C IS WITHIN AND
FORM PART OF PETITIONERS LAND DESCRIBED IN TCT NO. 15757
(EXHIBIT A)

232

....FINDING PETITIONER GUILTY OF LACHES WHEN SHE INSTITUTED THE

SUIT.
....NOT ORDERING RESPONDENT LEONOR LOZANO TO VACATE AND
SURRENDER LOT 415-C IN FAVOR OF PETITIONER AND FOR HIM TO PAY
PETITIONER DAMAGES FOR ITS UNLAWFUL OCCUPATION THEREOF.
....NOT HOLDING PETITIONER ENTITLED TO THE ABANDONED RIVER
BED.
[10]

For this Courts resolution are the following issues: Did the trial court err in holding that
there was no change in course of the Davao River such that petitioner owns the abandoned
river bed pursuant to Article 461 of the Civil Code? Did private respondent own Lot 415-C in
accordance with the principle of accretion under Article 457? Should the relocation survey
prepared by a licensed geodetic engineer be disregarded since it was not approved by the
Director of Lands? Is petitioners claim barred by laches?
On the first issue. The trial court and the appellate court both found that the decrease in
land area was brought about by erosion and not a change in the rivers course. This
conclusion was reached after the trial judge observed during ocular inspection that the banks
located on petitioners land are sharp, craggy and very much higher than the land on the other
side of the river. Additionally, the riverbank on respondents side is lower and gently
sloping. The lower land therefore naturally received the alluvial soil carried by the river
current.[11] These findings are factual, thus conclusive on this Court, unless there are strong and
exceptional reasons, or they are unsupported by the evidence on record, or the judgment itself
is based on a misapprehension of facts.[12] These factual findings are based on an ocular
inspection of the judge and convincing testimonies, and we find no convincing reason to
disregard or disbelieve them.
The decrease in petitioners land area and the corresponding expansion of respondents
property were the combined effect of erosion and accretion respectively. Art. 461 of the Civil
Code is inapplicable. Petitioner cannot claim ownership over the old abandoned riverbed
because the same is inexistent. The riverbeds former location cannot even be pinpointed with
particularity since the movement of the Davao River took place gradually over an unspecified
period of time, up to the present.
The rule is well-settled that accretion benefits a riparian owner when the following
requisites are present: 1) That the deposit be gradual and imperceptible; 2) That it resulted
from the effects of the current of the water; and 3) That the land where accretion takes place is
adjacent to the bank of the river.[13] These requisites were sufficiently proven in favor of
respondents. In the absence of evidence that the change in the course of the river was
sudden or that it occurred through avulsion, the presumption is that the change was gradual
and was caused by alluvium and erosion.[14]
As to Lot 415-C, which petitioner insists forms part of her property under TCT No. T15757, it is well to recall our holding in C.N. Hodges vs. Garcia, 109 Phil. 133, 135:

The fact that the accretion to his land used to pertain to plaintiffs estate, which is
covered by a Torrens certificate of title, cannot preclude him (defendant) from being
the owner thereof. Registration does not protect the riparian owner against the
diminution of the area of his land through gradual changes in the course of the
adjoining stream. Accretions which the banks of rivers may gradually receive from
the effect of the current become the property of the owners of the banks (Art. 366 of
the old Civil Code; Art. 457 of the new). Such accretions are natural incidents to
land bordering on running streams and the provisions of the Civil Code in that
respect are not affected by the Land Registration Act.
[15]

Petitioner did not demonstrate that Lot 415-C allegedly comprising 29,162 square meters
was within the boundaries of her titled property. The survey plan commissioned by petitioner
which was not approved by the Director of Lands was properly discounted by the appellate
233

court. In Titong vs. Court of Appeals[16] we affirmed the trial courts refusal to give probative
value to a private survey plan and held thus:

the plan was not verified and approved by the Bureau of Lands in accordance
with Sec. 28, paragraph 5 of Act No. 2259, the Cadastral Act, as amended by Sec.
1862 of Act No. 2711. Said law ordains that private surveyors send their original
field notes, computations, reports, surveys, maps and plots regarding a piece of
property to the Bureau of Lands for verification and approval. A survey plan not
verified and approved by said Bureau is nothing more than a private writing, the due
execution and authenticity of which must be proven in accordance with Sec. 20 of
Rule 132 of the Rules of Court. The circumstance that the plan was admitted in
evidence without any objection as to its due execution and authenticity does not
signify that the courts shall give probative value therefor. To admit evidence and not
to believe it subsequently are not contradictory to each other
In view of the foregoing, it is no longer necessary now to discuss the defense of laches. It
is mooted by the disquisition on the foregoing issues.
WHEREFORE, the assailed decision dated June 30, 1994, of the Court of Appeals in C.A.G. R. CV No. 37615, sustaining the judgment of the court a quo, is AFFIRMED. Costs against
petitioner.
SO ORDERED.

[G.R. No. 98045. June 26, 1996]

DESAMPARADO VDA. DE NAZARENO and LETICIA NAZARENO

TAPIA, petitioners, vs. THE COURT OF APPEALS, MR. & MRS. JOSE
SALASALAN, MR. & MRS. LEO RABAYA, AVELINO LABIS, HON.
ROBERTO G. HILARIO, ROLLEO I. IGNACIO, ALBERTO M. GILLERA
and HON. ABELARDO G. PALAD, JR., in their official and/or private
capacities, respondents.
SYLLABUS
1. CIVIL LAW; OWNERSHIP; RIGHTS OF ACCESSION WITH RESPECT TO
IMMOVABLE PROPERTY; ARTICLE 457; REQUISITES.- In the case
of Meneses vs. CA, this Court held that accretion, as a mode of acquiring
property under Art. 457 of the Civil Code, requires the concurrence of these
requisites: (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or
sea); and (3) that the land where accretion takes place is adjacent to the banks
of rivers (or the sea coast). These are called the rules on alluvion which if
present in a case, give to the owners of lands adjoining the banks of rivers or
streams any accretion gradually received from the effects of the current of
waters.
2. ID.; ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR.- Where the accretion
was formed by the dumping of boulders, soil and other filling materials on
portions of the Balacanas Creek and the Cagayan River bounding petitioner's
land, it cannot be claimed that the accumulation was gradual and imperceptible,
resulting from the action of the waters or the current of the creek and the
river. In Hilario vs. City of Manila, this Court held that the word current
indicates the participation of the body of water in the ebb and flow of waters due
234

to high and low tide. Not having met the first and second requirements of the
rules of alluvion, petitioners cannot claim the rights of a riparian owner.
3. ID.; ID.; ID.; ID.; ID.; THAT DEPOSIT IS DUE TO THE CURRENT OF THE
RIVER, MANDATORY.- In Republic vs. CA, this Court ruled that the
requirement that the deposit should be due to the effect of the current of the river
is indispensable. This excludes from Art. 457 of the Civil Code all deposits
caused by human intervention. Putting it differently, alluvion must be the
exclusive work of nature. Thus, in Tiongco vs. Director of Lands, et al., where
the land was not formed solely by the natural effect of the water current of the
river bordering said land but is also the consequence of the direct and deliberate
intervention of man, it was deemed a man-made accretion and, as such, part of
the public domain. In the case at bar, the subject land was the direct result of
the dumping of sawdust by the Sun Valley Lumber Co. consequent to its sawmill
operations.
4. ID.; PUBLIC LANDS; FINDINGS AS SUCH BY THE BUREAU OF LANDS,
RESPECTED.- The mere filing of the Miscellaneous Sales Application
constituted an admission that the land being applied for was public land, having
been the subject of a Survey Plan wherein said land was described as an
orchard. Furthermore, the Bureau of Lands classified the subject land as an
accretion area which was formed by deposits of sawdust in the Balacanas Creek
and the Cagayan river, in accordance with the ocular inspection conducted by
the Bureau of Lands. This Court has often enough held that findings of
administrative agencies which have acquired expertise because their jurisdiction
is confined to specific matters are generally accorded not only respect but even
finality. Again, when said factual findings are affirmed by the Court of Appeals,
the same are conclusive on the parties and not reviewable by this Court.
5. ID.; PUBLIC LAND LAW; JURISDICTION OVER PUBLIC LANDS.- Having
determined that the subject land is public land, a fortiori, the Bureau of Lands, as
well as the Office of the Secretary of Agriculture and Natural Resources have
jurisdiction over the same in accordance with the Public Land Law. Under
Sections 3 and 4 thereof, the Director of Lands has jurisdiction, authority and
control over public lands. Here respondent Palad as Director of Lands, is
authorized to exercise executive control over any form of concession, disposition
and management of the lands of the public domain. He may issue decisions
and orders as he may see fit under the circumstances as long as they are based
on the findings of fact. In the case ofCalibo vs. Ballesteros, this Court held that
where, in the disposition of public lands, the Director of Lands bases his decision
on the evidence thus presented, he clearly acts within his jurisdiction, and if he
errs in appraising the evidence, the error is one of judgment, but not an act of
grave abuse of discretion annullable by certiorari.
6. ADMINISTRATIVE LAW; ADMINISTRATIVE REMEDIES; EXHAUSTED IN
CASE AT BAR.- The administrative remedies have been exhausted. Petitioners
could not have intended to appeal to respondent Ignacio as an Officer-In-Charge
of the Bureau of Lands. The decision being appealed from was the decision of
respondent Hilario who was the Regional Director of the Bureau of Lands. Said
decision was made "for and by authority of the Director of Lands." It would be
incongruous to appeal the decision of the Regional Director of the Bureau of
Lands acting for the Director of the Bureau of Lands to an Officer-In-Charge of
the Bureau of Lands. In any case, respondent Ignacio's official designation was
"Undersecretary of the Department of Agriculture and Natural Resources." He
was only an "Officer-In-Charge" of the Bureau of Lands. When he acted on the
late Antonio Nazareno's motion for reconsideration by affirming or adopting
235

respondent Hilario's decision, he was acting on said motion as an

Undersecretary on behalf of the Secretary of the Department. In the case
of Hamoy vs. Secretary of Agriculture and Natural Resources, this Court held
that the Undersecretary of Agriculture and Natural Resources may modify,
adopt, or set aside the orders or decisions of the Director of Lands with respect
to questions involving public lands under the administration and control of the
Bureau of Lands and the Department of Agriculture and Natural Resources. He
cannot, therefore, be said to have acted beyond the bounds of his jurisdiction
under Sections 3, 4 and 5 of Commonwealth Act No. 141.
APPEARANCES OF COUNSEL
Manolo L. Tagarda, Sr. for petitioners.
Arturo R. Legaspi for private respondents.
DECISION
ROMERO, J.:

Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia

challenge the decision of the Court of Appeals which affirmed the dismissal of
petitioners' complaint by the Regional Trial Court of Misamis Oriental, Branch
22. The complaint was for annulment of the verification, report and
recommendation, decision and order of the Bureau of Lands regarding a parcel of
public land.
The only issue involved in this petition is whether or not petitioners exhausted
administrative remedies before having recourse to the courts.
The subject of this controversy is a parcel of land situated in Telegrapo, Puntod,
Cagayan de Oro City. Said land was formed as a result of sawdust dumped into the
dried-up Balacanas Creek and along the banks of the Cagayan river.
Sometime in 1979, private respondents Jose Salasalan and Leo Rabaya leased
the subject lots on which their houses stood from one Antonio Nazareno, petitioners'
predecessor-in-interest. In the latter part of 1982, private respondents allegedly
stopped paying rentals. As a result, Antonio Nazareno and petitioners filed a case
for ejectment with the Municipal Trial Court of Cagayan de Oro City, Branch 4. A
decision was rendered against private respondents, which decision was affirmed by
the Regional Trial Court of Misamis Oriental, Branch 20.
The case was remanded to the municipal trial court for execution of judgment
after the same became final and executory. Private respondents filed a case for
annulment of judgment before the Regional Trial Court of Misamis Oriental, Branch
24 which dismissed the same. Antonio Nazareno and petitioners again moved for
execution of judgment but private respondents filed another case for certiorari with
prayer for restraining order and/or writ of preliminary injunction with the Regional
Trial Court of Misamis Oriental, Branch 25 which was likewise dismissed. The
decision of the lower court was finally enforced with the private respondents being
ejected from portions of the subject lots they occupied.
Before he died, Antonio Nazareno caused the approval by the Bureau of Lands
of the survey plan designated as Plan Csd-106-00571 with a view to perfecting his
title over the accretion area being claimed by him. Before the approved survey plan
could be released to the applicant, however, it was protested by private respondents
before the Bureau of Lands.
In compliance with the order of respondent District Land Officer Alberto M.
Gillera, respondent Land Investigator Avelino G. Labis conducted an investigation
236

and rendered a report to the Regional Director recommending that Survey Plan No.
MSI-10-06-000571-D (equivalent to Lot No. 36302, Cad. 237) in the name of
Antonio Nazareno, be cancelled and that private respondents be directed to file
appropriate public land applications.
Based on said report, respondent Regional Director of the Bureau of Lands
Roberto Hilario rendered a decision ordering the amendment of the survey plan in
the name of Antonio Nazareno by segregating therefrom the areas occupied by the
private respondents who, if qualified, may file public land applications covering their
respective portions.
Antonio Nazareno filed a motion for reconsideration with respondent Rolleo
Ignacio, Undersecretary of the Department of Natural Resources and Officer-inCharge of the Bureau of Lands who denied the motion. Respondent Director of
Lands Abelardo Palad then ordered him to vacate the portions adjudicated to private
respondents and remove whatever improvements they have introduced thereon. He
also ordered that private respondents be placed in possession thereof.
Upon the denial of the late Antonio Nazareno's motion for reconsideration,
petitioners Desamparado Vda. de Nazareno and Leticia Tapia Nazareno, filed a
case before the RTC, Branch 22 for annulment of the following: order of
investigation by respondent Gillera, report and recommendation by respondent
Labis, decision by respondent Hilario, order by respondent Ignacio affirming the
decision of respondent Hilario and order of execution by respondent Palad. The
RTC dismissed the complaint for failure to exhaust administrative remedies which
resulted in the finality of the administrative decision of the Bureau of Lands.
On appeal, the Court of Appeals affirmed the decision of the RTC dismissing the
complaint. Applying Section 4 of C.A. No. 141, as amended, it contended that the
approval of the survey plan belongs exclusively to the Director of Lands. Hence,
factual findings made by the Metropolitan Trial Court respecting the subject land
cannot be held to be controlling as the preparation and approval of said survey
plans belong to the Director of Lands and the same shall be conclusive when
approved by the Secretary of Agriculture and Natural Resources.[1]
Furthermore, the appellate court contended that the motion for reconsideration
filed by Antonio Nazareno cannot be considered as an appeal to the Office of the
Secretary of Agriculture and Natural Resources, as mandated by C.A. No. 141
inasmuch as the same had been acted upon by respondent Undersecretary Ignacio
in his capacity as Officer-in-Charge of the Bureau of Lands and not as
Undersecretary acting for the Secretary of Agriculture and Natural Resources. For
the failure of Antonio Nazareno to appeal to the Secretary of Agriculture and Natural
Resources, the present case does not fall within the exception to the doctrine of
exhaustion of administrative remedies. It also held that there was no showing of
oppressiveness in the manner in which the orders were issued and executed.
Hence, this petition.
Petitioners assign the following errors:
I. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL, ARBITRARY AND
CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE LOWER COURT WHICH IS
CONTRARY TO THE PREVAILING FACTS AND THE LAW ON THE MATTER;
II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL, ARBITRARY AND
CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE LOWER COURT
DISMISSING THE ORIGINAL CASE WHICH FAILED TO CONSIDER THAT THE
EXECUTION ORDER OF PUBLIC RESPONDENT ABELARDO G. PALAD, JR.,
DIRECTOR OF LANDS, MANILA, PRACTICALLY CHANGED THE DECISION OF PUBLIC
RESPONDENT ROBERTO HILARIO, REGIONAL DIRECTOR, BUREAU OF LANDS,
237

REGION 10, THUS MAKING THE CASE PROPER SUBJECT FOR ANNULMENT WELL
WITHIN THE JURISDICTION OF THE LOWER COURT.

The resolution of the above issues, however, hinges on the question of whether
or not the subject land is public land. Petitioners claim that the subject land is
private land being an accretion to his titled property, applying Article 457 of the Civil
Code which provides:
"To the owners of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters."
In the case of Meneses v. CA,[2] this Court held that accretion, as a mode of
acquiring property under Art. 457 of the Civil Code, requires the concurrence of
these requisites: (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or sea);
and (3) that the land where accretion takes place is adjacent to the banks or rivers
(or the sea coast). These are called the rules on alluvion which if present in a case,
give to the owners of lands adjoining the banks of rivers or streams any accretion
gradually received from the effects of the current of waters.
For petitioners to insist on the application of these rules on alluvion to their case,
the above-mentioned requisites must be present. However, they admit that the
accretion was formed by the dumping of boulders, soil and other filling materials on
portions of the Balacanas Creek and the Cagayan River bounding their land.[3] It
cannot be claimed, therefore, that the accumulation of such boulders, soil and other
filling materials was gradual and imperceptible, resulting from the action of the
waters or the current of the Balacanas Creek and the Cagayan River. In Hilario v.
City of Manila,[4] this Court held that the word "current" indicates the participation of
the body of water in the ebb and flow of waters due to high and low tide. Petitioners'
submission not having met the first and second requirements of the rules on
alluvion, they cannot claim the rights of a riparian owner.
In any case, this court agrees with private respondents that petitioners are
estopped from denying the public character of the subject land, as well as the
jurisdiction of the Bureau of Lands when the late Antonio Nazareno filed his
Miscellaneous Sales Application MSA (G-6) 571.[5] The mere filing of said
Application constituted an admission that the land being applied for was public land,
having been the subject of Survey Plan No. MSI-10-06-000571-D (Equivalent to Lot
No. 36302, Cad-237) which was conducted as a consequence of Antonio
Nazareno's Miscellaneous Sales Application wherein said land was described as an
orchard. Said description by Antonio Nazareno was, however, controverted by
respondent Labis in his investigation report to respondent Hilario based on the
findings of his ocular inspection that said land actually covers a dry portion of
Balacanas Creek and a swampy portion of Cagayan River. The investigation report
also states that except for the swampy portion which is fully planted to nipa palms,
the whole area is fully occupied by a part of a big concrete bodega of petitioners and
several residential houses made of light materials, including those of private
respondents which were erected by themselves sometime in the early part of
1978.[6]
Furthermore, the Bureau of Lands classified the subject land as an accretion
area which was formed by deposits of sawdust in the Balacanas Creek and the
Cagayan river, in accordance with the ocular inspection conducted by the Bureau of
Lands.[7] This Court has often enough held that findings of administrative agencies
which have acquired expertise because their jurisdiction is confined to specific
matters are generally accorded not only respect but even finality.[8] Again, when said
238

factual findings are affirmed by the Court of Appeals, the same are conclusive on
the parties and not reviewable by this Court.[9]
It is this Court's irresistible conclusion, therefore, that the accretion was manmade or artificial. In Republic v. CA,[10] this Court ruled that the requirement that the
deposit should be due to the effect of the current of the river is indispensable. This
excludes from Art. 457 of the Civil Code all deposits caused by human
intervention. Putting it differently, alluvion must be the exclusive work of
nature. Thus, in Tiongco v. Director of Lands, et al.,[11] where the land was not
formed solely by the natural effect of the water current of the river bordering said
land but is also the consequence of the direct and deliberate intervention of man, it
was deemed a man-made accretion and, as such, part of the public domain.
In the case at bar, the subject land was the direct result of the dumping of
sawdust by the Sun Valley Lumber Co. consequent to its sawmill
operations.[12] Even if this Court were to take into consideration petitioners'
submission that the accretion site was the result of the late Antonio Nazareno's
labor consisting in the dumping of boulders, soil and other filling materials into the
Balacanas Creek and Cagayan River bounding his land,[13] the same would still be
part of the public domain.
Having determined that the subject land is public land, a fortiori, the Bureau of
Lands, as well as the Office of the Secretary of Agriculture and Natural Resources
have Jurisdiction over the same in accordance with the Public Land
Law. Accordingly, the court a quo dismissed petitioners' complaint for nonexhaustion of administrative remedies which ruling the Court of Appeals affirmed.
However, this Court agrees with petitioners that administrative remedies have
been exhausted. Petitioners could not have intended to appeal to respondent
Ignacio as an Officer-in-Charge of the Bureau of Lands. The decision being
appealed from was the decision of respondent Hilario who was the Regional
Director of The Bureau of Lands. Said decision was made "for and by authority of
the Director of Lands."[14] It would be incongruous to appeal the decision of the
Regional Director of the Bureau of Lands acting for the Director of the Bureau of
Lands to an Officer-In-Charge of the Bureau of Lands.
In any case, respondent Rolleo Ignacio's official designation was
"Undersecretary of the Department of Agriculture and Natural Resources." He was
only an "Officer-In-Charge" of the Bureau of Lands. When he acted on the late
Antonio Nazareno's motion for reconsideration by affirming or adopting respondent's
Hilario's decision, he was acting on said motion as an Undersecretary on behalf of
the Secretary of the Department. In the case of Hamoy v. Secretary of Agriculture
and Natural Resources,[15] This Court held that the Undersecretary of Agriculture
and Natural Resources may modify, adopt, or set aside the orders or decisions of
the Director of Lands with respect to questions involving public lands under the
administration and control of the Bureau of Lands and the Department of Agriculture
and Natural Resources. He cannot therefore, be said to have acted beyond the
bounds of his jurisdiction under Sections 3, 4 and 5 of Commonwealth Act No.
141.[16]
As borne out by the administrative findings, the controverted land is public land,
being an artificial accretion of sawdust. As such, the Director of Lands has
jurisdiction, authority and control over the same, as mandated under Sections 3 and
4 of the Public Land Law (C.A. No. 141) which states, thus:

239

"Sec. 3. The Secretary of Agriculture and Natural Resources shall be the exclusive officer
charged with carrying out the provisions of this Act through the Director of Lands who shall
act under his immediate control.
Sec. 4. Subject to said control, the Director of Lands shall have direct executive control of
the survey, classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and his decisions as to questions of fact shall
be conclusive when approved by the Secretary of Agriculture and Natural Resources."
In connection with the second issue, petitioners ascribe whim, arbitrariness or
capriciousness in the execution order of public respondent Abelardo G. Palad, the
Director of Lands. This Court finds otherwise since said decision was based on the
conclusive finding that the subject land was public land. Thus, this Court agrees
with the Court of Appeals that the Director of Lands acted within his rights when he
issued the assailed execution order, as mandated by the aforecited provisions.
Petitioners' allegation that respondent Palad's execution order directing them to
vacate the subject land practically changed respondent Hilario's decision is
baseless. It is incorrect for petitioners to assume that respondent Palad awarded
portions of the subject land to private respondents Salasalans and Rayabas as they
had not yet been issued patents or titles over the subject land. The execution order
merely directed the segregation of petitioners' titled lot from the subject land which
was actually being occupied by private respondents before they were ejected from
it. Based on the finding that private respondents were actually in possession or
were actually occupying the subject land instead of petitioners, respondent Palad,
being the Director of Lands and in the exercise of this administrative discretion,
directed petitioners to vacate the subject land on the ground that private
respondents have a preferential right, being the occupants thereof.
While private respondents may not have filed their application over the land
occupied by them, they nevertheless filed their protest or opposition to petitioners'
Miscellaneous Sales Application, the same being preparatory to the filing of an
application as they were in fact directed to do so. In any case, respondent Palad's
execution order merely implements respondent Hilario's order. It should be noted
that petitioners' own application still has to be given due course.[17]
As Director of lands, respondent Palad is authorized to exercise executive
control over any form of concession, disposition and management of the lands of
the public domain.[18] He may issue decisions and orders as he may see fit under
the circumstances as long as they are based on the findings of fact.
In the case of Calibo v. Ballesteros,[19] this Court held that where, in the
disposition of public lands, the Director of Lands bases his decision on the evidence
thus presented, he clearly acts within his jurisdiction, and if he errs in appraising the
evidence, the error is one of judgment, but not an act or grave abuse of discretion
annullable by certiorari. Thus, except for the issue of non-exhaustion of
administrative remedies, this Court finds no reversible error nor grave abuse of
discretion in the decision of the Court of Appeals.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.

240

G.R. No. L-49219 April 15, 1988

SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL
CANTO, plaintiffs-appellees,
vs.
BERNARDA FERNANDEZ ABESIA, defendant-appellant.
Geronimo Creer, Jr. for plaintiffs-appellees.
Benedicto G. Cobarde for defendant, defendant-appellant

GANCAYCO, J.:
In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to
this Court by the Court of Appeals on account of the question of law involved, the sole
issue is the applicability of the provisions of Article 448 of the Civil Code relating to a
builder in good faith when the property involved is owned in common.
This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with
an area of only about 45 square meters, situated at the corner of F. Flores and Cavan
Streets, Cebu City covered by TCT No. 61850. An action for partition was filed by
plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-owners pro indiviso of this
lot in the proportion of and 1/3 share each, respectively. The trial court appointed a
commissioner in accordance with the agreement of the parties. ,the Id commissioner
conducted a survey, prepared a sketch plan and submitted a report to the trial court on
May 29, 1976, recommending that the property be divided into two lots: Lot 1161-A with
an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15 square
meters for the defendants. The houses of plaintiffs and defendants were surveyed and
shown on the sketch plan. The house of defendants occupied the portion with an area
of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested their conformity to
the report and asked the trial court to finally settle and adjudicate who among the
parties should take possession of the 5 square meters of the land in question.
In solving the issue the trial court held as follows:
The Court believed that the plaintiffs cannot be obliged to pay for the value
of the portion of the defendants' house which has encroached an area of
five (5) sq. meters of the land alloted to them. The defendants cannot also
be obliged to pay for the price of the said five (5) square meters. The rights
of a builder in good faith under Article 448 of the New Civil Code does (sic)
not apply to a case where one co-owner has built, planted or sown on the
land owned in common. "Manresa agreeing with Sanchez Roman, says
that as a general rule this article is not applicable because the matter
should be governed more by the provisions on co-ownership than on
accession. Planiol and Ripert are also of the opinion that this article is not
applicable to a co-owner who constructs, plants or sows on the community
property, even if the land where the construction, planting or sowing is
made is a third person under the circumstances, and the situation is
governed by the rules of co-ownership. Our Court of Appeals has held that
this article cannot be invoked by one co-owner against another who builds,
plants or sows upon their land, since the latter does not do so on land not
belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of
the foregoing authorities and considering that the defendants have
expressed their conformity to the partition that was made by the
241

commissioner as shown in the sketch plan attached to the commissioner's

report, said defendants have no other alternative except to remove and
demolish part of their house that has encroached an area of five (5) sq.
meters of the land allotted to the plaintiffs.
WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an
area of thirty (30) sq. meters to the plaintiffs spouses Concepcion
Fernandez Abesia, Lourdes Fernandez Rodil, Genaro Fernandez and
Dominga A. Fernandez, in the respective metes and bounds as shown in
the subdivision sketch plan attached to the Commissioner's Report dated
may 29, 1976 prepared by the Commissioner, Geodetic Engineer Espiritu
Bunagan. Further, the defendants are hereby ordered at their expense to
remove and demolish part of their house which has encroached an area of
five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60)
days from date hereof and to deliver the possession of the same to the
plaintiffs. For the Commissioner's fee of P400.00, the defendants are
ordered to pay, jointly and severally, the sum of P133.33 and the balance
thereof to be paid by the plaintiffs. The costs of suit shall be paid by the
plaintiffs and the defendants in the proportion of two-thirds (2/3) and onethird (1/3) shares respectively. A certified copy of this judgment shall be
recorded in the office of the Register of Deeds of the City of Cebu and the
expense of such recording shall be taxed as a part of the costs of the
action.
Hence, this appeal interposed by the defendants with the following assignments of
errors:
I
THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A
BUILDER IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE
TO DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF
THEIR HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO
PLAINTIFFS-APPELLEES.
II
THE TRIAL COURT ERRED IN ORDERING DEFENDANTSAPPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE,
THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN
AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFSAPPELLEES.
Article 448 of the New Civil Code provides as follows:
Art. 448. The owner of the land on which anything has been built, sown, or
planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
242

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a
co-owner builds, plants or sows on the land owned in common for then he did not build,
plant or sow upon land that exclusively belongs to another but of which he is a coowner. The co-owner is not a third person under the circumstances, and the situation is
governed by the rules of co-ownership. 1
However, when, as in this case, the co-ownership is terminated by the partition and it
appears that the house of defendants overlaps or occupies a portion of 5 square
meters of the land pertaining to plaintiffs which the defendants obviously built in good
faith, then the provisions of Article 448 of the new Civil Code should apply. Manresa
and Navarro Amandi agree that the said provision of the Civil Code may apply even
when there was co-ownership if good faith has been established. 2
Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to
appropriate said portion of the house of defendants upon payment of indemnity to
defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs may
oblige the defendants to pay the price of the land occupied by their house. However, if
the price asked for is considerably much more than the value of the portion of the
house of defendants built thereon, then the latter cannot be obliged to buy the land.
The defendants shall then pay the reasonable rent to the plaintiff upon such terms and
conditions that they may agree. In case of disagreement, the trial court shall fix the
terms thereof. Of course, defendants may demolish or remove the said portion of their
house, at their own expense, if they so decide.
WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff to
indemnify defendants for the value of the Id portion of the house of defendants in
accordance with Article 546 of the Civil Code, if plaintiffs elect to appropriate the same.
Otherwise, the defendants shall pay the value of the 5 square meters of land occupied
by their house at such price as may be agreed upon with plaintiffs and if its value
exceeds the portion of the house that defendants built thereon, the defendants may
choose not to buy the land but defendants must pay a reasonable rental for the use of
the portion of the land of plaintiffs As may be agreed upon between the parties. In case
of disagreement, the rate of rental shall be determined by the trial court. Otherwise,
defendants may remove or demolish at their own expense the said portion of their
house. No costs.
SO ORDERED.

MANUEL P. NEY and

G.R. No. 178609

ROMULO P. NEY,
Petitioners,

Present:

CARPIO,
Chairperson
- versus NACHURA,

243

PERALTA,
ABAD, and
SPOUSES CELSO P. QUIJANO and MINA N.
QUIJANO,
Respondents.

MENDOZA, JJ.

Promulgated:

August 4, 2010

x---------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

On appeal is the June 29, 2007 Decision[1] of the Court of Appeals (CA) in CA-G.R.
No. CV. 86047, setting aside the August 25, 2005 Decision[2] of the Regional Trial Court
(RTC) of Manila, Branch 45.

Petitioners Manuel P. Ney and Romulo P. Ney (petitioners) are the registered
owners of a residential lot located at 1648 Main Street, Paco Manila, with an area of 120
square meters more or less, covered by Transfer Certificate of Title (TCT) No.
122489.[3] A three (3) door apartment was constructed on the subject lot one for
Manuel, the other for Romulo; and the last one for their sister Mina N. Quijano and her
husband Celso Quijano (respondents).

On October 8, 1999, respondents filed with the RTC of Manila a suit for
reconveyance, partition and damages against petitioners. They averred that they are
co-owners of the subject property having paid part of its purchase price; that Celsos
name was inadvertently omitted as one of the buyers in the execution of the deed of
sale. Consequently, TCT No. 122489 covering the subject property was issued only in
the names of Manuel and Romulo. To obtain a separate certificate of title, they
requested from petitioners the segregation of the portion allotted to them, but the
latter refused. They later discovered that the entire property was mortgaged with
244

Metropolitan Bank & Trust Company, prompting them to execute and register their
adverse claim with the Register of Deeds; and to file the instant complaint.[4]

Petitioners,

in

their

answer,[5] denied

respondents

allegation

of

co-

ownership. They averred that Celso Quijano was not a vendee of the subject lot; thus,
his name did not appear on the title. They asserted that respondents cannot validly
maintain an action against them because the latter possessed the property by mere
tolerance; and even assuming that respondents had a valid cause of action, the same
had already been barred by prescription and/or laches. Petitioners, therefore, prayed
for the dismissal of the complaint.

After trial, the RTC rendered a Decision[6] dismissing the complaint. It rejected
respondents claim of co-ownership, and declared their documentary and testimonial
evidence unreliable. The RTC sustained petitioners assertion that respondents
possessed part of the property through mere tolerance; and that their cause of action, if
any, already prescribed. The RTC thus ruled that respondents can no longer demand the
segregation or reconveyance of the claimed portion of the property. Finally, the RTC
granted petitioners counterclaim and ordered the reimbursement of the expenses they
incurred in defending the case.

The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the *respondents+ Complaint is

hereby DISMISSED.

On the other hand, finding merit in the *petitioners+ Counterclaim, the

[respondents] are hereby ordered to pay the [petitioners]:

a) The reduced amount of P50,000.00 for attorneys fees; and

b) The costs of suit.

SO ORDERED.[7]
245

From the aforesaid Decision, respondents went to the CA. They faulted the RTC
for dismissing their complaint and insisted that they are co-owners of the subject lot;
and that their share was erroneously included in petitioners title. Respondents also
took exception to the trial courts declaration that their action was already barred by
prescription and laches. Citing Heirs of Jose Olviga v. Court of Appeals, respondents
asserted that their right to institute an action for reconveyance is imprescriptible
because they are in possession of the claimed portion of the property.[8]

On June 29, 2007, the CA rendered the now challenged Decision,[9] reversing the
RTC. The CA found sufficient evidence to support respondents claim that they are
indeed co-owners of the property; and were excluded by petitioners in the deed of sale
and certificate of title. The CA considered respondents complaint as one for quieting of
title which is imprescriptible; and granted to respondents the reliefs that they prayed
for.

The CA disposed, thus:

WHEREFORE, the appeal is GRANTED. The appealed Decision dated

August 25, 2005 of the Regional Trial Court Branch 45, Manila is hereby SET
ASIDE. In its stead, a NEW ONE IS ENTERED, declaring [respondents], spouses
Celso and Mina Quijano, as co-owners of the subject lot to the extent of onethird (1/3) thereof which corresponds to that portion where their house
stands.

Accordingly, [petitioners] are hereby ordered:

1) to partition the subject lot into three (3) equal portions of forty
square meters (40 sq.m.) each, specifically allotting to [respondents]
the portion where their house stands;

246

2) to reconvey to [respondents] the clean title to their portion of the

subject lot;

3) to surrender the owners copy of TCT No. 122489 to the Register of

Deeds of Manila for the annotation of *respondents+ share thereon;
and

4) to pay *respondents+ attorneys fees and the costs of suit in the

reasonable amount of P50,000.00.

SO ORDERED.[10]

Undaunted, petitioners took the present recourse. They ascribe reversible error
to the CA for treating respondents action as one for quieting of title. They claim that
nowhere in the complaint does it state that respondents seek to quiet their title to the
property. All that respondents averred and prayed for in their complaint was for
petitioners to surrender their certificate of title, and for the partition of the subject
property. Petitioners assert that the CA ruled on an issue not raised in the pleadings;
and substituted the respondents action with an entirely new action for quieting of title.
The argument is specious.

The allegations in respondents complaint read in part:

2)
That [respondents] are co-owners of one-third (1/3) portion pro
indiviso of the residential lot where their residential house was constructed
known as 1648 Main Street, Paco, Manila, covered by Transfer Certificate of
Title No. 122489; x x x

3)
That in their agreement with the lot owner, the name of the
[respondent] Celso P. Quijano appears as one (1) of the Second Party [sic] who
purchased the lot at the purchase price ofP50,000.00 with P40,000.00 as
down payment and the balance of P10,000.00 shall be paid on or before July
14, 1976, wherein the [respondent] Celso P. Quijano have (sic) paid the sum
of P5,000.00 on the same due date of July 14, 1976;
247

4)
That when the Deed of Absolute Sale was executed by the
Vendor, the name of the [respondent] Celso P. Quijano, marr[ie]d to Mina Ney
Quijano was omitted and the purchase price appeared to be only P20,000.00
and not P50,000.00 as appearing in their Agreement, thus when the Absolute
Deed of Sale was presented to the Register of Deeds of Manila, only the
names of Manuel P. Ney and Romulo P. Ney appeared as the registered
owners in the above-mentioned Transfer Certificate of Title No.122489;

5)
That Celso Quijano, however, was able to secure a Certification
from the Vend[o]r Luz J. Lim the true and correct selling price agreed upon
is P50,000.00 and the Vendees were Manuel P. Ney, Romulo P. Ney and
[respondent] Celso Quijano and that the amount of P20,000.00 put in the
Deed of Sale was at the instance of the Vendor with the consent of the
Vendees;

6)
That sometime in March 1991, [respondents] requested from
the [petitioners] to segregate their Title to the one-third (1/3) portion of the
lot [sic] where their house was constructed with an area of about forty (40)
square meters more or less and [petitioners] agreed and executed a Deed of
Reconveyance, but when [respondent] Celso P. Quijano presented the
document to the Register of Deeds of Manila it [sic] was rejected because he
can not present the Owners copy;

xxxx

8) That from the records of the Register of Deeds of

Manila, [respondent] Celso P. Quijano discovered that the whole property
was mortgaged with [sic] the Metropolitan Bank & Trust Company, thus
[respondents] were constrained to execute and register their adverse claim
that they are co-owners of one-third (1/3) portion of the lot and their
residential house therein;

248

9) That after the registration of the *respondents+ adverse claim, the

Register of Deeds through Expedito A. Javier notified the [petitioners] to
surrender the Owners duplicate copy of Transfer Certificate of Title No.
122489 in order that a Memorandum be made thereon for the Notice of
Adverse Claim, but the request of the Register of Deeds was not honored by
the [petitioners];

xxxx

12)
That by reason of the*petitioners+ refusal to surrender the
Owners copy of the Title to the Register of Deeds of Manila for partition and
reconveyance, [respondents] were constrained to engage the services of
counsel to protect their interest at an agreed amount of P50,000.00 as and for
attorneys fees.

These allegations make out a case for reconveyance. That reconveyance was one
of the reliefs sought was made abundantly clear by respondents in their prayer, viz.:

WHEREFORE, it is respectfully prayed that after due hearing judgment

be rendered in favor of the [respondents] and against the [petitioners]
ordering the latter as follows:

a) To surrender the Owners copy of TCT No. 122489 to the Court or if

refused that an Order be issued ordering the Register of Deeds of Manila to
issue to the [respondents] their co-owners copy if *sic+ the Title;

b) Ordering the partition of the lot into equal shares of forty (40) square
meters more or less and the lot where the *respondents+ residential house is
constructed known as 1648 Main Street, Paco Manila be awarded and be
reconveyed to the [respondents] as their share;

249

c) Ordering the [petitioners] to settle their obligations to [sic] the

mortgagee bank, if any, and to reconvey to the [respondents] clean Title over
their property.

d) Ordering [petitioners] jointly and severally to pay [respondents]

moral damages in the amount of P100,000.00, exemplary damages in the sum
of P100,000.00 and the sum of P50,000.00 as and for attorneys fees and
costs.

[Respondents] further pray for such other reliefs and remedies as may be just and
equitable in the premises.

Undoubtedly, respondents did not only seek the partition of the property and the
delivery of the title, but also the reconveyance of their share which was inadvertently
included in petitioners TCT.

An action for reconveyance is one that seeks to transfer property, wrongfully

registered by another, to its rightful and legal owner.[11] Indeed, reconveyance is an
action distinct from an action for quieting of title, which is filed whenever there is a
cloud on title to real property or any interest therein, by reason of any instrument,
record, claim, encumbrance or proceeding which is apparently valid or effective but is in
truth and in fact, invalid, ineffective, voidable, or unenforceable, and may be prejudicial
to said title for purposes of removing such cloud or to quiet title. [12] However, we find
nothing erroneous in the CAs ruling treating respondents action for reconveyance as
an action to quiet title.

In Mendizabel v. Apao,[13] we treated a similar action for reconveyance as an

action to quiet title, explaining, thus:

The Court has ruled that the 10-year prescriptive period applies only
when the person enforcing the trust is not in possession of the property. If a
250

person claiming to be its owner is in actual possession of the property, the

right to seek reconveyance, which in effect seeks to quiet title to the property,
does not prescribe. The reason is that the one who is in actual possession of
the land claiming to be its owner may wait until his possession is disturbed or
his title is attacked before taking steps to vindicate his right. His undisturbed
possession gives him a continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a third party and
its effect on his own title, which right can be claimed only by one who is in
possession.

The ruling was reiterated in Lasquite v. Victory Hills, Inc.,[14] viz.:

An action for reconveyance based on an implied trust prescribes in 10 years. The

reference point of the 10-year prescriptive period is the date of registration of the deed or the
issuance of the title. The prescriptive period applies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of the property. However, if the plaintiff,
as the real owner of the property also remains in possession of the property, the prescriptive
period to recover title and possession of the property does not run against him. In such a case,
an action for reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of
title, an action that is imprescriptible.

Indubitably, the characterization by the CA of respondents action as in the nature

of an action for quieting of title cannot be considered a reversible error.

Petitioners next fault the CA for sustaining respondents claim of coownership. They denied that Celso Quijano is a co-owner of the property. Unfortunately
for petitioners, the records speak otherwise.

The Deed of Reconveyance[15] executed by Manuel and Romulo explicitly states

that:

251

[W]e acknowledge and recognized the rights, interests and participation

of Celso P. Quijano, Filipino, of legal age, married to Mina P. Ney and resident
of 1648 Main Street, Paco, Manila, as a co-owner of the one-third (1/3)
portion of the said lot wherein his residential house is now constructed at the
above-stated address, having paid the corresponding amount over the said
1/3 portion of the property for the acquisition costs but whose name does
not appear in the Deed of Sale executed in our favor, thus resulting in the nonconclusion (sic) of his name in the above-stated Transfer Certificate of Title
when issued as a co-owner.

NOW, THEREFORE, for and in consideration of the foregoing premises

WE, MANUEL P. NEY and ROMULO P. NEY, do hereby transfer and convey unto
said Spouses Celso P. Quijano and MINA P. NEY their one-third (1/3) portion
share of the aforedescribed (sic) parcel of land where their residential house is
now situated at their above-given address with an area of forty (40) square
meters more or less by virtue of this Deed of Reconveyance.

Petitioners never denied the due execution of the Deed of Reconveyance. In fact
they admitted that the signatures appearing therein are theirs.[16] The CA cannot,
therefore, be faulted for declaring respondents as co-owners of the subject property
because it merely confirmed and enforced the Deed of Reconveyance voluntarily
executed by petitioners in favor of respondents.

As aptly pronounced by the CA:

[T]he Deed of Reconveyance, duly signed by [petitioners] themselves,

put to rest the focal issue between the parties. There is no denying that it
outweighs the evidence relied upon by [petitioners] despite the fact that they
have the transfer certificate of title over the entire subject lot. It is settled
that it is not the certificate of title that vests ownership. It merely evidences
such title. x x x[17]

In a number of cases, the Court has ordered reconveyance of property to the true
owner or to one with a better right, where the property had been erroneously or
fraudulently titled in another person's name. After all, the Torrens system was not
252

designed to shield and protect one who had committed fraud or misrepresentation and
thus holds title in bad faith.[18] Thus, the CA acted correctly in rendering the challenged
decision.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of

Appeals in CA-G.R. CV No. 86047 is AFFIRMED. Cost against petitioners.

SO ORDERED.
REPUBLIC OF THE PHILIPPINES, represented G.R. No. 163794
by Romeo T. Acosta
Present:
(formerly Jose D. Malvas), Director
ofForest Management Bureau, Department
of Environment and Natural Resources,
YNARES-SANTIAGO, J.,
Petitioners,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
-versusREYES, JJ.

HON. NORMELITO J. BALLOCANAG,

Presiding Judge, Branch 41,

Promulgated:

Regional Trial Court, Pinamalayan,

Oriental Mindoro and DANILO REYES,
Respondents.

November 28, 2008

x------------------------------------------------------------------------------------x

253

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule

45 of the Rules of Civil Procedure seeking the reversal of the Court of

254

Appeals (CA) Decision[2] dated June 4, 2004,

in CA-G.R. SP

No.

52261,

which

affirmed the Joint Order[3] of the Regional Trial Court (RTC) of Pinamalayan, Oriental
Mindoro, Branch 41, dated December 28, 1998.

The facts, as summarized by the CA, are as follows:

Sometime in 1970, [private respondent Danilo] Reyes bought the subject

182,941-square-meter land at Bgy. Banus, Pinamalayan, Oriental Mindoro
[subject land] from one Regina Castillo (or Castillo) in whose name it was titled
under Original Transfer Certificate of Title No. P-2388 issued pursuant to Free
Patent No. V-79606. Right after his purchase, Reyes introduced improvements
and planted the land with fruit trees, including about a thousand mango[es],
more than a hundred Mandarin citrus, and more than a
hundred guyabanos. He also had the title transferred in his name and was
issued TCT No. 45232.

Reyes so prized this land which he bought in good faith. Unfortunately,

it turned out that about 162,500 square meters of this land is part of the
timberland of Oriental Mindoro and, therefore, cannot be subject to any
disposition or acquisition under any existing law, and is not registrable.

Thus, in the Complaint (Annex A, pp. 15 to 21, rollo) for Cancellation

of Title and/or Reversion filed by the Office of the Solicitor General (or OSG)
in behalf of the Republic [petitioner], as represented by the Bureau of Forest
Development (or BFD), it was explained that the source[,] Original Transfer
Certificate of Title No. P-2388 of Castillo, issued pursuant to Free Patent No. V79606, is spurious, fictitious and irregularly issued on account of:

a) ONE HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED

(162,500) SQUARE METERS, more or less, of the land covered by
OCT No. P-2388 was, at the time it was applied for patent and or
titling, a part of the timberland of Oriental Mindoro, per BFD
Land Classification Map Nos. 2319 and 1715. Copy of said maps
are attached hereto asAnnexes B and C;

255

b) The 162,500 square meters covered by OCT No. P-2388

are entirely inside the 140 hectares Agro-Forestry Farm Lease
Agreement No. 175 in favor of Atty. Augusto D. Marte[4] [Atty.
Marte], copy of the Map of AFFLA No. 175 and AFFLA No. 175 are
attached hereto as Annexes D and E;

256

c) Neither the private defendant nor his predecessors-ininterest have been in possession of the property because the
rightful occupant is Atty. Augusto D. Marte by virtue of the AgroForestry Farm Lease Agreement [AFFLA] No. 175, issued to him
by the Ministry of Natural Resources in 1986 to expire on
December 21, 2011;

d) Since the parcel of land covered by TCT No. 45232, in

the name of defendant Danilo Reyes, is a part of the timberland
of Oriental Mindoro, per BFD Land Classification Map Nos. 2319
& 1715, the same cannot be the subject of any disposition or
acquisition under any existing law (Li Hong Giap vs. Director of
Lands, 55 Phil. 693; Veno vs. Govt of P.I. 41 Phil. 161; Director of
Lands vs. Abanzado, 65 SCRA 5). (pp. 18 to 19, rollo)

Aside from the documentary evidence presented to support these

allegations, the Republic presented as well and called to the witness stand:

a) Armando Cruz, the supervising cartographer of the DENR, who

explained that based on Land Classification Map No. 1715 (Exh. A) which
was later amended to LC Map No. 2319 (Exh. B), the plotting shows that the
162,000 square meters covered by OCT No. 2388 are entirely inside the 140
hectares of the Agro-Forestry Farm Lease Agreement No. 175 in favor of Atty.
Marte and the alienable and disposable area of Castillos land is only around
two (2) hectares;

b) Alberto Cardio, an employee of the DENR who conducted the

survey on the land under litigation, corroborated the testimony of Cruz that
only two hectares is alienable and disposable land; and

c) Vicente Mendoza, a Geodetic Engineer, who expounded on the

procedure before the title could be issued to an applicant for a disposable and
alienable public land. He clarified that he did not make the survey for Castillo
but upon presentation to him of the carpeta in open court he noticed that,
while it appears to be valid, it however has no certification of the Bureau of
Forestry - an essential requirement before title could be issued.

257

For his side, Reyes presented evidence showing his extensive

development of and investment in the land, but however failed to traverse
squarely the issue raised by the Republic against the inalienability and
indisposability of his acquired land. His lame argument that the absence of
the Certification by the Bureau of Forestry on his carpeta does not necessarily
mean that there was none issued, failed to convince the court a quo.

Hence, Judge Edilberto Ramos, the then Presiding Judge of Branch 41 of

the Regional Trial Court of Pinamalayan, Oriental Mindoro, held[5] that:

The defendants in this case did not assail the evidence of the plaintiff
but concentrated itself to the expenses incurred in the cultivation and in the
planting of trees in that disputed areas. Aside thereto, the plaintiff cited that
it is elementary principle of law that said areas not being capable of
registration their inclusion in a certification of ownership or confer title on the
registrant. (Republic of the Philippines, et al. vs. Hon. Judge Jaime de los
Angeles of the Court of First Instance of Balayan, Batangas, et al., G.R. No. L30240) It is also a matter of principle that public forest [are non-alienable
public lands. Accession of public forests] on the part of the claimant, however
long, cannot convert the same into private property. (Vano v. Government of
PI, 41 Phils. 161)

In view thereof, it appears that the preponderance of evidence is in

favor of the plaintiff and against the defendants and therefore it is hereby
declared that Free Patent No. V-79606 issued on July 22, 1957 with Psu No.
155088 and OCT No. P-2388 in the name of Regina Castillo and its derivative
TCT No. 45232 in the name of Danilo Reyes is hereby declared null and void;
and the defendant Danilo Reyes is hereby ordered to surrender the owners
duplicate copy of TCT No. 45232 and to vacate the premises and directing
the defendant Register of Deeds of Calapan, Oriental Mindoro, to cancel the
title as null and void ab initio; and declaring the reversion of the land in
question to the government subject to the Agro-Forestry Farm Lease
258

Agreement No. 175, to form part of the public domain in the province of
Oriental Mindoro.

The two-hectare lot, which appears disposable and alienable, is

declared null and void for failure to secure certification from the Bureau
of Forest Development.

The counter-claim of the defendant is hereby denied for lack of merit,

with cost against the defendant.[6]

Reyes appealed the aforementioned RTC Decision to the CA. In its

Decision[7] dated September 16, 1996, the CA affirmed the RTC Decision. His motion for
reconsideration was denied.[8]

259

Thus, Reyes sought relief from this Court via a petition for review on certiorari. But
in our Resolution[9] dated June 23, 1997, we resolved to deny his petition for failure to
sufficiently show that the CA had committed any reversible error in the questioned
judgment. On November 24, 1997, this Court denied with finality Reyes' motion for
reconsideration.[10]

On February 4, 1998, Reyes filed a Motion[11] to Remove Improvements

Introduced by Defendant Danilo D. Reyes on the Property which is the Subject of
Execution in Accordance with Rule 39, Section 10, paragraph (d) of the 1997 Rules of
Civil Procedure (motion).[12] There he averred that: he occupied in good faith the
subject land for around thirty years; he had already spent millions of pesos in planting
fruit-bearing trees thereon; and he employed many workers who regularly took care of
the trees and other plants. Reyes prayed that he and/or his agents be given at least one
(1) year from the issuance of the corresponding order to remove his mango, citrus
and guyabano trees, and that they be allowed to stay in the premises within that period
to work on the cutting and removal of the said trees. He also asked the RTC that in the
meantime that these trees are not yet removed, all the unharvested fruits be
appropriated by him, as provided for by law, to the exclusion of all other persons who
may take advantage of the situation and harvest said fruits.

Petitioner opposed the motion, citing the principle of accession under Article
440[13] of the Civil Code. It further argued that the subject land, being
timber land, is property of public dominion and, therefore, outside the commerce of
man and cannot be leased, donated, sold, or be the object of any contract. This being
the case, there are no improvements to speak of, because the land in question never
ceased to be a property of the Republic, even if Reyes claimed that he was a purchaser
for value and in good faith and was in possession for more than thirty (30) years.
Moreover, petitioner averred that, assuming Reyes was initially a planter/sower in good
faith, Article 448 of the Civil Code cannot be of absolute application since from the time
the reversion case was filed by the petitioner on May 13, 1987, Reyes ceased to be a
planter/sower in good faith and had become a planter/sower in bad faith.[14]

Meanwhile, on March 2, 1998, Atty. Marte filed a Complaint for Injunction

With an Ancillary Prayer for the Immediate Issuance of a Temporary Restraining Order
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against Reyes for allegedly encroaching upon and taking possession by stealth, fraud and
strategy some 16 hectares of his leased area without his permission or acquiescence and
planted trees thereon in bad faith despite the fact that the area is non-disposable and
part of the public domain, among others.

But the respondent RTC dismissed the said complaint in the assailed Joint
Order and ruled in favor of Reyes, finding Rule 39, Section 10, paragraph (d) of the 1997
Rules of Civil Procedure, applicable. The RTC ratiocinated:

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Under the circumstance, it is but just and fair and equitable that Danilo
Reyes be given the opportunity to enjoy the fruits of his labor on the land
which he honestly believes was legally his. He was not aware that his
certificate of title which was derived from OCT No. P-2388 issued in 1957 by
the government itself in the name of Regina Castillo contained legal infirmity,
otherwise he would not have expoused (sic) himself from the risk of being
ejected from the land and losing all improvements thereon. Any way, if the
court will grant the motion for the defendants (sic) Danilo Reyes to remove
his improvements on the disputed property, it will not prejudice Augusto
Marte, otherwise, as the court sees it, he will immensely [benefit] from the
toils of Danilo Reyes.

and then disposed, as follows:

WHEREFORE, premises considered, the motion to remove

improvements filed by defendant Danilo Reyes dated January 28, 1998 is
hereby GRANTED pursuant to the provisions of section 10, paragraph (d) of
Rule 39 of the 1997 Rules of Civil Procedure and he is given a period of one (1)
year from the issuance of this ORDER to remove, cut and appropriate the fruitbearing trees which he had planted in the property in disputes (sic).

The COMMENT filed by the Office of the Solicitor General dated August
11, 1998 is hereby denied for lack of merit.

The [C]omplaint for Injunction filed by Augusto D. Marte on March 2,

1998 against Danilo Reyes is hereby ordered dismissed for lack of merit.

Petitioner, through the OSG, filed its Motion for Reconsideration[15] which was
denied by the RTC.[16] Aggrieved, petitioner went to the CA via Certiorari under Rule 65
of the Rules of Civil Procedure[17] ascribing to the RTC grave abuse of discretion and
acting without jurisdiction in granting Reyes' motion to remove improvements.

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However, the CA dismissed the petition for certiorari, and affirmed the ruling of
the RTC, in this wise:

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It is notable that in the course of the suit for Cancellation of Title and/or
Reversion there was not an iota of evidence presented on record that Reyes
was in bad faith in acquiring the land nor in planting thereon perennial
plants. So it could never be said and held that he was a planter/sower in bad
faith. Thus, this Court holds that Reyes sowed and planted in good faith, and
that being so the appropriate provisions on right accession are Articles 445
and 448 also of the Civil Code.[18]

Hence, this Petition based on the sole ground that:

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE TRIAL

COURT HOLDING THAT THE MOTION TO REMOVE IMPROVEMENTS FILED BY
PRIVATE RESPONDENT IS BUT AN INCIDENT OF THE REVERSION CASE OVER
WHICH THE TRIAL COURT STILL HAS JURISDICTION DESPITE THE FACT THAT
THE DECISION IN THE REVERSION CASE HAD LONG BECOME FINAL AND
EXECUTORY.[19]

The OSG posits that Reyes' assailed motion is barred by prior judgment under
Section 47, Rule 39 of the 1997 Rules of Civil Procedure because said motion merely
sprang from the civil case of reversion tried and decided on the merits by the RTC, and
the decision is already final, after it was duly affirmed by the CA and by this Court. The
OSG stresses that one of Reyes' assigned errors in the reversion case before the CA was
that the RTC erred in not granting his (Reyes') counterclaims as well as his claims for
improvements. The OSG claims that such assigned error was duly resolved by the CA
when it held, to wit:

The non-award of appellant's counterclaims is understandable.

To begin with, no evidence whatsoever was presented by the

appellant to sustain his plea for damages. In fact, appellant never testified to
prove his allegations as regards his counterclaims.
264

Then, too, there is no showing that appellant paid the docket

fees for the court to acquire jurisdiction over his purported counterclaims
(Metal Engineering Resources Corp. vs. Court of Appeals, 203 SCRA 273).

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Lastly, the allegations made in the Answer in support of the socalled counterclaims clearly negate the nature of the claims as compulsory
counterclaim like that of reimbursement of the useful expenses (Cabangis vs.
Court of Appeals, 200 SCRA 414).[20]

Thus, the OSG posits that the issue of the improvements cannot be made the
subject of the assailed motion on the pretext that such removal of improvements is
merely incidental to the reversion case. The OSG submits that the consideration of the
issue is now barred by res judicata. Lastly, the OSG argues that: the RTC and CA cannot
vary a decision which has already attained finality; for purposes of execution, what is
controlling is the dispositive portion of the decision; the RTC, except to order the
execution of a decision which had attained finality, had long lost jurisdiction over the
case; and the RTC erred and acted without jurisdiction when it granted Reyes' motion to
remove the improvements when the dispositive portion of the decision in the reversion
case did not provide for the removal of the same.[21]

In his Comment[22] on the OSG petition, Reyes avers that the points raised by the
OSG are merely rehashed arguments which were adequately passed upon by the CA. He
fully agrees with the ruling of the CA that: he is a planter/sower in good faith, as such,
Articles 445 and 448 of the New Civil Code are applicable; his motion is not entirely a
new case, but merely an incident to the reversion case, a consequence of its grant and a
legal solution to an important issue overlooked, if not ignored by the State and by the
courts in their decisions in the reversion case; under Section 10, Rule 39 of the 1997
Rules of Civil Procedure, he is allowed to remove the improvements; and the instant
Petition failed to abide with the proper manner as to the proof of service required
under Section 13, Rule 13 of the
1997 Rules of Civil Procedure. Most importantly, Reyes avers that the land on which
about 1,000 mango trees, 100 mandarin citrus trees and 100 guyabano trees are
planted, was leased by the government to Atty. Marte, who entered into the possession
of the subject land when the trees were already bearing fruits. Thus, if said trees are not
removed, Atty. Marte would be unduly enriched as the beneficiary of these fruits
without even spending a single centavo, at the expense of Reyes. Reyes posits that it is a
well-established fact, unrebutted by the petitioner, that he planted these trees and to
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deny him the right to remove them would constitute a grave injustice and amount to
confiscation without just compensation which is violative of the Constitution.

The OSG counters that copies of the instant Petition were properly served as
shown by the photocopies of the registry return cards. Moreover, the OSG avers that
granting, without admitting, that another person would stand to be benefited by the
improvements that Reyes introduced on the land is beside the point and is not the fault
of the petitioner because the particular issue of the improvements was already resolved
with finality in the reversion case. The OSG claims that a lower court cannot reverse or
set aside decisions or orders of a superior court, for to do so will negate the principle of
hierarchy of courts and nullify the essence of review - a final judgment, albeit
erroneous, is binding on the whole world.[23]

The instant Petition lacks merit.

In an action for reversion, the pertinent allegations in the complaint would admit
State

ownership

of

the

disputed

land.[24] Indeed,

the

ownership

over the subject land reverted to the State by virtue of the decisions of the
RTC and CA and our Resolution on the matter. But these decisions simply ordered the
reversion of the property to the State, and did not consider the improvements that
Reyes had introduced on the property or provide him with any remedy relative
thereto. Thus, Reyes was left out in the cold, faced with the prospect of losing not
only the land which he thought he owned, but also of forfeiting the improvements that
he painstakingly built with his effort, time and money.

We cannot agree with the OSG that the denial by the CA of Reyes counterclaim in
the reversion case had the effect of completely foreclosing whatever rights Reyes may
have over these improvements. We note that the counterclaim was denied because
Reyes failed to prove that it was in the nature of a compulsory counterclaim, and he did
not pay docket fees thereon, even as the CA found that Reyes never testified to prove
his allegations as regards his counterclaims. Yet, the records of the reversion case
reveal that Reyes adduced ample evidence of the extent of the improvements he
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introduced and the expenses he incurred therefor. This is reflected in the findings of
the CA in the case at bench, and we concur with the appellate court when it said:

But this Court notes that while Reyes was half-hearted in his opposition
to the reversion, he instead focused on proving the improvements he has
introduced on the land, its extent and his expenses. Despite these proofs, the
Decision of April 13, 1992 made no mention nor provision for the
improvements on the land. With this legal vacuum, Reyes could not exercise
the options allowed the sower and planter in good faith. This thus left him no
other alternative but to avail of Paragraph (d) of Section 10 of Rule 39 of the
1997 Rules of Civil Procedure in order to collect or get a return of his
investment as allowed to a sower and planter in good faith by the Civil Code.

Correlatively, the courts in the reversion case overlooked the issue of whether
Reyes, vis--vis his improvements, is a builder or planter in good faith.

In the instant

case, the issue assumes full significance, because Articles 448[25] and 546[26] of the Civil
Code grant the builder or planter in good faith full reimbursement of useful
improvements and retention of the premises until reimbursement is made. A builder or
planter in good faith is one who builds or plants on land with the belief that he is the
owner thereof, unaware of any flaw in his title to the land at the time he builds or plants
on it. [27]
On this issue, we are disposed to agree with the CA that Reyes was a planter in
good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a
TCT over the property was issued in his name. He tilled the land, planted fruit trees
thereon, and invested money from 1970. He received notice of the Republics claim only
when the reversion case was filed on May 13, 1987. The trees are now full-grown and
fruit-bearing.

To order Reyes to simply surrender all of these fruit-bearing trees in favor of the
State -- because the decision in the reversion case declaring that the land is part of
inalienable forest land and belongs to the State is already final and immutable -- would
inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in
good faith.

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Nemo cum alterius detrimento locupletari potest.[28] This basic doctrine on unjust
enrichment simply means that a person shall not be allowed to profit or enrich himself
inequitably at anothers expense.[29] There is unjust enrichment when a person unjustly
retains a benefit to the loss of another, or when a person retains money or property of
another

against

the

fundamental

principles

of

justice,

equity

and

good

conscience.[30] Article 22 of the Civil Code states the rule in this wise:
ART. 22. Every person who, through an act of performance by another,
or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him.

The requisites for the application of this doctrine are present in the instant
case. There is enrichment on the part of the petitioner, as the State would come into
possession of -- and may technically appropriate -- the more than one thousand fruitbearing trees planted by the private respondent. There is impoverishment on the part of
Reyes, because he stands to lose the improvements he had painstakingly planted and
invested in. There is lack of valid cause for the State to acquire these improvements,
because, as discussed above, Reyes introduced the improvements in good faith. Thus, the
Court of Appeals did not commit any error in ruling that Reyes is entitled to the benefits
of Articles 448 and 546 of the Civil Code.

Thus, even if we accept the OSGs submission that Reyes entitlement to these
benefits is not absolute because he can no longer claim good faith after the filing of the
reversion case in 1987, still, there is no gainsaying that prior to that all the way back to
1970 he had possessed the land and introduced improvements thereon in good
faith. At the very least, then, Reyes is entitled to these benefits for the 17 years that he
had been a planter in good faith.

However, we are mindful of the fact that the subject land is currently covered by
Agro-Forestry Farm Lease Agreement (AFFLA) No. 175 issued by the Ministry of (now
Department of Environment and) Natural Resources in favor of Atty. Augusto D. Marte,
which will expire on December 21, 2011. By the terms of the AFFLA, the lessee shall,
among others, do all in his power to suppress fires, cooperate with the Bureau of Forest
Development (BFD) in the protection and conservation of the forest growth in the area
and undertake all possible measures to insure the protection of watershed and
269

environmental values within the leased area and areas adjacent thereto. This obligation to
prevent any damage to the land subject of the lease is consonant with fundamental
principles and state policies set forth in Section 16,[31] Article II and Section 4,[32] Article
XII of the Constitution.

To allow Reyes to remove the fruit-bearing trees now full-grown on the subject
land, even if he is legally entitled to do so, would be risking substantial damage to the
land. It would negate the policy consideration underlying the AFFLA -- to protect and
preserve the biodiversity and the environment, and to prevent any damage to the
land. Further, it would violate the implicit mandate of Article 547 of the Civil Code
which provides:
ART. 547. If the useful improvements can be removed without damage
to the principal thing, the possessor in good faith may remove them unless the
person who recovers the possession exercises the option under paragraph 2 of
the preceding article.

In this light, the options that Reyes may exercise under Articles 448 and 546 of the
Civil Code have been restricted. It is no longer feasible to permit him to remove the trees
he planted. The only equitable alternative would be to order the Republic to pay Reyes
the value of the improvements he introduced on the property. This is only fair because,
after all, by the terms of the AFFLA, upon the expiration of the lease or upon its
cancellation if there be any violation or breach of its terms, all permanent improvements
on the land shall pass to the ownership of the Republic without any obligation on its part
to indemnify the lessee.

However, the AFFLA is not due to expire until December 21, 2011. In the interim,
it is logical to assume that the lessee, Atty. Augusto D. Marte, will derive financial gain
from the fruits that the trees planted by Reyes would yield. In fact, Atty. Marte may
already have profited therefrom in the past several years. It is, therefore, reasonable to
grant the Republic the right of subrogation against the lessee who may have benefited

270

from the improvements. The Republic may, thus, demand reimbursement from Atty.
Marte for whatever amount it will have to pay Reyes for these improvements.

As to the OSGs insistent invocation of res judicata and the immutability of final
judgments, our ruling in Temic Semiconductors, Inc. Employees Union (TSIEU)-FFW, et
al. v. Federation of Free Workers (FFW), et al.[33] is instructive:
It is axiomatic that a decision that has acquired finality becomes
immutable and unalterable. A final judgment may no longer be modified in any
respect, even if the modification is meant to correct erroneous conclusions of
fact and law; and whether it be made by the court that rendered it or by the
highest court in the land. Any act which violates such principle must
immediately be struck down. Indeed, the principle of conclusiveness of prior
adjudications is not confined in its operation to the judgments of what are
ordinarily known as courts, but it extends to all bodies upon which judicial
powers had been conferred.
The only exceptions to the rule on the immutability of a final judgment
are: (1) the correction of clerical errors; (2) the so-called nunc pro tunc entries
which cause no prejudice to any party; (3) void judgments; and (4) whenever
circumstances transpire after the finality of the decision rendering its
execution unjust and inequitable.

In the exercise of our mandate as a court of justice and equity,[34] we rule in favor
of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors
of judgment if blind and stubborn adherence to the doctrine of immutability of final
judgments would involve the sacrifice of justice for technicality.[35] Indubitably, to order
the reversion of the subject land without payment of just compensation, in absolute
disregard of the rights of Reyes over the improvements which he, in good faith,
introduced therein, would not only be unjust and inequitable but cruel as well.

WHEREFORE, the instant Petition is DENIED. The Decision dated June 4,

2004 of the Court of Appeals is AFFIRMED with MODIFICATION in that:
1)
The Regional Trial Court of Pinamalayan, Oriental Mindoro,
Branch 41, is hereby DIRECTED to determine the actual improvements
introduced on the subject land, their current value and the amount of the
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expenses actually spent by private respondent Danilo Reyes for the said
improvements thereon from 1970 untilMay 13, 1987 with utmost dispatch.
2)
The Republic, through the Bureau of Forest Development of the
Department of Environment and Natural Resources, is DIRECTED to pay
private respondent Danilo Reyes the value of such actual improvements
he introduced on the subject land as determined by the Regional Trial
Court, with the right of subrogation against Atty. Augusto D. Marte, the
lessee in Agro-Forestry Farm Lease Agreement No. 175.

No costs.

SO ORDERED.

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