Republic of the Philippines question to be determined is whether the Court which has rendered
SUPREME COURT the former judgment had jurisdiction over the subject matter and the
Manila
EN BANC
G.R. No. L-803 August 27, 1948
JOSE P. SANDEJAS, plaintiff-appellant,
vs.
ZACARIAS C. ROBLES, ELENA C. VDA. DE ROBLES and
ROSARIO Y. SINGSON, defendants-appellees.
Benjamin H. Tirol, Corazon C. Miraflores and Orlando M. Jesena for
appellant.
W. E. Greenbaum and Luis G. Hofilena for appellee Rosario Y.
Singson.
M. F. Zamora and Jose C. Robles for appellee Zacarias C. Robles
and Elena C. Vda. de Robles.
FERIA, J.:
This is an appeal from an order of the Court of First Instance of Iloilo
dismissing the plaintiff's action upon motion of the defendant on the
ground that it is barred by prior judgment.
The pertinent facts alleged in the complaint to which a motion to
dismiss on the ground that the cause of action is barred by a prior
judgment is filed, are those relating to the cause of action and the
parties, because if they are the same as the cause of action and the
parties in the prior judgment, or though the parties are different they
represent the same interest, and the court rendering the prior
judgment had jurisdiction over the subject matter and the parties, the
subsequent action is barred by the prior judgment and should be
dismissed.
In the present appeal, there is no question that the parties in the
present and prior action are the same or represent the same interest,
and that the cause of action in both are the same, that is, the
performance or non-performance of the terms and conditions of a
contract of sale for the enforcement or resolution thereof. They only
parties.
The appellants contend that the lower erred in upholding the validity of
the judgment of the Court of First Instance of Iloilo during the
Japanese occupation, because: (1) "The said court had no jurisdiction
to try civil case No. 21, much less to render the decision in question
on October 2, 1944;" and (2) "That granting for the sake of argument
that the puppet Court of First Instance of Iloilo had jurisdiction, yet
such decision was rendered after having deprived plaintiff of his day in
court and is therefore in violation of the due process clause of the
Constitution.
As to the first question, the appellants do not question the ruling of
this Supreme Court on the validity of the judgments rendered by the
courts established in these Islands during the Japanese occupation
laid down in Co Kim Cham vs. Valdez Tan Keh,1 Off. Gaz., 779; but
they contend that, as the three parcels of land involved or sold in the
contract of the sale resolved by the prior judgment were located in the
Municipality of Passi, Province of Iloilo, and "the puppet Republic of
the Philippines since the middle of the month of September, 1944,
could no longer assert its authority over the major portion of the
territory of Iloilo including the Municipality of Passi," then under the
possession and control of the Panay guerrilla forces, the Court of First
Instance of Iloilo which rendered the prior judgment had no jurisdiction
over the res or the property because the action was quasi in rem, and
therefore the said judgment is null and void.
This contention is premised on the wrong assumption that the action
for the resolution of a contract of sale of a real property is an
action quasi in rem. The action instituted by the appellees to resolve
the contract of sale of said parcels of land, is in personam and
not quasi in rem.
This Court quoted with approval in Grey Alba vs. Dela Cruz, 17 Phil.,
61-62, the following definition of an action in personam:
If the technical object of the suit is to establish a claim against
some particular person, with a judgment which generally, in
theory at least, binds his body, or to bar some individual claim
or objection, so that only certain persons are entitled to be
 heard in defense, the action is in personam, although it may
concern the right to or possession of a tangible thing. If, on the
other hand, the object is to bar indifferently all who might be
minded to make an objection of any sort against the right
sought to be established, and if anyone in the world has a right
to be heard on the strength of alleging facts which, if true,
show an inconsistent interest, the proceeding is in rem. (Tyler
vs. Judges, supra.).
According to American Jurisprudence, Vol. I page 435, "An action in
personam has for its object a judgment against the person, as
distinguished from a judgment against property, to determine its
status. Whether a proceeding is in rem or in personam is determined
by its nature and purpose, and by these only. A proceeding in
personam is a proceeding to enforce personal rights and obligations
brought against the person and based on jurisdiction of the person,
although it may involve his right to, or the exercise of ownership of,
specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court.
In the case of Banco Espanol-Filipino vs. Palanca, 37 Phil., 921, we
held that "The action quasi in rem differs from the true action in rem in
the circumstances that in the former an individual is named as
defendant, and the purpose of the proceeding is to subject his interest
therein to the obligation or lien burdening the property. All
proceedings having for their sole object the sale or other disposition of
the property of the defendant, whether by attachment, foreclosure, or
other form of remedy, are in a general way thus designated. The
judgment entered in these proceedings is conclusive only between the
parties.
With respect to the second question, from the prior judgment marked
as Exhibit A of the motion to dismiss, it appears that the appellants
had submitted themselves to the jurisdiction of the Court of First
Instance of Iloilo by filing their answers to the complaint through their
Atty. Benjamin H. Tirol, the same attorney who represents them now;
that they were notified of the date set for the hearing of the action, but
when the case was called for trial on September 29, 1944, their
attorney asked and obtained permission from the court to withdraw his
appearance as attorney for the appellants stating as ground therefor
that it was difficult to communicate with his clients, who went to
Arevalo, a suburb of and distant of about six or seven kilometers from
the Iloilo City, capital of the Province of Iloilo; that to give the
appellants opportunity to be heard, the hearing was postponed and
set on the afternoon of the same date; and that as they did not appear
on the afternoon the case was heard and judgment was rendered on
October 2, 1944, declaring the resolution of the contract between the
parties and ordering the appellees to return to the appellants the sum
of P5,723.60, received by the former from the latter as payment on
account of the sum of P35,000 agreed upon as purchase price.
And, according to the allegations in appellants' complaint, on October
25, 1944, the appellants filed a motion for reconsideration which was
denied by the court, and when they tried to appeal from the decision
the court denied the appeal on November 23, 1944, and declared the
judgement final and executory; and, on November 29, the appellants
filed a motion for reconsideration of the order denying the appeal, and
up to the filing of the complaint in the present case no resolution of the
motion has been received by the appellants.
In view of the foregoing facts set forth in the decision Exhibit A and
not contradicted or denied by the appellants, which show that the
absence from the trial of the appellants was due to their own fault,
appellants' contention that they were deprived of their day in court is
untenable. The appeal is therefore dismissed. So ordered.
Paras, Pablo, Bengzon, Briones, Padilla and Tuason, JJ., concur.
Separate Opinions
PERFECTO, J., dissenting:
We dissent:
We are of the opinion that the appealed decision should be reversed
and the lower court ordered to proceed with the case and render
decision on the merits.
This stand is based on the reasons stated in our opinion in Co Kim
Cham vs. Valdez Tan Keh,141 Off. Gaz., 779.
SECOND DIVISION
 [G.R. No. 110844. April 27, 2000]
ALFREDO CHING, petitioner, vs. HON. COURT OF APPEALS,
HON. ZOSIMO Z. ANGELES, RTC - BR. 58, MAKATI, METRO
MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED BANKING
CORPORATION, respondents.
DECISION
BUENA, J.:
Confronting the Court in this instant petition for review
on certiorari under Rule 45 is the task of resolving the issue of
whether the pendency of a civil action for damages and declaration of
nullity of documents, specifically trust receipts, warrants the
suspension of criminal proceedings instituted for violation of Article
315 1(b) of the Revised Penal Code, in relation to P.D. 115, otherwise
known as the "Trust Receipts Law".xl-aw
Petitioner Alfredo Ching challenges before us the decision[1] of the
Court of Appeals promulgated on 27 January 1993 in CA G.R. SP No.
28912, dismissing his "Petition for Certiorari and Prohibition with
Prayer for Issuance of Temporary Restraining Order/ Preliminary
Injunction", on the ground of lack of merit.
Assailed similarly is the resolution[2] of the Court of Appeals dated 28
June 1993 denying petitioners motion for reconsideration.
As borne by the records, the controversy arose from the following
facts:
On 04 February 1992,[3] petitioner was charged before the Regional
Trial Court of Makati (RTC- Makati), Branch 58, with four counts of
estafa punishable under Article 315 par. 1(b) of the Revised Penal
Code, in relation to Presidential Decree 115, otherwise known as the
"Trust Receipts Law".
The four separate informations[4] which were couched in similar
language except for the date, subject goods and amount thereof,
charged herein petitioner in this wise:
"That on or about the (18th day of May 1981; 3rd day
of June 1981; 24th day of June 1981 and 24th day of
June 1981), in the Municipality of Makati, Metro Manila,
Philippines and within the jurisdiction of this Honorable
Court, the above-named accused having executed a
trust receipt agreement in favor of Allied Banking
Corporation in consideration of the receipt by the said
accused of goods described as 12 Containers (200
M/T) Magtar Brand Dolomites; 18 Containers (Zoom
M/T) Magtar Brand Dolomites; High Fired Refractory
Sliding Nozzle Bricks; and High Fired Refractory
Sliding Nozzle Bricks for which there is now due the
sum of (P 278, 917.80; P 419,719.20; P 387, 551. 95;
and P389, 085.14 respectively) under the terms of
which the accused agreed to sell the same for cash
with the express obligation to remit to the complainant
bank the proceeds of the sale and/or to turn over the
goods, if not sold, on demand, but the accused, once in
possession of said goods, far from complying with his
obligation and with grave abuse of confidence, did then
and there, willfully, unlawfully and feloniously
misappropriate, misapply and convert to his own
personal use and benefit the said goods and/or the
proceeds of the sale thereof, and despite repeated
demands, failed and refused and still fails and refuses,
to account for and/or remit the proceeds of sale thereof
to the Allied Banking Corporation to the damage and
prejudice of the said complainant bank in the
aforementioned amount of
( P 278,917.80; P 419,719.20; P 387,551.95;
and P389,085.14)." x-sc
On 10 February 1992, an "Omnibus Motion[5] to Strike Out
Information, or in the Alternative to Require Public Prosecutor to
Conduct Preliminary Investigation, and to Suspend in the Meantime
Further Proceedings in these Cases," was filed by the petitioner.
In an order dated 13 February 1992, the Regional Trial Court of
Makati, Branch 58, acting on the omnibus motion, required the
prosecutors office to conduct a preliminary investigation and
suspended further proceedings in the criminal cases.
On 05 March 1992, petitioner Ching, together with Philippine
Blooming Mills Co. Inc., filed a case[6] before the Regional Trial Court
of Manila (RTC-Manila), Branch 53, for declaration of nullity of
documents and for damages docketed as Civil Case No. 92-60600,
entitled "Philippine Blooming Mills, Inc. et. al. vs. Allied Banking
Corporation."
On 07 August 1992, Ching filed a petition[7] before the RTC-Makati,
Branch 58, for the suspension of the criminal proceedings on the
ground of prejudicial question in a civil action.
The prosecution then filed an opposition to the petition for suspension,
against which opposition, herein petitioner filed a reply.[8]
On 26 August 1992, the RTC-Makati issued an order[9] which denied
the petition for suspension and scheduled the arraignment and pre-
trial of the criminal cases. As a result, petitioner moved to
reconsider[10] the order to which the prosecution filed an opposition.
In an order[11] dated 04 September 1992, the RTC-Makati, before
which the criminal cases are pending, denied petitioner's motion for
reconsideration and set the criminal cases for arraignment and pre-
trial.
Aggrieved by these orders[12] of the lower court in the criminal cases,
petitioner brought before the Court of Appeals a petition
for certiorari and prohibition which sought to declare the nullity of the
aforementioned orders and to prohibit the RTC-Makati from
conducting further proceedings in the criminal cases.
In denying the petition,[13] the Court of Appeals, in CA G.R. SP No.
28912, ruled:
"X X X Civil Case No. 90-60600 pending before the
Manila Regional Trial Court seeking(sic) the
declaration of nullity of the trust receipts in question
is not a prejudicial question to Criminal Case Nos. 92-
0934 to 37 pending before the respondent court
charging the petitioner with four counts of violation of
Article 315, par. 1(b), RPC, in relation to PD 115 as to
warrant the suspension of the proceedings in the latter
X X X." Sc
Consequently, petitioner filed a motion for reconsideration of the
decision which the appellate court denied for lack of merit, via a
resolution[14] dated 28 June 1993.
Notwithstanding the decision rendered by the Court of Appeals, the
RTC-Manila, Branch 53 in an order dated 19 November 1993 in Civil
Case No. 92-60600, admitted petitioners amended
complaint[15] which, inter alia, prayed the court for a judgment:
"X X X
"1. Declaring the Trust Receipts, annexes D, F, H and
J hereof, null and void, or otherwise annulling the
same, for failure to express the true intent and
agreement of the parties;
"2. Declaring the transaction subject hereof as one
of pure and simple loan without any trust receipt
agreement and/or not one involving a trust receipt,
and accordingly declaring all the documents annexed
hereto as mere loan documents XXX"(emphasis ours)
In its amended answer,[16] herein private respondent Allied Banking
Corporation submitted in riposte that the transaction applied for was a
"letter of credit/trust receipt accommodation" and not a "pure and
simple loan with the trust receipts as mere additional or side
documents", as asserted by herein petitioner in its amended
complaint.[17]
Through the expediency of Rule 45, petitioner seeks the intervention
of this Court and prays:
"After due consideration, to render judgment reversing
the decision and resolution, Annexes A and B hereof,
respectively, and ordering the suspension of Criminal
Cases (sic) Nos. 92-0934 to 92-0937, inclusive, entitled
"People of the Philippines vs. Alfredo Ching" pending
before Branch 58 of the Regional Trial Court of Makati,
 Metro Manila, until final determination of Civil Case No.
92-600 entitled Philippine Blooming Mills Co. Inc. and
Alfredo Ching vs. Allied Banking Corporation" pending
before Branch 53 of the Regional Trial Court of
Manila."
The instant petition is bereft of merit.
We agree with the findings of the trial court, as affirmed by the Court
of Appeals, that no prejudicial question exists in the present
case. Scmis
As defined, a prejudicial question is one that arises in a case the
resolution of which is a logical antecedent of the issue involved
therein, and the cognizance of which pertains to another tribunal. The
prejudicial question must be determinative of the case before the
court but the jurisdiction to try and resolve the question must be
lodged in another court or tribunal.[18]
It is a question based on a fact distinct and separate from the crime
but so intimately connected with it that it determines the guilt or
innocence of the accused, and for it to suspend the criminal action, it
must appear not only that said case involves facts intimately related to
those upon which the criminal prosecution would be based but also
that in the resolution of the issue or issues raised in the civil case, the
guilt or innocence of the accused would necessarily be
determined.[19] It comes into play generally in a situation where a civil
action and a criminal action are both pending and there exists in the
former an issue which must be preemptively resolved before the
criminal action may proceed, because howsoever the issue raised in
the civil action is resolved would be determinative juris et de jure of
the guilt or innocence of the accused in the criminal case.[20]
More simply, for the court to appreciate the pendency of a prejudicial
question, the law,[21] in no uncertain terms, requires the concurrence
of two essential requisites, to wit:
a) The civil action involves an issue similar or intimately
related to the issue raised in the criminal action; and
b) The resolution of such issue determines whether or
not the criminal action may proceed.
Verily, under the prevailing circumstances, the alleged prejudicial
question in the civil case for declaration of nullity of documents and for
damages, does not juris et de jure determine the guilt or innocence of
the accused in the criminal action for estafa. Assuming arguendo that
the court hearing the civil aspect of the case adjudicates that the
transaction entered into between the parties was not a trust receipt
agreement, nonetheless the guilt of the accused could still be
established and his culpability under penal laws determined by other
evidence. To put it differently, even on the assumption that the
documents are declared null, it does not ipso facto follow that such
declaration of nullity shall exonerate the accused from criminal
prosecution and liability.
Accordingly, the prosecution may adduce evidence to prove the
criminal liability of the accused for estafa, specifically under Article
315 1(b) of the Revised Penal Code which explicitly provides that said
crime is committed: Missc
"X X X (b) By misappropriating or converting, to the
prejudice of another, money, goods, or any other
personal property received by the offender in trust or
on commission, or for administration, or any other
obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally
or partially guaranteed by a bond; or by denying having
received such money, goods, or other property."
Applying the foregoing principles, the criminal liability of the accused
for violation of Article 315 1(b) of the Revised Penal Code, may still be
shown through the presentation of evidence to the effect that: (a) the
accused received the subject goods in trust or under the obligation to
sell the same and to remit the proceeds thereof to Allied Banking
Corporation, or to return the goods, if not sold; (b) that accused Ching
misappropriated or converted the goods and/or the proceeds of the
sale; (c) that accused Ching performed such acts with abuse of
confidence to the damage and prejudice of Allied Banking
Corporation; and (d) that demand was made by the bank to herein
petitioner.
Presidential Decree 115, otherwise known as the "Trust Receipts
Law", specifically Section 13 thereof, provides:
"The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt
or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with
the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article
Three hundred fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen,
as amended, otherwise known as the Revised Penal
Code."
We must stress though, that an act violative of a trust receipt
agreement is only one mode of committing estafa under the
abovementioned provision of the Revised Penal Code. Stated
differently, a violation of a trust receipt arrangement is not the sole
basis for incurring liability under Article 315 1(b) of the Code.
[22]
In Jimenez vs. Averia, where the accused was likewise charged
with estafa, this Court had occasion to rule that a civil case contesting
the validity of a certain receipt is not a prejudicial question that would
warrant the suspension of criminal proceedings for estafa.
In the abovementioned case, a criminal charge for estafa was filed in
the Court of First Instance of Cavite against the two accused. The
information alleged that the accused, having received the amount
of P20,000.00 from Manuel Jimenez for the purchase of a fishing
boat, with the obligation on the part of the former to return the money
in case the boat was not purchased, misappropriated the said amount
to the damage and prejudice of Jimenez.[23] Misspped
Before arraignment, the accused filed a civil case contesting the
validity of a certain receipt signed by them. In the receipt, the accused
acknowledged having received the aforesaid sum, in addition to the
amount of P240.00 as agents commission. The complaint, however,
alleged that the accused never received any amount from Jimenez
and that the signatures on the questioned receipt were secured by
means of fraud, deceit and intimidation.
In ruling out the existence of prejudicial question, we declared:
"X X X It will be readily seen that the alleged prejudicial
question is not determinative of the guilt or innocence
of the parties charged with estafa, because even on
the assumption that the execution of the receipt whose
annulment they sought in the civil case was vitiated by
fraud, duress or intimidation, their guilt could still be
established by other evidence showing, to the degree
required by law, that they had actually received from
the complainant the sum of P20,000.00 with which to
buy for him a fishing boat, and that, instead of doing
so, they misappropriated the money and refused or
otherwise failed to return it to him upon demand. X X X
"Spped
Furthermore, petitioner submits that the truth or falsity of the parties
respective claims as regards the true nature of the transactions and of
the documents, shall have to be first determined by the Regional Trial
Court of Manila, which is the court hearing the civil case.
While this may be true, it is no less true that the Supreme Court may,
on certain exceptional instances, resolve the merits of a case on the
basis of the records and other evidence before it, most especially
when the resolution of these issues would best serve the ends of
justice and promote the speedy disposition of cases.
Thus, considering the peculiar circumstances attendant in the instant
case, this Court sees the cogency to exercise its plenary power:
"It is a rule of procedure for the Supreme Court to strive
to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future
litigation. No useful purpose will be served if a case or
the determination of an issue in a case is remanded to
the trial court only to have its decision raised again to
the Court of Appeals and from there to the Supreme
Court (citing Board of Commissioners vs. Judge
Joselito de la Rosa and Judge Capulong, G.R. Nos.
95122-23).
 "We have laid down the rule that the remand of the
case or of an issue to the lower court for further
reception of evidence is not necessary where the Court
is in position to resolve the dispute based on the
records before it and particularly where the ends of
justice would not be subserved by the remand thereof
(Escudero vs. Dulay, 158 SCRA 69). Moreover, the
Supreme Court is clothed with ample authority to
review matters, even those not raised on appeal if it
finds that their consideration is necessary in arriving at
a just disposition of the case."[24]
On many occasions, the Court, in the public interest and for the
expeditious administration of justice, has resolved actions on the
merits instead of remanding them to the trial court for further
proceedings, such as where the ends of justice would not be
subserved by the remand of the case.[25]
Inexorably, the records would show that petitioner signed and
executed an application and agreement for a commercial letter of
credit to finance the purchase of imported goods. Likewise, it is
undisputed that petitioner signed and executed trust receipt
documents in favor of private respondent Allied Banking
Corporation. Josp-ped
In its amended complaint, however, which notably was filed only after
the Court of Appeals rendered its assailed decision, petitioner urges
that the transaction entered into between the parties was one of "pure
loan without any trust receipt agreement". According to petitioner, the
trust receipt documents were intended merely as "additional or side
documents covering the said loan" contrary to petitioners allegation in
his original complaint that the trust receipts were executed as
collateral or security.
We do not agree. As Mr. Justice Story succinctly puts it: "Naked
statements must be entitled to little weight when the parties hold
better evidence behind the scenes."[26]
Hence, with affirmance, we quote the findings of the Court of Appeals:
"The concept in which petitioner signed the trust
receipts, that is whether he signed the trust receipts as
such trust receipts or as a mere evidence of a pure and
simple loan transaction is not decisive because
precisely, a trust receipt is a security agreement of an
indebtedness."
Contrary to petitioners assertions and in view of jurisprudence
established in this jurisdiction, a trust receipt is not merely an
additional or side document to a principal contract, which in the instant
case is alleged by petitioner to be a pure and simple loan.
As elucidated in Samo vs. People,[27] a trust receipt is considered a
security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.
Further, a trust receipt is a document in which is expressed a security
transaction whereunder the lender, having no prior title in the goods
on which the lien is to be given and not having possession which
remains in the borrower, lends his money to the borrower on security
of the goods which the borrower is privileged to sell clear of the lien
with an agreement to pay all or part of the proceeds of the sale to the
lender.[28] It is a security agreement pursuant to which a bank acquires
a "security interest" in the goods. It secures an indebtedness and
there can be no such thing as security interest that secures no
obligation.[29]
Clearly, a trust receipt partakes the nature of a security transaction. It
could never be a mere additional or side document as alleged by
petitioner. Otherwise, a party to a trust receipt agreement could easily
renege on its obligations thereunder, thus undermining the importance
and defeating with impunity the purpose of such an indispensable tool
in commercial transactions. Spp-edjo
Of equal importance is the fact that in his complaint in Civil Case No.
92-60600, dated 05 March 1992, petitioner alleged that the trust
receipts were executed and intended as collateral or security.
Pursuant to the rules, such particular allegation in the complaint is
tantamount to a judicial admission on the part of petitioner Ching to
which he must be bound.
Thus, the Court of Appeals in its resolution dated 28 June 1993,
correctly observed:
"It was petitioner himself who acknowledged the trust
receipts as mere collateral and security for the
payment of the loan but kept on insisting that the real
and true transaction was one of pure loan. X X X"
"In his present motion, the petitioner alleges that the
trust receipts are evidence of a pure loan or that the
same were additional or side documents that actually
stood as promissory notes and not a collateral or
security agreement. He cannot assume a position
inconsistent with his previous allegations in his civil
complaint that the trust receipts were intended as mere
collateral or security X X X."
Perhaps, realizing such flaw, petitioner, in a complete
turn around, filed a motion to admit amended complaint
before the RTC-Manila. Among others, the amended
complaint alleged that the trust receipts stood as
additional or side documents, the real transaction
between the parties being that of a pure loan without
any trust receipt agreement.
In an order dated 19 November 1993, the RTC-Manila, Branch 53,
admitted the amended complaint. Accordingly, with the lower courts
admission of the amended complaint, the judicial admission made in
the original complaint was, in effect, superseded. Mi-so
Under the Rules, pleadings superseded or amended disappear from
the record, lose their status as pleadings and cease to be judicial
admissions. While they may nonetheless be utilized against the
pleader as extrajudicial admissions, they must, in order to have such
effect, be formally offered in evidence. If not offered in evidence, the
admission contained therein will not be considered.[30]
Consequently, the original complaint, having been amended, lost its
character as a judicial admission, which would have required no proof,
and became merely an extrajudicial admission, the admissibility of
which, as evidence, required its formal offer.[31]
In virtue thereof, the amended complaint takes the place of the
original. The latter is regarded as abandoned and ceases to perform
any further function as a pleading. The original complaint no longer
forms part of the record.[32]
Thus, in the instant case, the original complaint is deemed
superseded by the amended complaint. Corollarily, the judicial
admissions in the original complaint are considered abandoned.
Nonetheless, we must stress that the actuations of petitioner, as
sanctioned by the RTC-Manila, Branch 53 through its order admitting
the amended complaint, demands stern rebuke from this Court.
Certainly, this Court is not unwary of the tactics employed by the
petitioner specifically in filing the amended complaint only after the
promulgation of the assailed decision of the Court of Appeals. It bears
noting that a lapse of almost eighteen months (from March 1992 to
September 1993), from the filing of the original complaint to the filing
of the amended complaint, is too lengthy a time sufficient to enkindle
suspicion and enflame doubts as to the true intentions of petitioner
regarding the early disposition of the pending cases. Ne-xold
Although the granting of leave to file amended pleadings is a matter
peculiarly within the sound discretion of the trial court and such
discretion would not normally be disturbed on appeal, it is also well to
mention that this rule is relaxed when evident abuse thereof is
apparent.[33]
Hence, in certain instances we ruled that amendments are not proper
and should be denied when delay would arise,[34] or when the
amendments would result in a change of cause of action or defense
or change the theory of the case,[35] or would be inconsistent with the
allegations in the original complaint.[36]
Applying the foregoing rules, petitioner, by filing the amended
complaint, in effect, altered the theory of his case. Likewise, the
allegations embodied in the amended complaint are inconsistent with
that of the original complaint inasmuch as in the latter, petitioner
alleged that the trust receipts were intended as mere collateral or
security, the principal transaction being one of pure loan.
Yet, in the amended complaint, petitioner argued that the said trust
receipts were executed as additional or side documents, the
transaction being strictly one of pure loan without any trust receipt
arrangement. Obviously these allegations are in discord in relation to
each other and therefore cannot stand in harmony.
These circumstances, taken as a whole, lead this Court to doubt the
genuine purpose of petitioner in filing the amended complaint. Again,
we view petitioners actuations with abhorrence and displeasure. Man-
ikx
Moreover, petitioner contends that the transaction between Philippine
Blooming Mills (PBM) and private respondent Allied Banking
Corporation does not fall under the category of a trust receipt
arrangement claiming that the goods were not to be sold but were to
be used, consumed and destroyed by the importer PBM.
To our mind, petitioners contention is a stealthy attempt to circumvent
the principle enunciated in the case of Allied Banking Corporation
vs. Ordonez,[37] thus:
"X X X In an attempt to escape criminal liability, private
respondent claims P.D. 115 covers goods which are
ultimately destined for sale and not goods for use in
manufacture. But the wording of Section 13 covers
failure to turn over the proceeds of the sale of the
entrusted goods, or to return said goods if unsold or
disposed of in accordance with the terms of the trust
receipts. Private respondent claims that at the time of
PBMs application for the issuance of the LCs, it was
not represented to the petitioner that the items were
intended for sale, hence, there was no deceit resulting
in a violation of the trust receipts which would
constitute a criminal liability. Again we cannot uphold
this contention. The non-payment of the amount
covered by a trust receipt is an act violative of the
entrustees obligation to pay. There is no reason why
the law should not apply to all transactions covered by
trust receipts, except those expressly excluded (68 Am.
Jur. 125).
"The Court takes judicial notice of customary banking
and business practices where trust receipts are used
for importation of heavy equipment, machineries and
supplies used in manufacturing operations. We are
perplexed by the statements in the assailed DOJ
resolution that the goods subject of the instant case are
outside the ambit of the provisions of PD 115 albeit
covered by trust receipt agreements ( 17 February
1988 resolution) and that not all transactions covered
by trust receipts may be considered as trust receipt
transactions defined and penalized under P.D. 115 (11
January 1988 resolution). A construction should be
avoided when it affords an opportunity to defeat
compliance with the terms of a statute. Manik-s
xxx......xxx......xxx
"The penal provision of P.D. 115 encompasses any act
violative of an obligation covered by the trust receipt; it
is not limited to transactions in goods which are to be
sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold."
An examination of P.D. 115 shows the growing importance of trust
receipts in Philippine business, the need to provide for the rights and
obligations of parties to a trust receipt transaction, the study of the
problems involved and the action by monetary authorities, and the
necessity of regulating the enforcement of rights arising from default
or violations of trust receipt agreements. The legislative intent to meet
a pressing need is clearly expressed.[38]
In fine, we reiterate that the civil action for declaration of nullity of
documents and for damages does not constitute a prejudicial question
to the criminal cases for estafa filed against petitioner Ching.
WHEREFORE, premises considered, the assailed decision and
resolution of the Court of Appeals are hereby AFFIRMED and the
instant petition is DISMISSED for lack of merit. Accordingly, the
Regional Trial Court of Makati, Branch 58, is hereby directed to
proceed with the hearing and trial on the merits of Criminal Case Nos.
92-0934 to 92-0937, inclusive, and to expedite proceedings therein,
without prejudice to the right of the accused to due process.
SO ORDERED. Man-ikan
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr.,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31095 June 18, 1976
JOSE M. HERNANDEZ, petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES and COURT OF
FIRST INSTANCE OF BATANGAS, LIPA CITY
BRANCH, respondents.
Tomas Yumol for petitioners.
Graciano V. Sebastian for respondent Development Bank of the
Philippines.
MARTIN, J.:
This is a case which involves the question of proper venue in a real
action.
Petitioner Jose M. Hernandez was an employee of private respondent
Development Bank of the Philippines in its Legal Department for
twenty-one (21) years until his retirement on February 28, 1966 due to
illness. On August 12, 1964, in due recognition of his unqualified
service as Assistant Attorney in its Legal Department, the private
respondent awarded to the petitioner a lot, identified as Lot No. 15,
Block No. W-21, in the private respondent's Housing Project at No. 1
West Avenue, Quezon City, containing an area of 810 square meters
with a Type E house. On August 31, 1968, after the petitioner
received from the private respondent's Housing Project Committee a
statement of account of the purchase price of the said lot and house
in the total amount of P21,034.56, payable on a monthly amortization
of P153.32 for a term of fifteen (15) years, he sent to the said
Committee a Cashier's Check No. 77089 CC, dated -October 21,
1968, issued by the Philippine Banking Corporation in the name of his
wife in the sum of P21,500.00 to cover the cash and full payment of
the purchase price of the lot and house awarded to him. However,
more than a week thereafter, or on October 29, 1968, the Chief
Accountant and Comptroller of the private respondent returned to the
petitioner ,the aforementioned check, informing him that the private
respondent, through its Committee on Organization, Personnel and
Facilities, had cancelled the award of the lot and house previously
awarded to him on the following grounds: (1) that he has already
retired; (2) that he has only an option to purchase said house and lot;
(3) that there are a big number of employees who have no houses or
lots; (4) that he has been given his retirement gratuity; and (5) that the
awarding of the aforementioned house and lot to an employee of the
private respondent would better subserve the objective of its Housing
Project. Petitioner protested against the cancellation of the award of
the house and lot in his favor and demanded from private respondent
the restoration of all his rights to said award. However, private
respondent refused.
On May 15, 1969 the petitioner filed a complaint in the Court of First
Instance of Batangas against the private respondent seeking the
annulment of the cancellation of the award of the lot and house in his
favor and the restoration of all his rights thereto. He contends that the
cancellation of said award was unwarranted and illegal for he has
already become the owner of said house and lot by virtue of said
award on August 12, 1964 and has acquired a vested right thereto,
which cannot be unilaterally cancelled without his consent; that he.
had requested the private respondent to restore to him all his rights to
said award but the latter refused and failed and still refuses and fails
to comply with said request.
Private respondent filed a motion to dismiss the complaint on the
ground of improper venue, contending that since the petitioner's
action affects the title to a house and lot situated in Quezon City, the
same should have been commenced in the Court of First Instance of
Quezon City where the real property is located and not in the Court of
First Instance of Batangas where petitioner resides. On July 24, 1969,
the respondent Court sustained the motion to dismiss filed by private
respondent on the ground of improper venue.
Hence, the instant petition to review the order of respondent Court.
The only issue in this petition is whether the action of the petitioner
was properly filed in the Court of First Instance of Batangas. It is a
well settled rule that venue of actions or, more appropriately, the
county where the action is triable 1 depends to a great extent on the
nature of the action to be filed, whether it is real or personal. 2 A real
action is one brought for the specific recovery of land, tenements, or
hereditaments. 3 A personal action is one brought for the recovery of
personal property, for the enforcement of some contract or recovery of
damages for its breach, or for the recovery of damages for the
commission of an injury to the person or property. 4 Under Section 2,
Rule 4 of the Rules of Court, "actions affecting title to, or for recovery
of possession, or for partition, or condemnation of , or foreclosure of
mortgage in real property, shall be commenced and tried where the
defendant or any of the defendants resides or may be found, or where
the plaintiff or any of the plaintiffs resides, at the election of the
plaintiff".
A close scrutiny of the essence of the petitioner's complaint in the
court a quo would readily show that he seeks the annulment of the
cancellation of the award of the Quezon City lot and house in his favor
originally given him by respondent DBP in recognition of his twenty-
one years of service in its Legal Department, in pursuance of his
contention that he had acquired a vested right to the award which
cannot be unilaterally cancelled by respondent without his consent.
The Court agrees that petitioner's action is not a real but a personal
action. As correctly insisted by petitioner, his action is one to declare
null and void the cancellation of the lot and house in his favor which
does not involve title and ownership over said properties but seeks to
compel respondent to recognize that the award is a valid and
subsisting one which it cannot arbitrarily and unilaterally cancel and
accordingly to accept the proffered payment in full which it had
rejected and returned to petitioner.
Such an action is a personal action which may be properly brought by
petitioner in his residence, as held in the case of Adamus vs. J.M.
Tuason & Co., Inc. 5 where this Court speaking through former Chief
Justice Querube C. Makalintal distinguished the case from an earlier
line of J.M. Tuaxon & Co., Inc. cases involving lot purchasers from the
Deudors 6, as follows:
... All the allegations as well as the prayer in the
complaint show that this is not a real but a personal
action — to compel the defendants to execute the
corresponding purchase contracts in favor of the
plaintiffs and to pay damages. The plaintiffs do not
claim ownership of the lots in question: they recognize
the title of the defendant J.M. Tuason & Co., Inc. They
do not ask that possession be delivered to them, for
they allege to be in possession. The case cited by the
defendants (Abao, et al. vs. J. M. Tuason & Co., Inc.
G.R. No. L-16796, Jan. 30, 1962) is therefore not in
point. In that case, as stated by this Court in its
decision, the 'plaintiffs' action is predicated on the
theory that they are 'occupants, landholders,' and
'most' of them owners by purchase' of the residential
lots in question; that, in consequence of the
compromise agreement adverted to above, between
the Deudors; and defendant corporations, the latter
had acknowledged the right and title of the Deudors in
and to said lots; and hence, the right and title of the
plaintiffs, as successors-in-interest of the Deudors;
that, by entering into said agreement, defendant
corporations had, also, waived their right to invoke the
indefeasibility of the Torrens title in favor of J. M.
Tuason & Co., Inc.; and that defendants have no right,
therefore, to oust plaintiffs from the lots respectively
occupied by them and which they claim to be entitled to
hold. Obviously, this action affects, therefore, not only
the possession of real property, but, also, the title
thereto. Accordingly, it should have been instituted in
the Court of First Instance of the Province of Rizal in
which said property is situated (Section 3, Rule 5 of the
Rules of Court).
WHEREFORE, the order of dismissal appealed from is set aside and
the case is remanded for further proceedings and disposition on the
merits. No costs.
Teehankee (Chairman), Makasiar, Esguerra and Muñoz Palma, JJ.,
concur.
SECOND DIVISION
 [G.R. No. 158407. January 17, 2005]
FILOMENA DOMAGAS, petitioner, vs. VIVIAN LAYNO
JENSEN, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari, under Rule 45 of the
Rules of Court, of the Decision[1] of the Court of Appeals (CA) in CA-
G.R. CV No. 73995, which affirmed the Decision[2] of the Regional
Trial Court (RTC) of Dagupan City, Branch 44, in Civil Case No. 2000-
0244-D, which declared null and void the decision of the Municipal
Trial Court (MTC) of Calasiao, Pangasinan in Civil Case No. 879.[3]
The antecedent facts follow.
On February 19, 1999, petitioner Filomena Domagas filed a
complaint for forcible entry against respondent Vivian Jensen before
the MTC of Calasiao, Pangasinan. The petitioner alleged in her
complaint that she was the registered owner of a parcel of land
covered by Original Certificate of Title (OCT) No. P-30980, situated in
Barangay Buenlag, Calasiao, Pangasinan, and with an area of 827
square meters. On January 9, 1999 the respondent, by means of
force, strategy and stealth, gained entry into the petitioners property
by excavating a portion thereof and thereafter constructing a fence
thereon. As such, the petitioner was deprived of a 68-square meter
portion of her property along the boundary line. The petitioner prayed
that, after due proceedings, judgment be rendered in her favor, thus:
3. And, after trial, judgment be rendered:
a) DECLARING the writ of Preliminary Mandatory Injunction
and Writ of Preliminary Injunction permanent;
b) ORDERING defendant, his representatives, agents and
persons acting under her, to vacate the portion of the
property of the plaintiff occupied by them and to desist
from entering, excavating and constructing in the said
property of the plaintiff described in paragraph 2 hereof
and/or from disturbing the peaceful ownership and
possession of the plaintiff over the said land, pending the
final resolution of the instant action;
c) ORDERING defendant to pay reasonable rental at FIVE
THOUSAND (P5,000.00) PESOS per month from
January 9, 1999 up to the time she finally vacates and
removes all constructions made by her in the property of
the plaintiff and up to the time she finally restores the said
property in the condition before her illegal entry,
excavation and construction in the property of the
plaintiff;
d) ORDERING defendant to pay actual damages in the
amount of TWENTY THOUSAND (P20,000.00) PESOS;
moral damages in the amount of TWENTY THOUSAND
(P20,000.00) PESOS; attorneys fees of THIRTY
THOUSAND (P30,000.00) PESOS in retainers fee and
ONE THOUSAND FIVE HUNDRED (P1,500.00)
PESOS per court appearance fee; exemplary damages in
the amount of TWENTY THOUSAND (P20,000.00)
PESOS, and, costs.
Plaintiff further prays for other reliefs and remedies just and equitable in the
premises.[4]
The case was docketed as Civil Case No. 879. The summons
and the complaint were not served on the respondent because the
latter was apparently out of the country. This was relayed to the
Sheriff by her (the respondents) brother, Oscar Layno, who was then
in the respondents house at No. 572 Barangay Buenlag, Calasiao,
Pangasinan. The Sheriff left the summons and complaint with Oscar
Layno, who received the same.[5]
Nonetheless, on May 17, 1999, the court rendered judgment
ordering the respondent and all persons occupying the property for
and in the latters behalf to vacate the disputed area and to pay
monthly rentals therefor, including actual damages, attorneys fees,
and exemplary damages. The fallo of the decision reads:
 1) Ordering the defendant, her representatives, agents and persons
acting under her, to vacate the 68-square meters which
she encroached upon;
2) Ordering the defendant to pay a monthly rental of P1,000.00 to
the plaintiff;
3) To pay plaintiff actual damages of P20,000.00; attorneys fees
of P15,000.00 and exemplary damages in the amount
of P20,000.00 plus the costs.
SO ORDERED.[6]
The respondent failed to appeal the decision. Consequently, a
writ of execution was issued on September 27, 1999.
On August 16, 2000, the respondent filed a complaint against the
petitioner before the RTC of Dagupan City for the annulment of the
decision of the MTC in Civil Case No. 879, on the ground that due to
the Sheriffs failure to serve the complaint and summons on her
because she was in Oslo, Norway, the MTC never acquired
jurisdiction over her person. The respondent alleged therein that the
service of the complaint and summons through substituted service on
her brother, Oscar Layno, was improper because of the following: (a)
when the complaint in Civil Case No. 879 was filed, she was not a
resident of Barangay Buenlag, Calasiao, Pangasinan, but of Oslo,
Norway, and although she owned the house where Oscar Layno
received the summons and the complaint, she had then leased it to
Eduardo Gonzales; (b) she was in Oslo, Norway, at the time the
summons and the complaint were served; (c) her brother, Oscar
Layno, was merely visiting her house in Barangay Buenlag and was
not a resident nor an occupant thereof when he received the
complaint and summons; and (d) Oscar Layno was never authorized
to receive the summons and the complaint for and in her behalf.[7]
The respondent further alleged that the MTC had no jurisdiction
over the subject matter of the complaint in Civil Case No. 879
because the petitioner, the plaintiff therein, failed to show prior
possession of the property. She further claimed that the alleged
forcible entry was simply based on the result of the survey conducted
by Geodetic Engineer Leonardo de Vera showing that the property of
the respondent encroached on that of the petitioner.
The respondent filed a Manifestation dated August 31, 2000, and
appended thereto the following: (a) a copy[8] of her passport showing
that she left the country on February 17, 1999; (b) a copy[9] of the
Contract of Lease dated November 24, 1997, executed by her and
Eduardo D. Gonzales over her house for a period of three (3) years or
until November 24, 2000; (c) her affidavit[10] stating, inter alia, that she
owned the house at Barangay Buenlag, Calasiao, Pangasinan, which
she leased to Eduardo Gonzales; that she was married to Jarl
Jensen, a citizen of Norway, on August 23, 1987 and had resided in
Norway with her husband since 1993; that she arrived in the
Philippines on December 31, 1998, but left on February 17, 1999; she
returned to the Philippines on July 30, 2000 and learned, only then, of
the complaint against her and the decision of the MTC in Civil Case
No. 879; her brother Oscar Layno was not a resident of the house at
Barangay Buenlag; and that she never received the complaint and
summons in said case; (d) the affidavit[11] of Oscar Layno declaring
that sometime in April 1999, he was in the respondents house to
collect rentals from Eduardo Gonzales; that the Sheriff arrived and
served him with a copy of the summons and the complaint in Civil
Case No. 879; and that he never informed the respondent of his
receipt of the said summons and complaint; (e) an affidavit[12] of
Eduardo Gonzales stating that he leased the house of the respondent
and resided thereat; the respondent was not a resident of the said
house although he (Gonzales) allowed the respondent to occupy a
room therein whenever she returned to the Philippines as
a balikbayan; and that Oscar Layno was not residing therein but only
collected the rentals.
In her answer to the complaint, the petitioner alleged that the
respondent was a resident of Barangay Buenlag, Calasiao,
Pangasinan and was the owner of the subject premises where Oscar
Layno was when the Sheriff served the summons and complaint; that
the service of the complaint and summons by substituted service on
the respondent, the defendant in Civil Case No. 879, was proper since
her brother Oscar Layno, a resident and registered voter of Barangay.
Buenlag, Calasiao, Pangasinan, received the complaint and summons
for and in her behalf.
The petitioner appended the following to her answer: (a) a
copy[13] of the Deed of Absolute Sale executed by Jose Layno in her
favor, dated August 26, 1992, showing that the respondent was a
resident of Barangay Buenlag, Calasiao, Pangasinan; (b) a Real
Estate Mortgage[14] executed by the respondent, dated February 9,
1999 showing that she was a resident of Barangay Buenlag, Calasiao,
Pangasinan; (c) the Joint Affidavit[15] of Vicenta Peralta and Orlando
Macalanda, both residents of Barangay Buenlag, Calasiao,
Pangasinan, declaring that the respondent and her brother Oscar
Layno were their neighbors; that the respondent and her brother had
been residents of Barangay Buenlag since their childhood; that
although the respondent left the country on several occasions, she
returned to the Philippines and resided in her house at No. 572
located in the said barangay; and (d) the Voters Registration
Record[16] of Oscar Layno, approved on June 15, 1997.
After due proceedings, the trial court rendered a decision in favor
of the respondent. The dispositive portion reads:
WHEREFORE, judgment is rendered in favor of plaintiff Vivian Layno
Jensen and against defendant Filomena Domagas, as follows:
1. The Decision of the Municipal Trial Court of Calasiao, Pangasinan in
Civil Case No. 879, entitled Filomena Domagas versus Vivian
Layno Jensen is declared null and void, for lack of jurisdiction
over the person of the plaintiff and the subject matter.
2. Defendant Filomena Domagas is ordered to pay plaintiff, the
following:
a.) Actual damages, representing litigation expenses in
the amount of P50,000.00;
b.) Attorneys fees in the amount of P50,000.00;
c.) Moral Damages in the amount of P50,000.00;
d.) Exemplary Damages in the amount of P50,000.00;
and
e.) Costs of suit.
SO ORDERED.[17]
The trial court declared that there was no valid service of the
complaint and summons on the respondent, the defendant in Civil
Case No. 879, considering that she left the Philippines on February
17, 1999 for Oslo, Norway, and her brother Oscar Layno was never
authorized to receive the said complaint and summons for and in her
behalf.
The petitioner appealed the decision to the CA which, on May 6,
2003, rendered judgment affirming the appealed decision with
modifications. The CA ruled that the complaint in Civil Case No. 879
was one for ejectment, which is an action quasi in rem. The appellate
court ruled that since the defendant therein was temporarily out of the
country, the summons and the complaint should have been
served via extraterritorial service under Section 15 in relation to
Section 16, Rule 14 of the Rules of Court, which likewise requires
prior leave of court. Considering that there was no prior leave of court
and none of the modes of service prescribed by the Rules of Court
was followed by the petitioner, the CA concluded that there was really
no valid service of summons and complaint upon the respondent, the
defendant in Civil Case No. 879.
Hence, the present petition.
The petitioner assails the decision of the CA, alleging that the
appellate court erred in holding that the respondents complaint for
ejectment is an action quasi in rem. The petitioner insists that the
complaint for forcible entry is an action in personam; therefore,
substituted service of the summons and complaint on the respondent,
in accordance with Section 7, Rule 14 of the Rules of Court, is valid.
The petitioner, likewise, asserts that Oscar Layno is a resident and a
registered voter of Barangay Buenlag, Calasiao, Pangasinan; hence,
the service of the complaint and summons on the respondent through
him is valid.
The respondent, on the other hand, asserts that the action for
forcible entry filed against her was an action quasi in rem, and that the
applicable provision of the Rules of Court is Section 15 of Rule 14,
which calls for extraterritorial service of summons.
The sole issue is whether or not there was a valid service of the
summons and complaint in Civil Case No. 879 on the respondent
herein who was the defendant in the said case. The resolution of the
matter is anchored on the issue of whether or not the action of the
petitioner in the MTC against the respondent herein is an action
in personam or quasi in rem.
The ruling of the CA that the petitioners complaint for forcible
entry of the petitioner against the respondent in Civil Case No. 879 is
an action quasi in rem, is erroneous. The action of the petitioner for
forcible entry is a real action and one in personam.
 The settled rule is that the aim and object of an action determine
its character.[18] Whether a proceeding is in rem, or in personam,
or quasi in rem for that matter, is determined by its nature and
purpose, and by these only.[19] A proceeding in personam is a
proceeding to enforce personal rights and obligations brought against
the person and is based on the jurisdiction of the person, although it
may involve his right to, or the exercise of ownership of, specific
property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court.[20] The purpose of a
proceeding in personam is to impose, through the judgment of a court,
some responsibility or liability directly upon the person of the
defendant.[21] Of this character are suits to compel a defendant to
specifically perform some act or actions to fasten a pecuniary liability
on him.[22] An action in personam is said to be one which has for its
object a judgment against the person, as distinguished from a
judgment against the propriety to determine its state. It has been held
that an action in personam is a proceeding to enforce personal rights
or obligations; such action is brought against the person. As far as
suits for injunctive relief are concerned, it is well-settled that it is an
injunctive act in personam.[23] In Combs v. Combs,[24] the appellate
court held that proceedings to enforce personal rights and obligations
and in which personal judgments are rendered adjusting the rights
and obligations between the affected parties is in personam. Actions
for recovery of real property are in personam.[25]
On the other hand, a proceeding quasi in rem is one brought
against persons seeking to subject the property of such persons to the
discharge of the claims assailed.[26] In an action quasi in rem, an
individual is named as defendant and the purpose of the proceeding is
to subject his interests therein to the obligation or loan burdening the
property.[27] Actions quasi in rem deal with the status, ownership or
liability of a particular property but which are intended to operate on
these questions only as between the particular parties to the
proceedings and not to ascertain or cut off the rights or interests of all
possible claimants. The judgments therein are binding only upon the
parties who joined in the action.[28]
Section 1, Rule 70 of the Rules of Court provides:
Section 1. Who may institute proceedings, and when. - Subject to the
provisions of the next succeeding section, a person deprived of the
possession of any land or building in force, intimidation, threat, strategy, or
stealth, or a lessor, vendor, vendee, or other person against whom the
possession of any land or building is unlawfully withheld after the expiration
or termination of the right to hold possession by virtue of any contract,
express or implied, or the legal representatives or assigns of any such lessor,
vendor, vendee, or other person, may, at any time within one (1) year after
such unlawful deprivation or withholding of possession, bring an action in
the proper Municipal Trial Court against the person or persons unlawfully
withholding or depriving of possession, or any person or persons claiming
under them, for the restitution of such possession, together with damages and
costs.
Under Section 15, Rule 70 of the said Rule, the plaintiff may be
granted a writ of preliminary prohibition or mandatory injunction:
Sec. 15. Preliminary Injunction. The court may grant preliminary injunction,
in accordance with the provisions of Rule 58 hereof, to prevent the defendant
from committing further acts of dispossession against the plaintiff.
A possessor deprived of his possession through forcible entry or unlawful
detainer may, within five (5) days from the filing of the complaint, present a
motion in the action for forcible entry or unlawful detainer for the issuance of
a writ of preliminary mandatory injunction to restore him in his possession.
The court shall decide the motion within thirty (30) days from the filing
thereof.
If, after due proceedings, the trial court finds for the plaintiff, it
shall then render judgment in his or her favor, thus:
Sec. 17. Judgment. If, after trial, the court finds that the allegations of the
complaint are true, it shall render judgment in favor of the plaintiff for the
restitution of the premises, the sum justly due as arrears of rent or as
reasonable compensation for the use and occupation of the premises,
attorneys fees and costs. If it finds that said allegations are not true, it shall
render judgment for the defendant to recover his costs. If a counterclaim is
established, the court shall render judgment for the sum found in arrears from
either party and award costs as justice requires.
From the aforementioned provisions of the Rules of Court and by
its very nature and purpose, an action for unlawful detainer or forcible
entry is a real action and in personam because the plaintiff seeks to
enforce a personal obligation or liability on the defendant under Article
539 of the New Civil Code,[29] for the latter to vacate the property
subject of the action, restore physical possession thereof to the
plaintiff, and pay actual damages by way of reasonable compensation
for his use or occupation of the property.[30]
As gleaned from the averments of the petitioners complaint in the
MTC, she sought a writ of a preliminary injunction from the MTC and
prayed that the said writ be made permanent. Under its decision, the
MTC ordered the defendant therein (the respondent in this case), to
vacate the property and pay a monthly rental of P1,000.00 to the
plaintiff therein (the petitioner in this case).
On the issue of whether the respondent was validly served with
the summons and complaint by the Sheriff on April 5, 1999, the
petitioner asserts that since her action of forcible entry against the
respondent in Civil Case No. 879 was in personam, summons may be
served on the respondent, by substituted service, through her brother,
Oscar Layno, in accordance with Section 7, Rule 14 of the Rules of
Court. The petitioner avers that Oscar Layno, a person of suitable age
and discretion, was residing in the house of the respondent on April 5,
1999. She avers that the fact that the house was leased to and
occupied by Eduardo Gonzales was of no moment. Moreover, the
Sheriff is presumed to have performed his duty of properly serving the
summons on the respondent by substituted service.
The contention of the petitioner has no merit.
In Asiavest Limited v. Court of Appeals,[31] the Court had the
occasion to state:
In an action in personam, jurisdiction over the person of the defendant is
necessary for the court to validly try and decide the case. Jurisdiction over
the person of a resident defendant who does not voluntarily appear in court
can be acquired by personal service of summons as provided under Section 7,
Rule 14 of the Rules of Court. If he cannot be personally served with
summons within a reasonable time, substituted service may be made in
accordance with Section 8 of said Rule. If he is temporarily out of the
country, any of the following modes of service may be resorted to: (a)
substituted service set forth in Section 8; (2) personal service outside the
country, with leave of court; (3) service by publication, also with leave of
court; or (4) any other manner the court may deem sufficient.[32]
Thus, any judgment of the court which has no jurisdiction over the
person of the defendant is null and void.[33]
In the present case, the records show that the respondent, before
and after his marriage to Jarl Jensen on August 23, 1987, remained a
resident of Barangay Buenlag, Calasiao, Pangasinan. This can be
gleaned from the Deed of Absolute Sale dated August 26, 1992 in
which she declared that she was a resident of said barangay.
Moreover, in the Real Estate Mortgage Contract dated February 9,
1999, ten days before the complaint in Civil Case No. 879 was filed,
the petitioner categorically stated that she was a Filipino and a
resident of Barangay Buenlag, Calasiao, Pangasinan. Considering
that the respondent was in Oslo, Norway, having left the Philippines
on February 17, 1999, the summons and complaint in Civil Case No.
879 may only be validly served on her through substituted service
under Section 7, Rule 14 of the Rules of Court, which reads:
SEC. 7. Substituted service. If, for justifiable causes, the defendant cannot be
served within a reasonable time as provided in the preceding section, service
may be effected (a) by leaving copies of the summons at the defendants
residence with some person of suitable age and discretion then residing
therein, or (b) by leaving the copies at defendants office or regular place of
business with some competent person in charge thereof.
Strict compliance with the mode of service is required in order
that the court may acquire jurisdiction over the person of the
defendant.[34] The statutory requirement of substituted service must be
followed faithfully and strictly and any substituted service other than
that authorized by the statute is rendered ineffective.[35] As the Court
held in Hamilton v. Levy:[36]
The pertinent facts and circumstances attendant to the service of summons
must be stated in the proof of service or Officers Return; otherwise, any
substituted service made in lieu of personal service cannot be upheld. This is
necessary because substituted service is in derogation of the usual method of
service. It is a method extraordinary in character and hence may be used only
as prescribed and in the circumstances authorized by statute. Here, no such
explanation was made. Failure to faithfully, strictly, and fully comply with
the requirements of substituted service renders said service ineffective.[37]
In Keister v. Narcereo,[38] the Court held that the term dwelling
house or residence are generally held to refer to the time of service;
hence, it is not sufficient to leave the summons at the formers dwelling
house, residence or place of abode, as the case may be. Dwelling
house or residence refers to the place where the person named in the
summons is living at the time when the service is made, even though
he may be temporarily out of the country at the time. It is, thus, the
service of the summons intended for the defendant that must be left
with the person of suitable age and discretion residing in the house of
the defendant. Compliance with the rules regarding the service of
summons is as much important as the issue of due process as of
jurisdiction.[39]
The Return of Service filed by Sheriff Eduardo J. Abulencia on
the service of summons reads:
Respectfully returned to the court of origin the herein summons and
enclosures in the above-entitled case, the undersigned caused the service on
April 5, 1999.
Defendant Vivian Layno Jensen is out of the country as per information from
her brother Oscar Layno, however, copy of summons and enclosures was
received by her brother Oscar Layno on April 5, 1999 as evidenced by his
signature appearing in the original summons.
Calasiao, Pangasinan, April 6, 1999.
(Sg
d.)
EDUARDO J.
ABULENCIA
Junior
Process
Server[40]
As gleaned from the said return, there is no showing that as of
April 5, 1999, the house where the Sheriff found Oscar Layno was the
latters residence or that of the respondent herein. Neither is there any
showing that the Sheriff tried to ascertain where the residence of the
respondent was on the said date. It turned out that the occupant of the
house was a lessor, Eduardo Gonzales, and that Oscar Layno was in
the premises only to collect the rentals from him. The service of the
summons on a person at a place where he was a visitor is not
considered to have been left at the residence or place or abode,
where he has another place at which he ordinarily stays and to which
he intends to return.[41]
The Voters Registration Record of Oscar Layno dated June 15,
1997 wherein he declared that he was a resident of No. 572 Barangay
Buenlag, Calasiao, Pangasinan, as well as the Joint Affidavit of
Vicenta Peralta and Orlando Macasalda cannot prevail over the
Contract of Lease the respondent had executed in favor of Eduardo
Gonzales showing that the latter had resided and occupied the house
of the respondent as lessee since November 24, 1997, and the
affidavit of Eduardo Gonzales that Oscar Layno was not residing in
the said house on April 5, 1999.
In sum, then, the respondent was not validly served with
summons and the complaint in Civil Case No. 879 on April 5, 1999, by
substituted service. Hence, the MTC failed to acquire jurisdiction over
the person of the respondent; as such, the decision of the MTC in
Civil Case No. 879 is null and void.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for
lack of merit. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20620 August 15, 1974
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
CARMEN M. VDA. DE CASTELLVI, ET AL., defendants-appellees.
Office of the Solicitor General for plaintiff-appellant.
C.A. Mendoza & A. V. Raquiza and Alberto Cacnio & Associates for
defendant-appellees.

ZALDIVAR, J.:p
Appeal from the decision of the Court of First Instance of Pampanga
in its Civil Case No. 1623, an expropriation proceeding.
Plaintiff-appellant, the Republic of the Philippines, (hereinafter
referred to as the Republic) filed, on June 26, 1959, a complaint for
eminent domain against defendant-appellee, Carmen M. Vda. de
Castellvi, judicial administratrix of the estate of the late Alfonso de
Castellvi (hereinafter referred to as Castellvi), over a parcel of land
situated in the barrio of San Jose, Floridablanca, Pampanga,
described as follows:
A parcel of land, Lot No. 199-B Bureau of Lands Plan
Swo 23666. Bounded on the NE by Maria Nieves
Toledo-Gozun; on the SE by national road; on the SW
by AFP reservation, and on the NW by AFP
reservation. Containing an area of 759,299 square
meters, more or less, and registered in the name of
Alfonso Castellvi under TCT No. 13631 of the Register
of Pampanga ...;
and against defendant-appellee Maria Nieves Toledo Gozun
(hereinafter referred to as Toledo-Gozun over two parcels of land
described as follows:
A parcel of land (Portion Lot Blk-1, Bureau of Lands
Plan Psd, 26254. Bounded on the NE by Lot 3, on the
SE by Lot 3; on the SW by Lot 1-B, Blk. 2 (equivalent
to Lot 199-B Swo 23666; on the NW by AFP military
reservation. Containing an area of 450,273 square
meters, more or less and registered in the name of
Maria Nieves Toledo-Gozun under TCT No. 8708 of
the Register of Deeds of Pampanga. ..., and
A parcel of land (Portion of lot 3, Blk-1, Bureau of
Lands Plan Psd 26254. Bounded on the NE by Lot No.
3, on the SE by school lot and national road, on the
SW by Lot 1-B Blk 2 (equivalent to Lot 199-B Swo
23666), on the NW by Lot 1-B, Blk-1. Containing an
area of 88,772 square meters, more or less, and
registered in the name of Maria Nieves Toledo Gozun
under TCT No. 8708 of the Register of Deeds of
Pampanga, ....
In its complaint, the Republic alleged, among other things, that the fair
market value of the above-mentioned lands, according to the
Committee on Appraisal for the Province of Pampanga, was not more
than P2,000 per hectare, or a total market value of P259,669.10; and
prayed, that the provisional value of the lands be fixed at
P259.669.10, that the court authorizes plaintiff to take immediate
possession of the lands upon deposit of that amount with the
Provincial Treasurer of Pampanga; that the court appoints three
commissioners to ascertain and report to the court the just
compensation for the property sought to be expropriated, and that the
court issues thereafter a final order of condemnation.
On June 29, 1959 the trial court issued an order fixing the provisional
value of the lands at P259,669.10.
In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged,
among other things, that the land under her administration, being a
residential land, had a fair market value of P15.00 per square meter,
so it had a total market value of P11,389,485.00; that the Republic,
through the Armed Forces of the Philippines, particularly the
Philippine Air Force, had been, despite repeated demands, illegally
occupying her property since July 1, 1956, thereby preventing her
from using and disposing of it, thus causing her damages by way of
unrealized profits. This defendant prayed that the complaint be
dismissed, or that the Republic be ordered to pay her P15.00 per
square meter, or a total of P11,389,485.00, plus interest thereon at
6% per annum from July 1, 1956; that the Republic be ordered to pay
her P5,000,000.00 as unrealized profits, and the costs of the suit.
By order of the trial court, dated August, 1959, Amparo C. Diaz,
Dolores G. viuda de Gil, Paloma Castellvi, Carmen Castellvi, Rafael
Castellvi, Luis Castellvi, Natividad Castellvi de Raquiza, Jose Castellvi
and Consuelo Castellvi were allowed to intervene as parties
defendants. Subsequently, Joaquin V. Gozun, Jr., husband of
defendant Nieves Toledo Gozun, was also allowed by the court to
intervene as a party defendant.
After the Republic had deposited with the Provincial Treasurer of
Pampanga the amount of P259,669.10, the trial court ordered that the
Republic be placed in possession of the lands. The Republic was
actually placed in possession of the lands on August 10,
1959.1
In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun
alleged, among other things, that her two parcels of land were
residential lands, in fact a portion with an area of 343,303 square
meters had already been subdivided into different lots for sale to the
general public, and the remaining portion had already been set aside
for expansion sites of the already completed subdivisions; that the fair
market value of said lands was P15.00 per square meter, so they had
a total market value of P8,085,675.00; and she prayed that the
complaint be dismissed, or that she be paid the amount of
P8,085,675.00, plus interest thereon at the rate of 6% per annum from
October 13, 1959, and attorney's fees in the amount of P50,000.00.
Intervenors Jose Castellvi and Consuelo Castellvi in their answer,
filed on February 11, 1960, and also intervenor Joaquin Gozun, Jr.,
husband of defendant Maria Nieves Toledo-Gozun, in his motion to
dismiss, dated May 27, 1960, all alleged that the value of the lands
sought to be expropriated was at the rate of P15.00 per square meter.
On November 4, 1959, the trial court authorized the Provincial
Treasurer of Pampanga to pay defendant Toledo-Gozun the sum of
P107,609.00 as provisional value of her lands.2 On May 16, 1960 the
trial Court authorized the Provincial Treasurer of Pampanga to pay
defendant Castellvi the amount of P151,859.80 as provisional value of
the land under her administration, and ordered said defendant to
deposit the amount with the Philippine National Bank under the
supervision of the Deputy Clerk of Court. In another order of May 16,
1960 the trial Court entered an order of condemnation.3
The trial Court appointed three commissioners: Atty. Amadeo Yuzon,
Clerk of Court, as commissioner for the court; Atty. Felicisimo G.
Pamandanan, counsel of the Philippine National Bank Branch at
Floridablanca, for the plaintiff; and Atty. Leonardo F. Lansangan,
Filipino legal counsel at Clark Air Base, for the defendants. The
Commissioners, after having qualified themselves, proceeded to the
performance of their duties.
On March 15,1961 the Commissioners submitted their report and
recommendation, wherein, after having determined that the lands
sought to be expropriated were residential lands, they recommended
unanimously that the lowest price that should be paid was P10.00 per
square meter, for both the lands of Castellvi and Toledo-Gozun; that
an additional P5,000.00 be paid to Toledo-Gozun for improvements
found on her land; that legal interest on the compensation, computed
from August 10, 1959, be paid after deducting the amounts already
paid to the owners, and that no consequential damages be
awarded.4 The Commissioners' report was objected to by all the
parties in the case — by defendants Castellvi and Toledo-Gozun, who
insisted that the fair market value of their lands should be fixed at
P15.00 per square meter; and by the Republic, which insisted that the
price to be paid for the lands should be fixed at P0.20 per square
meter.5
After the parties-defendants and intervenors had filed their respective
memoranda, and the Republic, after several extensions of time, had
adopted as its memorandum its objections to the report of the
Commissioners, the trial court, on May 26, 1961, rendered its
decision6 the dispositive portion of which reads as follows:
WHEREFORE, taking into account all the foregoing
circumstances, and that the lands are titled, ... the
rising trend of land values ..., and the lowered
purchasing power of the Philippine peso, the court
finds that the unanimous recommendation of the
commissioners of ten (P10.00) pesos per square meter
for the three lots of the defendants subject of this
action is fair and just.
xxx xxx xxx
The plaintiff will pay 6% interest per annum on the total
value of the lands of defendant Toledo-Gozun since
(sic) the amount deposited as provisional value from
August 10, 1959 until full payment is made to said
defendant or deposit therefor is made in court.
In respect to the defendant Castellvi, interest at 6% per
annum will also be paid by the plaintiff to defendant
Castellvi from July 1, 1956 when plaintiff commenced
 its illegal possession of the Castellvi land when the
instant action had not yet been commenced to July 10,
1959 when the provisional value thereof was actually
deposited in court, on the total value of the said
(Castellvi) land as herein adjudged. The same rate of
interest shall be paid from July 11, 1959 on the total
value of the land herein adjudged minus the amount
deposited as provisional value, or P151,859.80, such
interest to run until full payment is made to said
defendant or deposit therefor is made in court. All the
intervenors having failed to produce evidence in
support of their respective interventions, said
interventions are ordered dismissed.
The costs shall be charged to the plaintiff.
On June 21, 1961 the Republic filed a motion for a new trial and/or
reconsideration, upon the grounds of newly-discovered evidence, that
the decision was not supported by the evidence, and that the decision
was against the law, against which motion defendants Castellvi and
Toledo-Gozun filed their respective oppositions. On July 8, 1961 when
the motion of the Republic for new trial and/or reconsideration was
called for hearing, the Republic filed a supplemental motion for new
trial upon the ground of additional newly-discovered evidence. This
motion for new trial and/or reconsideration was denied by the court on
July 12, 1961.
On July 17, 1961 the Republic gave notice of its intention to appeal
from the decision of May 26, 1961 and the order of July 12, 1961.
Defendant Castellvi also filed, on July 17, 1961, her notice of appeal
from the decision of the trial court.
The Republic filed various ex-parte motions for extension of time
within which to file its record on appeal. The Republic's record on
appeal was finally submitted on December 6, 1961.
Defendants Castellvi and Toledo-Gozun filed not only a joint
opposition to the approval of the Republic's record on appeal, but also
a joint memorandum in support of their opposition. The Republic also
filed a memorandum in support of its prayer for the approval of its
record on appeal. On December 27, 1961 the trial court issued an
order declaring both the record on appeal filed by the Republic, and
the record on appeal filed by defendant Castellvi as having been filed
out of time, thereby dismissing both appeals.
On January 11, 1962 the Republic filed a "motion to strike out the
order of December 27, 1961 and for reconsideration", and
subsequently an amended record on appeal, against which motion the
defendants Castellvi and Toledo-Gozun filed their opposition. On July
26, 1962 the trial court issued an order, stating that "in the interest of
expediency, the questions raised may be properly and finally
determined by the Supreme Court," and at the same time it ordered
the Solicitor General to submit a record on appeal containing copies
of orders and pleadings specified therein. In an order dated November
19, 1962, the trial court approved the Republic's record on appeal as
amended.
Defendant Castellvi did not insist on her appeal. Defendant Toledo-
Gozun did not appeal.
The motion to dismiss the Republic's appeal was reiterated by
appellees Castellvi and Toledo-Gozun before this Court, but this Court
denied the motion.
In her motion of August 11, 1964, appellee Castellvi sought to
increase the provisional value of her land. The Republic, in its
comment on Castellvi's motion, opposed the same. This Court denied
Castellvi's motion in a resolution dated October 2,1964.
The motion of appellees, Castellvi and Toledo-Gozun, dated October
6, 1969, praying that they be authorized to mortgage the lands subject
of expropriation, was denied by this Court or October 14, 1969.
On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel
for the estate of the late Don Alfonso de Castellvi in the expropriation
proceedings, filed a notice of attorney's lien, stating that as per
agreement with the administrator of the estate of Don Alfonso de
Castellvi they shall receive by way of attorney's fees, "the sum
equivalent to ten per centum of whatever the court may finally decide
as the expropriated price of the property subject matter of the case."
---------
Before this Court, the Republic contends that the lower court erred:
1. In finding the price of P10 per square meter of the
lands subject of the instant proceedings as just
compensation;
2. In holding that the "taking" of the properties under
expropriation commenced with the filing of this action;
3. In ordering plaintiff-appellant to pay 6% interest on
the adjudged value of the Castellvi property to start
from July of 1956;
4. In denying plaintiff-appellant's motion for new trial
based on newly discovered evidence.
In its brief, the Republic discusses the second error assigned as the
first issue to be considered. We shall follow the sequence of the
Republic's discussion.
1. In support of the assigned error that the lower court erred in holding
that the "taking" of the properties under expropriation commenced
with the filing of the complaint in this case, the Republic argues that
the "taking" should be reckoned from the year 1947 when by virtue of
a special lease agreement between the Republic and appellee
Castellvi, the former was granted the "right and privilege" to buy the
property should the lessor wish to terminate the lease, and that in the
event of such sale, it was stipulated that the fair market value should
be as of the time of occupancy; and that the permanent improvements
amounting to more that half a million pesos constructed during a
period of twelve years on the land, subject of expropriation, were
indicative of an agreed pattern of permanency and stability of
occupancy by the Philippine Air Force in the interest of national
Security.7
Appellee Castellvi, on the other hand, maintains that the "taking" of
property under the power of eminent domain requires two essential
elements, to wit: (1) entrance and occupation by condemn or upon the
private property for more than a momentary or limited period, and (2)
devoting it to a public use in such a way as to oust the owner and
deprive him of all beneficial enjoyment of the property. This appellee
argues that in the instant case the first element is wanting, for the
contract of lease relied upon provides for a lease from year to year;
that the second element is also wanting, because the Republic was
paying the lessor Castellvi a monthly rental of P445.58; and that the
contract of lease does not grant the Republic the "right and privilege"
to buy the premises "at the value at the time of occupancy."8
Appellee Toledo-Gozun did not comment on the Republic's argument
in support of the second error assigned, because as far as she was
concerned the Republic had not taken possession of her lands prior to
August 10, 1959.9
In order to better comprehend the issues raised in the appeal, in so
far as the Castellvi property is concerned, it should be noted that the
Castellvi property had been occupied by the Philippine Air Force since
1947 under a contract of lease, typified by the contract marked Exh.
4-Castellvi, the pertinent portions of which read:
CONTRACT OF LEASE
This AGREEMENT OF LEASE MADE AND ENTERED
into by and between INTESTATE ESTATE OF
ALFONSO DE CASTELLVI, represented by CARMEN
M. DE CASTELLVI, Judicial Administratrix ...
hereinafter called the LESSOR and THE REPUBLIC
OF THE PHILIPPINES represented by MAJ. GEN.
CALIXTO DUQUE, Chief of Staff of the ARMED
FORCES OF THE PHILIPPINES, hereinafter called the
LESSEE,
WITNESSETH:
1. For and in consideration of the rentals hereinafter
reserved and the mutual terms, covenants and
conditions of the parties, the LESSOR has, and by
these presents does, lease and let unto the LESSEE
the following described land together with the
improvements thereon and appurtenances thereof, viz:
Un Terreno, Lote No. 27 del Plano de subdivision Psu
34752, parte de la hacienda de Campauit, situado en
 el Barrio de San Jose, Municipio de Floridablanca
Pampanga. ... midiendo una extension superficial de
cuatro milliones once mil cuatro cientos trienta y cinco
(4,001,435) [sic] metros cuadrados, mas o menos.
Out of the above described property, 75.93 hectares
thereof are actually occupied and covered by this
contract. .
Above lot is more particularly described in TCT No.
1016, province of
Pampanga ...
of which premises, the LESSOR warrants that he/she/they/is/are the
registered owner(s) and with full authority to execute a contract of this
nature.
2. The term of this lease shall be for the period
beginning July 1, 1952 the date the premises were
occupied by the PHILIPPINE AIR FORCE, AFP until
June 30, 1953, subject to renewal for another year at
the option of the LESSEE or unless sooner terminated
by the LESSEE as hereinafter provided.
3. The LESSOR hereby warrants that the LESSEE
shall have quiet, peaceful and undisturbed possession
of the demised premises throughout the full term or
period of this lease and the LESSOR undertakes
without cost to the LESSEE to eject all trespassers, but
should the LESSOR fail to do so, the LESSEE at its
option may proceed to do so at the expense of the
LESSOR. The LESSOR further agrees that should
he/she/they sell or encumber all or any part of the
herein described premises during the period of this
lease, any conveyance will be conditioned on the right
of the LESSEE hereunder.
4. The LESSEE shall pay to the LESSOR as monthly
rentals under this lease the sum of FOUR HUNDRED
FIFTY-FIVE PESOS & 58/100 (P455.58) ...
5. The LESSEE may, at any time prior to the
termination of this lease, use the property for any
purpose or purposes and, at its own costs and expense
make alteration, install facilities and fixtures and errect
additions ... which facilities or fixtures ... so placed in,
upon or attached to the said premises shall be and
remain property of the LESSEE and may be removed
therefrom by the LESSEE prior to the termination of
this lease. The LESSEE shall surrender possession of
the premises upon the expiration or termination of this
lease and if so required by the LESSOR, shall return
the premises in substantially the same condition as that
existing at the time same were first occupied by the
AFP, reasonable and ordinary wear and tear and
damages by the elements or by circumstances over
which the LESSEE has no control excepted:
PROVIDED, that if the LESSOR so requires the return
of the premises in such condition, the LESSOR shall
give written notice thereof to the LESSEE at least
twenty (20) days before the termination of the lease
and provided, further, that should the LESSOR give
notice within the time specified above, the LESSEE
shall have the right and privilege to compensate the
LESSOR at the fair value or the equivalent, in lieu of
performance of its obligation, if any, to restore the
premises. Fair value is to be determined as the value
at the time of occupancy less fair wear and tear and
depreciation during the period of this lease.
6. The LESSEE may terminate this lease at any time
during the term hereof by giving written notice to the
LESSOR at least thirty (30) days in advance ...
7. The LESSEE should not be responsible, except
under special legislation for any damages to the
premises by reason of combat operations, acts of
GOD, the elements or other acts and deeds not due to
the negligence on the part of the LESSEE.
8. This LEASE AGREEMENT supersedes and voids
any and all agreements and undertakings, oral or
written, previously entered into between the parties
 covering the property herein leased, the same having
been merged herein. This AGREEMENT may not be
modified or altered except by instrument in writing only
duly signed by the parties. 10
It was stipulated by the parties, that "the foregoing contract of lease
(Exh. 4, Castellvi) is 'similar in terms and conditions, including the
date', with the annual contracts entered into from year to year
between defendant Castellvi and the Republic of the Philippines (p.
17, t.s.n., Vol. III)". 11 It is undisputed, therefore, that the Republic
occupied Castellvi's land from July 1, 1947, by virtue of the above-
mentioned contract, on a year to year basis (from July 1 of each year
to June 30 of the succeeding year) under the terms and conditions
therein stated.
Before the expiration of the contract of lease on June 30, 1956 the
Republic sought to renew the same but Castellvi refused. When the
AFP refused to vacate the leased premises after the termination of the
contract, on July 11, 1956, Castellvi wrote to the Chief of Staff, AFP,
informing the latter that the heirs of the property had decided not to
continue leasing the property in question because they had decided to
subdivide the land for sale to the general public, demanding that the
property be vacated within 30 days from receipt of the letter, and that
the premises be returned in substantially the same condition as before
occupancy (Exh. 5 — Castellvi). A follow-up letter was sent on
January 12, 1957, demanding the delivery and return of the property
within one month from said date (Exh. 6 Castellvi). On January 30,
1957, Lieutenant General Alfonso Arellano, Chief of Staff, answered
the letter of Castellvi, saying that it was difficult for the army to vacate
the premises in view of the permanent installations and other facilities
worth almost P500,000.00 that were erected and already established
on the property, and that, there being no other recourse, the
acquisition of the property by means of expropriation proceedings
would be recommended to the President (Exhibit "7" — Castellvi).
Defendant Castellvi then brought suit in the Court of First Instance of
Pampanga, in Civil Case No. 1458, to eject the Philippine Air Force
from the land. While this ejectment case was pending, the Republic
instituted these expropriation proceedings, and, as stated earlier in
this opinion, the Republic was placed in possession of the lands on
August 10, 1959, On November 21, 1959, the Court of First Instance
of Pampanga, dismissed Civil Case No. 1458, upon petition of the
parties, in an order which, in part, reads as follows:
1. Plaintiff has agreed, as a matter of fact has already
signed an agreement with defendants, whereby she
has agreed to receive the rent of the lands, subject
matter of the instant case from June 30, 1966 up to
1959 when the Philippine Air Force was placed in
possession by virtue of an order of the Court upon
depositing the provisional amount as fixed by the
Provincial Appraisal Committee with the Provincial
Treasurer of Pampanga;
2. That because of the above-cited agreement wherein
the administratrix decided to get the rent corresponding
to the rent from 1956 up to 1959 and considering that
this action is one of illegal detainer and/or to recover
the possession of said land by virtue of non-payment of
rents, the instant case now has become moot and
academic and/or by virtue of the agreement signed by
plaintiff, she has waived her cause of action in the
above-entitled case. 12
The Republic urges that the "taking " of Castellvi's property should be
deemed as of the year 1947 by virtue of afore-quoted lease
agreement. In American Jurisprudence, Vol. 26, 2nd edition, Section
157, on the subject of "Eminent Domain, we read the definition of
"taking" (in eminent domain) as follows:
Taking' under the power of eminent domain may be
defined generally as entering upon private property for
more than a momentary period, and, under the warrant
or color of legal authority, devoting it to a public use, or
otherwise informally appropriating or injuriously
affecting it in such a way as substantially to oust the
owner and deprive him of all beneficial enjoyment
thereof. 13
Pursuant to the aforecited authority, a number of circumstances must
be present in the "taking" of property for purposes of eminent domain.
First, the expropriator must enter a private property. This
circumstance is present in the instant case, when by virtue of the
lease agreement the Republic, through the AFP, took possession of
the property of Castellvi.
Second, the entrance into private property must be for more than a
momentary period. "Momentary" means, "lasting but a moment; of but
a moment's duration" (The Oxford English Dictionary, Volume VI,
page 596); "lasting a very short time; transitory; having a very brief
life; operative or recurring at every moment" (Webster's Third
International Dictionary, 1963 edition.) The word "momentary" when
applied to possession or occupancy of (real) property should be
construed to mean "a limited period" — not indefinite or permanent.
The aforecited lease contract was for a period of one year, renewable
from year to year. The entry on the property, under the lease, is
temporary, and considered transitory. The fact that the Republic,
through the AFP, constructed some installations of a permanent
nature does not alter the fact that the entry into the land was
transitory, or intended to last a year, although renewable from year to
year by consent of 'The owner of the land. By express provision of the
lease agreement the Republic, as lessee, undertook to return the
premises in substantially the same condition as at the time the
property was first occupied by the AFP. It is claimed that the intention
of the lessee was to occupy the land permanently, as may be inferred
from the construction of permanent improvements. But this "intention"
cannot prevail over the clear and express terms of the lease contract.
Intent is to be deduced from the language employed by the parties,
and the terms 'of the contract, when unambiguous, as in the instant
case, are conclusive in the absence of averment and proof of mistake
or fraud — the question being not what the intention was, but what is
expressed in the language used. (City of Manila v. Rizal Park Co.,
Inc., 53 Phil. 515, 525); Magdalena Estate, Inc. v. Myrick, 71 Phil.
344, 348). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered (Art. 1371, Civil Code). If the intention of the
lessee (Republic) in 1947 was really to occupy permanently
Castellvi's property, why was the contract of lease entered into on
year to year basis? Why was the lease agreement renewed from year
to year? Why did not the Republic expropriate this land of Castellvi in
1949 when, according to the Republic itself, it expropriated the other
parcels of land that it occupied at the same time as the Castellvi land,
for the purpose of converting them into a jet air base? 14 It might really
have been the intention of the Republic to expropriate the lands in
question at some future time, but certainly mere notice - much less an
implied notice — of such intention on the part of the Republic to
expropriate the lands in the future did not, and could not, bind the
landowner, nor bind the land itself. The expropriation must be actually
commenced in court (Republic vs. Baylosis, et al., 96 Phil. 461, 484).
Third, the entry into the property should be under warrant or color of
legal authority. This circumstance in the "taking" may be considered
as present in the instant case, because the Republic entered the
Castellvi property as lessee.
Fourth, the property must be devoted to a public use or otherwise
informally appropriated or injuriously affected. It may be conceded
that the circumstance of the property being devoted to public use is
present because the property was used by the air force of the AFP.
Fifth, the utilization of the property for public use must be in such a
way as to oust the owner and deprive him of all beneficial enjoyment
of the property. In the instant case, the entry of the Republic into the
property and its utilization of the same for public use did not oust
Castellvi and deprive her of all beneficial enjoyment of the property.
Castellvi remained as owner, and was continuously recognized as
owner by the Republic, as shown by the renewal of the lease contract
from year to year, and by the provision in the lease contract whereby
the Republic undertook to return the property to Castellvi when the
lease was terminated. Neither was Castellvi deprived of all the
beneficial enjoyment of the property, because the Republic was
bound to pay, and had been paying, Castellvi the agreed monthly
rentals until the time when it filed the complaint for eminent domain on
June 26, 1959.
It is clear, therefore, that the "taking" of Catellvi's property for
purposes of eminent domain cannot be considered to have taken
place in 1947 when the Republic commenced to occupy the property
as lessee thereof. We find merit in the contention of Castellvi that two
essential elements in the "taking" of property under the power of
eminent domain, namely: (1) that the entrance and occupation by the
condemnor must be for a permanent, or indefinite period, and (2) that
in devoting the property to public use the owner was ousted from the
property and deprived of its beneficial use, were not present when the
Republic entered and occupied the Castellvi property in 1947.
Untenable also is the Republic's contention that although the contract
between the parties was one of lease on a year to year basis, it was
"in reality a more or less permanent right to occupy the premises
under the guise of lease with the 'right and privilege' to buy the
property should the lessor wish to terminate the lease," and "the right
to buy the property is merged as an integral part of the lease
relationship ... so much so that the fair market value has been agreed
upon, not, as of the time of purchase, but as of the time of
occupancy" 15 We cannot accept the Republic's contention that a
lease on a year to year basis can give rise to a permanent right to
occupy, since by express legal provision a lease made for a
determinate time, as was the lease of Castellvi's land in the instant
case, ceases upon the day fixed, without need of a demand (Article
1669, Civil Code). Neither can it be said that the right of eminent
domain may be exercised by simply leasing the premises to be
expropriated (Rule 67, Section 1, Rules of Court). Nor can it be
accepted that the Republic would enter into a contract of lease where
its real intention was to buy, or why the Republic should enter into a
simulated contract of lease ("under the guise of lease", as expressed
by counsel for the Republic) when all the time the Republic had the
right of eminent domain, and could expropriate Castellvi's land if it
wanted to without resorting to any guise whatsoever. Neither can we
see how a right to buy could be merged in a contract of lease in the
absence of any agreement between the parties to that effect. To
sustain the contention of the Republic is to sanction a practice
whereby in order to secure a low price for a land which the
government intends to expropriate (or would eventually expropriate) it
would first negotiate with the owner of the land to lease the land (for
say ten or twenty years) then expropriate the same when the lease is
about to terminate, then claim that the "taking" of the property for the
purposes of the expropriation be reckoned as of the date when the
Government started to occupy the property under the lease, and then
assert that the value of the property being expropriated be reckoned
as of the start of the lease, in spite of the fact that the value of the
property, for many good reasons, had in the meantime increased
during the period of the lease. This would be sanctioning what
obviously is a deceptive scheme, which would have the effect of
depriving the owner of the property of its true and fair market value at
the time when the expropriation proceedings were actually instituted
in court. The Republic's claim that it had the "right and privilege" to
buy the property at the value that it had at the time when it first
occupied the property as lessee nowhere appears in the lease
contract. What was agreed expressly in paragraph No. 5 of the lease
agreement was that, should the lessor require the lessee to return the
premises in the same condition as at the time the same was first
occupied by the AFP, the lessee would have the "right and privilege"
(or option) of paying the lessor what it would fairly cost to put the
premises in the same condition as it was at the commencement of the
lease, in lieu of the lessee's performance of the undertaking to put the
land in said condition. The "fair value" at the time of occupancy,
mentioned in the lease agreement, does not refer to the value of the
property if bought by the lessee, but refers to the cost of restoring the
property in the same condition as of the time when the lessee took
possession of the property. Such fair value cannot refer to the
purchase price, for purchase was never intended by the parties to the
lease contract. It is a rule in the interpretation of contracts that
"However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree" (Art.
1372, Civil Code).
We hold, therefore, that the "taking" of the Castellvi property should
not be reckoned as of the year 1947 when the Republic first occupied
the same pursuant to the contract of lease, and that the just
compensation to be paid for the Castellvi property should not be
determined on the basis of the value of the property as of that year.
The lower court did not commit an error when it held that the "taking"
of the property under expropriation commenced with the filing of the
complaint in this case.
Under Section 4 of Rule 67 of the Rules of Court, 16 the "just
compensation" is to be determined as of the date of the filing of the
complaint. This Court has ruled that when the taking of the property
sought to be expropriated coincides with the commencement of the
expropriation proceedings, or takes place subsequent to the filing of
the complaint for eminent domain, the just compensation should be
determined as of the date of the filing of the complaint. (Republic vs.
Philippine National Bank, L-14158, April 12, 1961, 1 SCRA 957, 961-
962). In the instant case, it is undisputed that the Republic was placed
in possession of the Castellvi property, by authority of the court, on
August 10, 1959. The "taking" of the Castellvi property for the
purposes of determining the just compensation to be paid must,
therefore, be reckoned as of June 26, 1959 when the complaint for
eminent domain was filed.
Regarding the two parcels of land of Toledo-Gozun, also sought to be
expropriated, which had never been under lease to the Republic, the
Republic was placed in possession of said lands, also by authority of
the court, on August 10, 1959, The taking of those lands, therefore,
must also be reckoned as of June 26, 1959, the date of the filing of
the complaint for eminent domain.
2. Regarding the first assigned error — discussed as the second issue
— the Republic maintains that, even assuming that the value of the
expropriated lands is to be determined as of June 26, 1959, the price
of P10.00 per square meter fixed by the lower court "is not only
exhorbitant but also unconscionable, and almost fantastic". On the
other hand, both Castellvi and Toledo-Gozun maintain that their lands
are residential lands with a fair market value of not less than P15.00
per square meter.
The lower court found, and declared, that the lands of Castellvi and
Toledo-Gozun are residential lands. The finding of the lower court is in
consonance with the unanimous opinion of the three commissioners
who, in their report to the court, declared that the lands are residential
lands.
The Republic assails the finding that the lands are residential,
contending that the plans of the appellees to convert the lands into
subdivision for residential purposes were only on paper, there being
no overt acts on the part of the appellees which indicated that the
subdivision project had been commenced, so that any compensation
to be awarded on the basis of the plans would be speculative. The
Republic's contention is not well taken. We find evidence showing that
the lands in question had ceased to be devoted to the production of
agricultural crops, that they had become adaptable for residential
purposes, and that the appellees had actually taken steps to convert
their lands into residential subdivisions even before the Republic filed
the complaint for eminent domain. In the case of City of Manila vs.
Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in
determining the value of the property expropriated for public
purposes. This Court said:
In determining the value of land appropriated for public
purposes, the same consideration are to be regarded
as in a sale of property between private parties. The
inquiry, in such cases, must be what is the property
worth in the market, viewed not merely with reference
to the uses to which it is at the time applied, but with
reference to the uses to which it is plainly adapted, that
is to say, What is it worth from its availability for
valuable uses?
So many and varied are the circumstances to be taken
into account in determining the value of property
condemned for public purposes, that it is practically
impossible to formulate a rule to govern its
appraisement in all cases. Exceptional circumstances
will modify the most carefully guarded rule, but, as a
general thing, we should say that the compensation of
the owner is to be estimated by reference to the use for
which the property is suitable, having regard to the
existing business or wants of the community, or such
as may be reasonably expected in the immediate
future. (Miss. and Rum River Boom Co. vs. Patterson,
98 U.S., 403).
In expropriation proceedings, therefore, the owner of the land has the
right to its value for the use for which it would bring the most in the
market. 17 The owner may thus show every advantage that his
property possesses, present and prospective, in order that the price it
could be sold for in the market may be satisfactorily
determined. 18 The owner may also show that the property is suitable
for division into village or town lots. 19
The trial court, therefore, correctly considered, among other
circumstances, the proposed subdivision plans of the lands sought to
be expropriated in finding that those lands are residential lots. This
finding of the lower court is supported not only by the unanimous
opinion of the commissioners, as embodied in their report, but also by
the Provincial Appraisal Committee of the province of Pampanga
composed of the Provincial Treasurer, the Provincial Auditor and the
District Engineer. In the minutes of the meeting of the Provincial
Appraisal Committee, held on May 14, 1959 (Exh. 13-Castellvi) We
read in its Resolution No. 10 the following:
3. Since 1957 the land has been classified as
residential in view of its proximity to the air base and
due to the fact that it was not being devoted to
 agriculture. In fact, there is a plan to convert it into a
subdivision for residential purposes. The taxes due on
the property have been paid based on its classification
as residential land;
The evidence shows that Castellvi broached the idea of subdividing
her land into residential lots as early as July 11, 1956 in her letter to
the Chief of Staff of the Armed Forces of the Philippines. (Exh. 5-
Castellvi) As a matter of fact, the layout of the subdivision plan was
tentatively approved by the National Planning Commission on
September 7, 1956. (Exh. 8-Castellvi). The land of Castellvi had not
been devoted to agriculture since 1947 when it was leased to the
Philippine Army. In 1957 said land was classified as residential, and
taxes based on its classification as residential had been paid since
then (Exh. 13-Castellvi). The location of the Castellvi land justifies its
suitability for a residential subdivision. As found by the trial court, "It is
at the left side of the entrance of the Basa Air Base and bounded on
two sides by roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh. 12-
Castellvi), the poblacion, (of Floridablanca) the municipal building, and
the Pampanga Sugar Mills are closed by. The barrio schoolhouse and
chapel are also near (T.S.N. November 23,1960, p. 68)." 20
The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the
same condition as the land of Castellvi. The lands of Toledo-Gozun
adjoin the land of Castellvi. They are also contiguous to the Basa Air
Base, and are along the road. These lands are near the barrio
schoolhouse, the barrio chapel, the Pampanga Sugar Mills, and the
poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a
matter of fact, regarding lot 1-B it had already been surveyed and
subdivided, and its conversion into a residential subdivision was
tentatively approved by the National Planning Commission on July 8,
1959 (Exhs. 5 and 6 Toledo-Gozun). As early as June, 1958, no less
than 32 man connected with the Philippine Air Force among them
commissioned officers, non-commission officers, and enlisted men
had requested Mr. and Mrs. Joaquin D. Gozun to open a subdivision
on their lands in question (Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21
We agree with the findings, and the conclusions, of the lower court
that the lands that are the subject of expropriation in the present case,
as of August 10, 1959 when the same were taken possession of by
the Republic, were residential lands and were adaptable for use as
residential subdivisions. Indeed, the owners of these lands have the
right to their value for the use for which they would bring the most in
the market at the time the same were taken from them. The most
important issue to be resolved in the present case relates to the
question of what is the just compensation that should be paid to the
appellees.
The Republic asserts that the fair market value of the lands of the
appellees is P.20 per square meter. The Republic cites the case
of Republic vs. Narciso, et al., L-6594, which this Court decided on
May 18, 1956. The Narciso case involved lands that belonged to
Castellvi and Toledo-Gozun, and to one Donata Montemayor, which
were expropriated by the Republic in 1949 and which are now the site
of the Basa Air Base. In the Narciso case this Court fixed the fair
market value at P.20 per square meter. The lands that are sought to
be expropriated in the present case being contiguous to the lands
involved in the Narciso case, it is the stand of the Republic that the
price that should be fixed for the lands now in question should also be
at P.20 per square meter.
We can not sustain the stand of the Republic. We find that the price of
P.20 per square meter, as fixed by this Court in the Narciso case, was
based on the allegation of the defendants (owners) in their answer to
the complaint for eminent domain in that case that the price of their
lands was P2,000.00 per hectare and that was the price that they
asked the court to pay them. This Court said, then, that the owners of
the land could not be given more than what they had asked,
notwithstanding the recommendation of the majority of the
Commission on Appraisal — which was adopted by the trial court —
that the fair market value of the lands was P3,000.00 per hectare. We
also find that the price of P.20 per square meter in the Narciso case
was considered the fair market value of the lands as of the year 1949
when the expropriation proceedings were instituted, and at that time
the lands were classified as sugar lands, and assessed for taxation
purposes at around P400.00 per hectare, or P.04 per square meter.
22 While the lands involved in the present case, like the lands
involved in the Narciso case, might have a fair market value of P.20
per square meter in 1949, it can not be denied that ten years later, in
1959, when the present proceedings were instituted, the value of
those lands had increased considerably. The evidence shows that
since 1949 those lands were no longer cultivated as sugar lands, and
in 1959 those lands were already classified, and assessed for taxation
purposes, as residential lands. In 1959 the land of Castellvi was
assessed at P1.00 per square meter. 23
The Republic also points out that the Provincial Appraisal Committee
of Pampanga, in its resolution No. 5 of February 15, 1957 (Exhibit D),
recommended the sum of P.20 per square meter as the fair valuation
of the Castellvi property. We find that this resolution was made by the
Republic the basis in asking the court to fix the provisional value of
the lands sought to be expropriated at P259,669.10, which was
approved by the court. 24 It must be considered, however, that the
amount fixed as the provisional value of the lands that are being
expropriated does not necessarily represent the true and correct value
of the land. The value is only "provisional" or "tentative", to serve as
the basis for the immediate occupancy of the property being
expropriated by the condemnor. The records show that this resolution
No. 5 was repealed by the same Provincial Committee on Appraisal in
its resolution No. 10 of May 14, 1959 (Exhibit 13-Castellvi). In that
resolution No. 10, the appraisal committee stated that "The
Committee has observed that the value of the land in this locality has
increased since 1957 ...", and recommended the price of P1.50 per
square meter. It follows, therefore, that, contrary to the stand of the
Republic, that resolution No. 5 of the Provincial Appraisal Committee
can not be made the basis for fixing the fair market value of the lands
of Castellvi and Toledo-Gozun.
The Republic further relied on the certification of the Acting Assistant
Provincial Assessor of Pampanga, dated February 8, 1961 (Exhibit K),
to the effect that in 1950 the lands of Toledo-Gozun were classified
partly as sugar land and partly as urban land, and that the sugar land
was assessed at P.40 per square meter, while part of the urban land
was assessed at P.40 per square meter and part at P.20 per square
meter; and that in 1956 the Castellvi land was classified as sugar land
and was assessed at P450.00 per hectare, or P.045 per square
meter. We can not also consider this certification of the Acting
Assistant Provincial Assessor as a basis for fixing the fair market
value of the lands of Castellvi and Toledo-Gozun because, as the
evidence shows, the lands in question, in 1957, were already
classified and assessed for taxation purposes as residential lands.
The certification of the assessor refers to the year 1950 as far as the
lands of Toledo-Gozun are concerned, and to the year 1956 as far as
the land of Castellvi is concerned. Moreover, this Court has held that
the valuation fixed for the purposes of the assessment of the land for
taxation purposes can not bind the landowner where the latter did not
intervene in fixing it. 25
On the other hand, the Commissioners, appointed by the court to
appraise the lands that were being expropriated, recommended to the
court that the price of P10.00 per square meter would be the fair
market value of the lands. The commissioners made their
recommendation on the basis of their observation after several ocular
inspections of the lands, of their own personal knowledge of land
values in the province of Pampanga, of the testimonies of the owners
of the land, and other witnesses, and of documentary evidence
presented by the appellees. Both Castellvi and Toledo-Gozun testified
that the fair market value of their respective land was at P15.00 per
square meter. The documentary evidence considered by the
commissioners consisted of deeds of sale of residential lands in the
town of San Fernando and in Angeles City, in the province of
Pampanga, which were sold at prices ranging from P8.00 to P20.00
per square meter (Exhibits 15, 16, 17, 18, 19, 20, 21, 22, 23-
Castellvi). The commissioners also considered the decision in Civil
Case No. 1531 of the Court of First Instance of Pampanga, entitled
Republic vs. Sabina Tablante, which was expropriation case filed on
January 13, 1959, involving a parcel of land adjacent to the Clark Air
Base in Angeles City, where the court fixed the price at P18.00 per
square meter (Exhibit 14-Castellvi). In their report, the commissioners,
among other things, said:
... This expropriation case is specially pointed out,
because the circumstances and factors involved
therein are similar in many respects to the defendants'
lands in this case. The land in Civil Case No. 1531 of
this Court and the lands in the present case (Civil Case
No. 1623) are both near the air bases, the Clark Air
Base and the Basa Air Base respectively. There is a
national road fronting them and are situated in a first-
class municipality. As added advantage it may be said
that the Basa Air Base land is very near the sugar mill
at Del Carmen, Floridablanca, Pampanga, owned by
the Pampanga Sugar Mills. Also just stone's throw
away from the same lands is a beautiful vacation spot
at Palacol, a sitio of the town of Floridablanca, which
counts with a natural swimming pool for vacationists on
weekends. These advantages are not found in the
 case of the Clark Air Base. The defendants' lands are
nearer to the poblacion of Floridablanca then Clark Air
Base is nearer (sic) to the poblacion of Angeles,
Pampanga.
The deeds of absolute sale, according to the
undersigned commissioners, as well as the land in Civil
Case No. 1531 are competent evidence, because they
were executed during the year 1959 and before August
10 of the same year. More specifically so the land at
Clark Air Base which coincidentally is the subject
matter in the complaint in said Civil Case No. 1531, it
having been filed on January 13, 1959 and the taking
of the land involved therein was ordered by the Court
of First Instance of Pampanga on January 15, 1959,
several months before the lands in this case were
taken by the plaintiffs ....
From the above and considering further that the lowest
as well as the highest price per square meter
obtainable in the market of Pampanga relative to
subdivision lots within its jurisdiction in the year 1959 is
very well known by the Commissioners, the
Commission finds that the lowest price that can be
awarded to the lands in question is P10.00 per square
meter. 26
The lower court did not altogether accept the findings of the
Commissioners based on the documentary evidence, but it
considered the documentary evidence as basis for comparison in
determining land values. The lower court arrived at the conclusion that
"the unanimous recommendation of the commissioners of ten
(P10.00) pesos per square meter for the three lots of the defendants
subject of this action is fair and just". 27 In arriving at its conclusion,
the lower court took into consideration, among other circumstances,
that the lands are titled, that there is a rising trend of land values, and
the lowered purchasing power of the Philippine peso.
In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328,
this Court said:
A court of first instance or, on appeal, the Supreme
Court, may change or modify the report of the
commissioners by increasing or reducing the amount of
the award if the facts of the case so justify. While great
weight is attached to the report of the commissioners,
yet a court may substitute therefor its estimate of the
value of the property as gathered from the record in
certain cases, as, where the commissioners have
applied illegal principles to the evidence submitted to
them, or where they have disregarded a clear
preponderance of evidence, or where the amount
allowed is either palpably inadequate or excessive. 28
The report of the commissioners of appraisal in condemnation
proceedings are not binding, but merely advisory in character, as far
as the court is concerned. 29 In our analysis of the report of the
commissioners, We find points that merit serious consideration in the
determination of the just compensation that should be paid to Castellvi
and Toledo-Gozun for their lands. It should be noted that the
commissioners had made ocular inspections of the lands and had
considered the nature and similarities of said lands in relation to the
lands in other places in the province of Pampanga, like San Fernando
and Angeles City. We cannot disregard the observations of the
commissioners regarding the circumstances that make the lands in
question suited for residential purposes — their location near the
Basa Air Base, just like the lands in Angeles City that are near the
Clark Air Base, and the facilities that obtain because of their nearness
to the big sugar central of the Pampanga Sugar mills, and to the
flourishing first class town of Floridablanca. It is true that the lands in
question are not in the territory of San Fernando and Angeles City,
but, considering the facilities of modern communications, the town of
Floridablanca may be considered practically adjacent to San
Fernando and Angeles City. It is not out of place, therefore, to
compare the land values in Floridablanca to the land values in San
Fernando and Angeles City, and form an idea of the value of the lands
in Floridablanca with reference to the land values in those two other
communities.
The important factor in expropriation proceeding is that the owner is
awarded the just compensation for his property. We have carefully
studied the record, and the evidence, in this case, and after
considering the circumstances attending the lands in question We
have arrived at the conclusion that the price of P10.00 per square
meter, as recommended by the commissioners and adopted by the
lower court, is quite high. It is Our considered view that the price of
P5.00 per square meter would be a fair valuation of the lands in
question and would constitute a just compensation to the owners
thereof. In arriving at this conclusion We have particularly taken into
consideration the resolution of the Provincial Committee on Appraisal
of the province of Pampanga informing, among others, that in the year
1959 the land of Castellvi could be sold for from P3.00 to P4.00 per
square meter, while the land of Toledo-Gozun could be sold for from
P2.50 to P3.00 per square meter. The Court has weighed all the
circumstances relating to this expropriations proceedings, and in fixing
the price of the lands that are being expropriated the Court arrived at
a happy medium between the price as recommended by the
commissioners and approved by the court, and the price advocated
by the Republic. This Court has also taken judicial notice of the fact
that the value of the Philippine peso has considerably gone down
since the year 1959. 30Considering that the lands of Castellvi and
Toledo-Gozun are adjoining each other, and are of the same nature,
the Court has deemed it proper to fix the same price for all these
lands.
3. The third issue raised by the Republic relates to the
payment of interest. The Republic maintains that the
lower court erred when it ordered the Republic to pay
Castellvi interest at the rate of 6% per annum on the
total amount adjudged as the value of the land of
Castellvi, from July 1, 1956 to July 10, 1959. We find
merit in this assignment of error.
In ordering the Republic to pay 6% interest on the total value of the
land of Castellvi from July 1, 1956 to July 10, 1959, the lower court
held that the Republic had illegally possessed the land of Castellvi
from July 1, 1956, after its lease of the land had expired on June 30,
1956, until August 10, 1959 when the Republic was placed in
possession of the land pursuant to the writ of possession issued by
the court. What really happened was that the Republic continued to
occupy the land of Castellvi after the expiration of its lease on June
30, 1956, so much so that Castellvi filed an ejectment case against
the Republic in the Court of First Instance of Pampanga. 31 However,
while that ejectment case was pending, the Republic filed the
complaint for eminent domain in the present case and was placed in
possession of the land on August 10, 1959, and because of the
institution of the expropriation proceedings the ejectment case was
later dismissed. In the order dismissing the ejectment case, the Court
of First Instance of Pampanga said:
Plaintiff has agreed, as a matter of fact has already
signed an agreement with defendants, whereby she
had agreed to receive the rent of the lands, subject
matter of the instant case from June 30, 1956 up to
1959 when the Philippine Air Force was placed in
possession by virtue of an order of the Court upon
depositing the provisional amount as fixed by the
Provincial Appraisal Committee with the Provincial
Treasurer of
Pampanga; ...
If Castellvi had agreed to receive the rentals from June 30, 1956 to
August 10, 1959, she should be considered as having allowed her
land to be leased to the Republic until August 10, 1959, and she could
not at the same time be entitled to the payment of interest during the
same period on the amount awarded her as the just compensation of
her land. The Republic, therefore, should pay Castellvi interest at the
rate of 6% per annum on the value of her land, minus the provisional
value that was deposited, only from July 10, 1959 when it deposited in
court the provisional value of the land.
4. The fourth error assigned by the Republic relates to the denial by
the lower court of its motion for a new trial based on nearly discovered
evidence. We do not find merit in this assignment of error.
After the lower court had decided this case on May 26, 1961, the
Republic filed a motion for a new trial, supplemented by another
motion, both based upon the ground of newly discovered evidence.
The alleged newly discovered evidence in the motion filed on June 21,
1961 was a deed of absolute sale-executed on January 25, 1961,
showing that a certain Serafin Francisco had sold to Pablo L. Narciso
a parcel of sugar land having an area of 100,000 square meters with a
sugar quota of 100 piculs, covered by P.A. No. 1701, situated in
Barrio Fortuna, Floridablanca, for P14,000, or P.14 per square meter.
In the supplemental motion, the alleged newly discovered evidence
were: (1) a deed of sale of some 35,000 square meters of land
situated at Floridablanca for P7,500.00 (or about P.21 per square
meter) executed in July, 1959, by the spouses Evelyn D. Laird and
Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and
Josefina Q. Aguas; and (2) a deed of absolute sale of a parcel of land
having an area of 4,120,101 square meters, including the sugar quota
covered by Plantation Audit No. 161 1345, situated at Floridablanca,
Pampanga, for P860.00 per hectare (a little less than P.09 per square
meter) executed on October 22, 1957 by Jesus Toledo y Mendoza in
favor of the Land Tenure Administration.
We find that the lower court acted correctly when it denied the
motions for a new trial.
To warrant the granting of a new trial based on the ground of newly
discovered evidence, it must appear that the evidence was discovered
after the trial; that even with the exercise of due diligence, the
evidence could not have been discovered and produced at the trial;
and that the evidence is of such a nature as to alter the result of the
case if admitted. 32 The lower court correctly ruled that these
requisites were not complied with.
The lower court, in a well-reasoned order, found that the sales made
by Serafin Francisco to Pablo Narciso and that made by Jesus Toledo
to the Land Tenure Administration were immaterial and irrelevant,
because those sales covered sugarlands with sugar quotas, while the
lands sought to be expropriated in the instant case are residential
lands. The lower court also concluded that the land sold by the
spouses Laird to the spouses Aguas was a sugar land.
We agree with the trial court. In eminent domain proceedings, in order
that evidence as to the sale price of other lands may be admitted in
evidence to prove the fair market value of the land sought to be
expropriated, the lands must, among other things, be shown to be
similar.
But even assuming, gratia argumenti, that the lands mentioned in
those deeds of sale were residential, the evidence would still not
warrant the grant of a new trial, for said evidence could have been
discovered and produced at the trial, and they cannot be considered
newly discovered evidence as contemplated in Section 1(b) of Rule
37 of the Rules of Court. Regarding this point, the trial court said:
The Court will now show that there was no reasonable
diligence employed.
The land described in the deed of sale executed by
Serafin Francisco, copy of which is attached to the
original motion, is covered by a Certificate of Title
issued by the Office of the Register of Deeds of
Pampanga. There is no question in the mind of the
court but this document passed through the Office of
the Register of Deeds for the purpose of transferring
the title or annotating the sale on the certificate of title.
It is true that Fiscal Lagman went to the Office of the
Register of Deeds to check conveyances which may be
presented in the evidence in this case as it is now
sought to be done by virtue of the motions at bar,
Fiscal Lagman, one of the lawyers of the plaintiff, did
not exercise reasonable diligence as required by the
rules. The assertion that he only went to the office of
the Register of Deeds 'now and then' to check the
records in that office only shows the half-hazard [sic]
manner by which the plaintiff looked for evidence to be
presented during the hearing before the
Commissioners, if it is at all true that Fiscal Lagman did
what he is supposed to have done according to
Solicitor Padua. It would have been the easiest matter
for plaintiff to move for the issuance of a
subpoena duces tecum directing the Register of Deeds
of Pampanga to come to testify and to bring with him
all documents found in his office pertaining to sales of
land in Floridablanca adjacent to or near the lands in
question executed or recorded from 1958 to the
present. Even this elementary precaution was not done
by plaintiff's numerous attorneys.
The same can be said of the deeds of sale attached to
the supplementary motion. They refer to lands covered
by certificate of title issued by the Register of Deeds of
Pampanga. For the same reason they could have been
easily discovered if reasonable diligence has been
exerted by the numerous lawyers of the plaintiff in this
case. It is noteworthy that all these deeds of sale could
be found in several government offices, namely, in the
Office of the Register of Deeds of Pampanga, the
Office of the Provincial Assessor of Pampanga, the
Office of the Clerk of Court as a part of notarial reports
of notaries public that acknowledged these documents,
or in the archives of the National Library. In respect to
Annex 'B' of the supplementary motion copy of the
document could also be found in the Office of the Land
Tenure Administration, another government entity. Any
lawyer with a modicum of ability handling this
expropriation case would have right away though [sic]
of digging up documents diligently showing
conveyances of lands near or around the parcels of
land sought to be expropriated in this case in the
offices that would have naturally come to his mind such
as the offices mentioned above, and had counsel for
the movant really exercised the reasonable diligence
required by the Rule' undoubtedly they would have
been able to find these documents and/or caused the
issuance of subpoena duces tecum. ...
It is also recalled that during the hearing before the
Court of the Report and Recommendation of the
Commissioners and objection thereto, Solicitor Padua
made the observation:
I understand, Your Honor, that there was a sale that
took place in this place of land recently where the land
was sold for P0.20 which is contiguous to this land.
The Court gave him permission to submit said
document subject to the approval of the Court. ... This
was before the decision was rendered, and later
promulgated on May 26, 1961 or more than one
month after Solicitor Padua made the above
observation. He could have, therefore, checked up the
alleged sale and moved for a reopening to adduce
further evidence. He did not do so. He forgot to present
the evidence at a more propitious time. Now, he seeks
to introduce said evidence under the guise of newly-
discovered evidence. Unfortunately the Court cannot
classify it as newly-discovered evidence, because
tinder the circumstances, the correct qualification that
can be given is 'forgotten evidence'. Forgotten
however, is not newly-discovered
evidence. 33
The granting or denial of a motion for new trial is, as a general rule,
discretionary with the trial court, whose judgment should not be
disturbed unless there is a clear showing of abuse of discretion. 34 We
do not see any abuse of discretion on the part of the lower court when
it denied the motions for a new trial.
WHEREFORE, the decision appealed from is modified, as follows:
(a) the lands of appellees Carmen Vda. de Castellvi
and Maria Nieves Toledo-Gozun, as described in the
complaint, are declared expropriated for public use;
(b) the fair market value of the lands of the appellees is
fixed at P5.00 per square meter;
(c) the Republic must pay appellee Castellvi the sum of
P3,796,495.00 as just compensation for her one parcel
of land that has an area of 759,299 square meters,
minus the sum of P151,859.80 that she withdrew out of
the amount that was deposited in court as the
provisional value of the land, with interest at the rate of
6% per annum from July 10, 1959 until the day full
payment is made or deposited in court;
(d) the Republic must pay appellee Toledo-Gozun the
sum of P2,695,225.00 as the just compensation for her
two parcels of land that have a total area of 539,045
square meters, minus the sum of P107,809.00 that she
withdrew out of the amount that was deposited in court
as the provisional value of her lands, with interest at
the rate of 6%, per annum from July 10, 1959 until the
day full payment is made or deposited in court; (e) the
attorney's lien of Atty. Alberto Cacnio is enforced; and
(f) the costs should be paid by appellant Republic of
the Philippines, as provided in Section 12, Rule 67, and
in Section 13, Rule 141, of the Rules of Court.
IT IS SO ORDERED.
Makalintal, C.J., Barredo, Antonio, Esguerra, Fernandez, Muñoz
Palma and Aquino, JJ., concur.
Castro, Fernando, Teehankee and Makasiar, JJ., took no part.
Section 9 of Ordinance No. 6118, S-64, entitled "ORDINANCE
REGULATING THE ESTABLISHMENT, MAINTENANCE AND
OPERATION OF PRIVATE MEMORIAL TYPE CEMETERY OR
BURIAL GROUND WITHIN THE JURISDICTION OF QUEZON CITY
AND PROVIDING PENALTIES FOR THE VIOLATION THEREOF"
provides:

Sec. 9. At least six (6) percent of the total area of the

memorial park cemetery shall be set aside for charity
burial of deceased persons who are paupers and have
been residents of Quezon City for at least 5 years prior
to their death, to be determined by competent City
Authorities. The area so designated shall immediately
be developed and should be open for operation not
Republic of the Philippines
later than six months from the date of approval of the
SUPREME COURT
application.
Manila
For several years, the aforequoted section of the Ordinance was not
FIRST DIVISION
enforced by city authorities but seven years after the enactment of the
ordinance, the Quezon City Council passed the following resolution:
G.R. No. L-34915 June 24, 1983
RESOLVED by the council of Quezon assembled, to
CITY GOVERNMENT OF QUEZON CITY and CITY COUNCIL OF request, as it does hereby request the City Engineer,
QUEZON CITY, petitioners, Quezon City, to stop any further selling and/or
vs. transaction of memorial park lots in Quezon City where
HON. JUDGE VICENTE G. ERICTA as Judge of the Court of First the owners thereof have failed to donate the required
Instance of Rizal, Quezon City, Branch XVIII; HIMLAYANG 6% space intended for paupers burial.
PILIPINO, INC., respondents.
Pursuant to this petition, the Quezon City Engineer notified
City Fiscal for petitioners. respondent Himlayang Pilipino, Inc. in writing that Section 9 of
Ordinance No. 6118, S-64 would be enforced
Manuel Villaruel, Jr. and Feliciano Tumale for respondents.
Respondent Himlayang Pilipino reacted by filing with the Court of First
Instance of Rizal Branch XVIII at Quezon City, a petition for
declaratory relief, prohibition and mandamus with preliminary
GUTIERREZ, JR., J.: injunction (Sp. Proc. No. Q-16002) seeking to annul Section 9 of the
Ordinance in question The respondent alleged that the same is
This is a petition for review which seeks the reversal of the decision of contrary to the Constitution, the Quezon City Charter, the Local
the Court of First Instance of Rizal, Branch XVIII declaring Section 9 Autonomy Act, and the Revised Administrative Code.
of Ordinance No. 6118, S-64, of the Quezon City Council null and
void. There being no issue of fact and the questions raised being purely
legal both petitioners and respondent agreed to the rendition of a
judgment on the pleadings. The respondent court, therefore, rendered
the decision declaring Section 9 of Ordinance No. 6118, S-64 null and
void.
A motion for reconsideration having been denied, the City
Government and City Council filed the instant petition.
Petitioners argue that the taking of the respondent's property is a valid
and reasonable exercise of police power and that the land is taken for
a public use as it is intended for the burial ground of paupers. They
further argue that the Quezon City Council is authorized under its
charter, in the exercise of local police power, " to make such further
ordinances and resolutions not repugnant to law as may be necessary
to carry into effect and discharge the powers and duties conferred by
this Act and such as it shall deem necessary and proper to provide for
the health and safety, promote the prosperity, improve the morals,
peace, good order, comfort and convenience of the city and the
inhabitants thereof, and for the protection of property therein."
On the other hand, respondent Himlayang Pilipino, Inc. contends that
the taking or confiscation of property is obvious because the
questioned ordinance permanently restricts the use of the property
such that it cannot be used for any reasonable purpose and deprives
the owner of all beneficial use of his property.
The respondent also stresses that the general welfare clause is not
available as a source of power for the taking of the property in this
case because it refers to "the power of promoting the public welfare
by restraining and regulating the use of liberty and property." The
respondent points out that if an owner is deprived of his property
outright under the State's police power, the property is generally not
taken for public use but is urgently and summarily destroyed in order
to promote the general welfare. The respondent cites the case of a
nuisance per se or the destruction of a house to prevent the spread of
a conflagration.
We find the stand of the private respondent as well as the decision of
the respondent Judge to be well-founded. We quote with approval the
lower court's ruling which declared null and void Section 9 of the
questioned city ordinance:
The issue is: Is Section 9 of the ordinance in question a
valid exercise of the police power?
An examination of the Charter of Quezon City (Rep.
Act No. 537), does not reveal any provision that would
justify the ordinance in question except the provision
granting police power to the City. Section 9 cannot be
justified under the power granted to Quezon City to tax,
fix the license fee, and regulatesuch other business,
trades, and occupation as may be established or
practised in the City.' (Subsections 'C', Sec. 12, R.A.
537).
The power to regulate does not include the power to
prohibit (People vs. Esguerra, 81 PhiL 33, Vega vs.
Municipal Board of Iloilo, L-6765, May 12, 1954; 39
N.J. Law, 70, Mich. 396). A fortiori, the power to
regulate does not include the power to confiscate. The
ordinance in question not only confiscates but also
prohibits the operation of a memorial park cemetery,
because under Section 13 of said ordinance, 'Violation
of the provision thereof is punishable with a fine and/or
imprisonment and that upon conviction thereof the
permit to operate and maintain a private cemetery shall
be revoked or cancelled.' The confiscatory clause and
the penal provision in effect deter one from operating a
memorial park cemetery. Neither can the ordinance in
question be justified under sub- section "t", Section 12
of Republic Act 537 which authorizes the City Council
to-
'prohibit the burial of the dead within the
center of population of the city and
provide for their burial in such proper
place and in such manner as the council
may determine, subject to the provisions
of the general law regulating burial
grounds and cemeteries and governing
funerals and disposal of the dead.' (Sub-
sec. (t), Sec. 12, Rep. Act No. 537).
There is nothing in the above provision which
authorizes confiscation or as euphemistically termed by
the respondents, 'donation'
We now come to the question whether or not Section 9
of the ordinance in question is a valid exercise of police
power. The police power of Quezon City is defined in
sub-section 00, Sec. 12, Rep. Act 537 which reads as
follows:
(00) To make such further ordinance
and regulations not repugnant to law as
may be necessary to carry into effect
and discharge the powers and duties
conferred by this act and such as it shall
deem necessary and proper to provide
for the health and safety, promote, the
prosperity, improve the morals, peace,
good order, comfort and convenience of
the city and the inhabitants thereof, and
for the protection of property therein;
and enforce obedience thereto with
such lawful fines or penalties as the City
Council may prescribe under the
provisions of subsection (jj) of this
section.
We start the discussion with a restatement of certain
basic principles. Occupying the forefront in the bill of
rights is the provision which states that 'no person shall
be deprived of life, liberty or property without due
process of law' (Art. Ill, Section 1 subparagraph 1,
Constitution).
On the other hand, there are three inherent powers of
government by which the state interferes with the
property rights, namely-. (1) police power, (2) eminent
domain, (3) taxation. These are said to exist
independently of the Constitution as necessary
attributes of sovereignty.
Police power is defined by Freund as 'the power of
promoting the public welfare by restraining and
regulating the use of liberty and property' (Quoted in
Political Law by Tanada and Carreon, V-11, p. 50). It is
usually exerted in order to merely regulate the use and
enjoyment of property of the owner. If he is deprived of
his property outright, it is not taken for public use but
rather to destroy in order to promote the general
welfare. In police power, the owner does not recover
from the government for injury sustained in
consequence thereof (12 C.J. 623). It has been said
that police power is the most essential of government
powers, at times the most insistent, and always one of
the least limitable of the powers of government (Ruby
vs. Provincial Board, 39 PhiL 660; Ichong vs.
Hernandez, 1,7995, May 31, 1957). This power
embraces the whole system of public regulation (U.S.
vs. Linsuya Fan, 10 PhiL 104). The Supreme Court has
said that police power is so far-reaching in scope that it
has almost become impossible to limit its sweep. As it
derives its existence from the very existence of the
state itself, it does not need to be expressed or defined
in its scope. Being coextensive with self-preservation
and survival itself, it is the most positive and active of
all governmental processes, the most essential
insistent and illimitable Especially it is so under the
modern democratic framework where the demands of
society and nations have multiplied to almost
unimaginable proportions. The field and scope of police
power have become almost boundless, just as the
fields of public interest and public welfare have become
almost all embracing and have transcended human
foresight. Since the Courts cannot foresee the needs
and demands of public interest and welfare, they
cannot delimit beforehand the extent or scope of the
police power by which and through which the state
seeks to attain or achieve public interest and welfare.
(Ichong vs. Hernandez, L-7995, May 31, 1957).
The police power being the most active power of the
government and the due process clause being the
broadest station on governmental power, the conflict
 between this power of government and the due
process clause of the Constitution is oftentimes
inevitable.
It will be seen from the foregoing authorities that police
power is usually exercised in the form of mere
regulation or restriction in the use of liberty or property
for the promotion of the general welfare. It does not
involve the taking or confiscation of property with the
exception of a few cases where there is a necessity to
confiscate private property in order to destroy it for the
purpose of protecting the peace and order and of
promoting the general welfare as for instance, the
confiscation of an illegally possessed article, such as
opium and firearms.
It seems to the court that Section 9 of Ordinance No.
6118, Series of 1964 of Quezon City is not a mere
police regulation but an outright confiscation. It
deprives a person of his private property without due
process of law, nay, even without compensation.
In sustaining the decision of the respondent court, we are not
unmindful of the heavy burden shouldered by whoever challenges the
validity of duly enacted legislation whether national or local As early
as 1913, this Court ruled in Case v. Board of Health (24 PhiL 250) that
the courts resolve every presumption in favor of validity and, more so,
where the ma corporation asserts that the ordinance was enacted to
promote the common good and general welfare.
In the leading case of Ermita-Malate Hotel and Motel Operators
Association Inc. v. City Mayor of Manila (20 SCRA 849) the Court
speaking through the then Associate Justice and now Chief Justice
Enrique M. Fernando stated
Primarily what calls for a reversal of such a decision is
the a of any evidence to offset the presumption of
validity that attaches to a statute or ordinance. As was
expressed categorically by Justice Malcolm 'The
presumption is all in favor of validity. ... The action of
the elected representatives of the people cannot be
lightly set aside. The councilors must, in the very
nature of things, be familiar with the necessities of their
particular ... municipality and with all the facts and
lances which surround the subject and necessitate
action. The local legislative body, by enacting the
ordinance, has in effect given notice that the
regulations are essential to the well-being of the
people. ... The Judiciary should not lightly set aside
legislative action when there is not a clear invasion of
personal or property rights under the guise of police
regulation. (U.S. v. Salaveria (1918], 39 Phil. 102, at p.
111. There was an affirmation of the presumption of
validity of municipal ordinance as announced in the
leading Salaveria decision in Ebona v. Daet, [1950]85
Phil. 369.)
We have likewise considered the principles earlier
stated in Case v. Board of Health supra :
... Under the provisions of municipal charters which are
known as the general welfare clauses, a city, by virtue
of its police power, may adopt ordinances to the peace,
safety, health, morals and the best and highest
interests of the municipality. It is a well-settled
principle, growing out of the nature of well-ordered and
society, that every holder of property, however
absolute and may be his title, holds it under the implied
liability that his use of it shall not be injurious to the
equal enjoyment of others having an equal right to the
enjoyment of their property, nor injurious to the rights of
the community. An property in the state is held subject
to its general regulations, which are necessary to the
common good and general welfare. Rights of property,
like all other social and conventional rights, are subject
to such reasonable limitations in their enjoyment as
shall prevent them from being injurious, and to such
reasonable restraints and regulations, established by
law, as the legislature, under the governing and
controlling power vested in them by the constitution,
may think necessary and expedient. The state, under
the police power, is possessed with plenary power to
deal with all matters relating to the general health,
morals, and safety of the people, so long as it does not
 contravene any positive inhibition of the organic law
and providing that such power is not exercised in such
a manner as to justify the interference of the courts to
prevent positive wrong and oppression.
but find them not applicable to the facts of this case.
There is no reasonable relation between the setting aside of at least
six (6) percent of the total area of an private cemeteries for charity
burial grounds of deceased paupers and the promotion of health,
morals, good order, safety, or the general welfare of the people. The
ordinance is actually a taking without compensation of a certain area
from a private cemetery to benefit paupers who are charges of the
municipal corporation. Instead of building or maintaining a public
cemetery for this purpose, the city passes the burden to private
cemeteries.
The expropriation without compensation of a portion of private
cemeteries is not covered by Section 12(t) of Republic Act 537, the
Revised Charter of Quezon City which empowers the city council to
prohibit the burial of the dead within the center of population of the city
and to provide for their burial in a proper place subject to the
provisions of general law regulating burial grounds and cemeteries.
When the Local Government Code, Batas Pambansa Blg. 337
provides in Section 177 (q) that a Sangguniang panlungsod may
"provide for the burial of the dead in such place and in such manner
as prescribed by law or ordinance" it simply authorizes the city to
provide its own city owned land or to buy or expropriate private
properties to construct public cemeteries. This has been the law and
practise in the past. It continues to the present. Expropriation,
however, requires payment of just compensation. The questioned
ordinance is different from laws and regulations requiring owners of
subdivisions to set aside certain areas for streets, parks, playgrounds,
and other public facilities from the land they sell to buyers of
subdivision lots. The necessities of public safety, health, and
convenience are very clear from said requirements which are
intended to insure the development of communities with salubrious
and wholesome environments. The beneficiaries of the regulation, in
turn, are made to pay by the subdivision developer when individual
lots are sold to home-owners.
As a matter of fact, the petitioners rely solely on the general welfare
clause or on implied powers of the municipal corporation, not on any
express provision of law as statutory basis of their exercise of power.
The clause has always received broad and liberal interpretation but
we cannot stretch it to cover this particular taking. Moreover, the
questioned ordinance was passed after Himlayang Pilipino, Inc. had
incorporated. received necessary licenses and permits and
commenced operating. The sequestration of six percent of the
cemetery cannot even be considered as having been impliedly
acknowledged by the private respondent when it accepted the permits
to commence operations.
WHEREFORE, the petition for review is hereby DISMISSED. The
decision of the respondent court is affirmed.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and
Relova, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18841 January 27, 1969
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, defendant-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
General Antonio A. Torres and Solicitor Camilo D. Quiason for
plaintiff-appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant-
appellant.
REYES, J.B.L., J.:
 Direct appeals, upon a joint record on appeal, by both the plaintiff
and the defendant from the dismissal, after hearing, by the Court of
First Instance of Manila, in its Civil Case No. 35805, of their respective
complaint and counterclaims, but making permanent a preliminary
mandatory injunction theretofore issued against the defendant on the
interconnection of telephone facilities owned and operated by said
parties.
The plaintiff, Republic of the Philippines, is a political entity
exercising governmental powers through its branches and
instrumentalities, one of which is the Bureau of Telecommunications.
That office was created on 1 July 1947, under Executive Order No.
94, with the following powers and duties, in addition to certain powers
and duties formerly vested in the Director of Posts: 1awphil.ñêt
SEC. 79. The Bureau of Telecommunications shall exercise the
following powers and duties:
(a) To operate and maintain existing wire-telegraph and radio-
telegraph offices, stations, and facilities, and those to be
established to restore the pre-war telecommunication service
under the Bureau of Posts, as well as such additional offices
or stations as may hereafter be established to provide
telecommunication service in places requiring such service;
(b) To investigate, consolidate, negotiate for, operate and
maintain wire-telephone or radio telephone communication
service throughout the Philippines by utilizing such existing
facilities in cities, towns, and provinces as may be found
feasible and under such terms and conditions or arrangements
with the present owners or operators thereof as may be
agreed upon to the satisfaction of all concerned;
(c) To prescribe, subject to approval by the Department Head,
equitable rates of charges for messages handled by the
system and/or for time calls and other services that may be
rendered by said system;
(d) To establish and maintain coastal stations to serve ships at
sea or aircrafts and, when public interest so requires, to
engage in the international telecommunication service in
agreement with other countries desiring to establish such
service with the Republic of the Philippines; and
(e) To abide by all existing rules and regulations prescribed by
the International Telecommunication Convention relative to the
accounting, disposition and exchange of messages handled in
the international service, and those that may hereafter be
promulgated by said convention and adhered to by the
Government of the Republic of the Philippines. 1
The defendant, Philippine Long Distance Telephone Company
(PLDT for short), is a public service corporation holding a legislative
franchise, Act 3426, as amended by Commonwealth Act 407, to
install, operate and maintain a telephone system throughout the
Philippines and to carry on the business of electrical transmission of
messages within the Philippines and between the Philippines and the
telephone systems of other countries. 2 The RCA Communications,
Inc., (which is not a party to the present case but has contractual
relations with the parties) is an American corporation authorized to
transact business in the Philippines and is the grantee, by
assignment, of a legislative franchise to operate a domestic station for
the reception and transmission of long distance wireless messages
(Act 2178) and to operate broadcasting and radio-telephone and
radio-telegraphic communications services (Act 3180). 3
Sometime in 1933, the defendant, PLDT, and the RCA
Communications, Inc., entered into an agreement whereby telephone
messages, coming from the United States and received by RCA's
domestic station, could automatically be transferred to the lines of
PLDT; and vice-versa, for calls collected by the PLDT for transmission
from the Philippines to the United States. The contracting parties
agreed to divide the tolls, as follows: 25% to PLDT and 75% to RCA.
The sharing was amended in 1941 to 30% for PLDT and 70% for
RCA, and again amended in 1947 to a 50-50 basis. The arrangement
was later extended to radio-telephone messages to and from
European and Asiatic countries. Their contract contained a stipulation
that either party could terminate it on a 24-month notice to the
other. 4 On 2 February 1956, PLDT gave notice to RCA to terminate
their contract on 2 February 1958. 5
Soon after its creation in 1947, the Bureau of Telecommunications
set up its own Government Telephone System by utilizing its own
appropriation and equipment and by renting trunk lines of the PLDT to
enable government offices to call private parties. 6 Its application for
the use of these trunk lines was in the usual form of applications for
telephone service, containing a statement, above the signature of the
applicant, that the latter will abide by the rules and regulations of the
PLDT which are on file with the Public Service Commission. 7 One of
the many rules prohibits the public use of the service furnished the
telephone subscriber for his private use. 8 The Bureau has extended
its services to the general public since 1948, 9 using the same trunk
lines owned by, and rented from, the PLDT, and prescribing its (the
Bureau's) own schedule of rates. 10 Through these trunk lines, a
Government Telephone System (GTS) subscriber could make a call
to a PLDT subscriber in the same way that the latter could make a call
to the former.
On 5 March 1958, the plaintiff, through the Director of
Telecommunications, entered into an agreement with RCA
Communications, Inc., for a joint overseas telephone service whereby
the Bureau would convey radio-telephone overseas calls received by
RCA's station to and from local residents. 11 Actually, they inaugurated
this joint operation on 2 February 1958, under a "provisional"
agreement. 12
On 7 April 1958, the defendant Philippine Long Distance Telephone
Company, complained to the Bureau of Telecommunications that said
bureau was violating the conditions under which their Private Branch
Exchange (PBX) is inter-connected with the PLDT's facilities, referring
to the rented trunk lines, for the Bureau had used the trunk lines not
only for the use of government offices but even to serve private
persons or the general public, in competition with the business of the
PLDT; and gave notice that if said violations were not stopped by
midnight of 12 April 1958, the PLDT would sever the telephone
connections. 13 When the PLDT received no reply, it disconnected the
trunk lines being rented by the Bureau at midnight on 12 April
1958. 14 The result was the isolation of the Philippines, on telephone
services, from the rest of the world, except the United States. 15
At that time, the Bureau was maintaining 5,000 telephones and had
5,000 pending applications for telephone connection. 16 The PLDT
was also maintaining 60,000 telephones and had also 20,000 pending
applications. 17Through the years, neither of them has been able to fill
up the demand for telephone service.
The Bureau of Telecommunications had proposed to the PLDT on 8
January 1958 that both enter into an interconnecting agreement, with
the government paying (on a call basis) for all calls passing through
the interconnecting facilities from the Government Telephone System
to the PLDT. 18 The PLDT replied that it was willing to enter into an
agreement on overseas telephone service to Europe and Asian
countries provided that the Bureau would submit to the jurisdiction
and regulations of the Public Service Commission and in
consideration of 37 1/2% of the gross revenues. 19 In its memorandum
in lieu of oral argument in this Court dated 9 February 1964, on page
8, the defendant reduced its offer to 33 1/3 % (1/3) as its share in the
overseas telephone service. The proposals were not accepted by
either party.
On 12 April 1958, plaintiff Republic commenced suit against the
defendant, Philippine Long Distance Telephone Company, in the
Court of First Instance of Manila (Civil Case No. 35805), praying in its
complaint for judgment commanding the PLDT to execute a contract
with plaintiff, through the Bureau, for the use of the facilities of
defendant's telephone system throughout the Philippines under such
terms and conditions as the court might consider reasonable, and for
a writ of preliminary injunction against the defendant company to
restrain the severance of the existing telephone connections and/or
restore those severed.
Acting on the application of the plaintiff, and on the ground that the
severance of telephone connections by the defendant company would
isolate the Philippines from other countries, the court a quo, on 14
April 1958, issued an order for the defendant:
(1) to forthwith reconnect and restore the seventy-eight (78)
trunk lines that it has disconnected between the facilities of the
Government Telephone System, including its overseas
telephone services, and the facilities of defendant; (2) to
refrain from carrying into effect its threat to sever the existing
telephone communication between the Bureau of
Telecommunications and defendant, and not to make
connection over its telephone system of telephone calls
coming to the Philippines from foreign countries through the
said Bureau's telephone facilities and the radio facilities of
RCA Communications, Inc.; and (3) to accept and connect
through its telephone system all such telephone calls coming
 to the Philippines from foreign countries — until further order
of this Court.
On 28 April 1958, the defendant company filed its answer, with
counterclaims.
It denied any obligation on its part to execute a contrary of services
with the Bureau of Telecommunications; contested the jurisdiction of
the Court of First Instance to compel it to enter into interconnecting
agreements, and averred that it was justified to disconnect the trunk
lines heretofore leased to the Bureau of Telecommunications under
the existing agreement because its facilities were being used in fraud
of its rights. PLDT further claimed that the Bureau was engaging in
commercial telephone operations in excess of authority, in
competition with, and to the prejudice of, the PLDT, using defendants
own telephone poles, without proper accounting of revenues.
After trial, the lower court rendered judgment that it could not compel
the PLDT to enter into an agreement with the Bureau because the
parties were not in agreement; that under Executive Order 94,
establishing the Bureau of Telecommunications, said Bureau was not
limited to servicing government offices alone, nor was there any in the
contract of lease of the trunk lines, since the PLDT knew, or ought to
have known, at the time that their use by the Bureau was to be public
throughout the Islands, hence the Bureau was neither guilty of fraud,
abuse, or misuse of the poles of the PLDT; and, in view of serious
public prejudice that would result from the disconnection of the trunk
lines, declared the preliminary injunction permanent, although it
dismissed both the complaint and the counterclaims.
Both parties appealed.
Taking up first the appeal of the Republic, the latter complains of the
action of the trial court in dismissing the part of its complaint seeking
to compel the defendant to enter into an interconnecting contract with
it, because the parties could not agree on the terms and conditions of
the interconnection, and of its refusal to fix the terms and conditions
therefor.
We agree with the court below that parties can not be coerced to
enter into a contract where no agreement is had between them as to
the principal terms and conditions of the contract. Freedom to
stipulate such terms and conditions is of the essence of our
contractual system, and by express provision of the statute, a contract
may be annulled if tainted by violence, intimidation, or undue influence
(Articles 1306, 1336, 1337, Civil Code of the Philippines). But the
court a quo has apparently overlooked that while the Republic may
not compel the PLDT to celebrate a contract with it, the Republic may,
in the exercise of the sovereign power of eminent domain, require the
telephone company to permit interconnection of the government
telephone system and that of the PLDT, as the needs of the
government service may require, subject to the payment of just
compensation to be determined by the court. Nominally, of course, the
power of eminent domain results in the taking or appropriation of title
to, and possession of, the expropriated property; but no cogent
reason appears why the said power may not be availed of to impose
only a burden upon the owner of condemned property, without loss of
title and possession. It is unquestionable that real property may,
through expropriation, be subjected to an easement of right of way.
The use of the PLDT's lines and services to allow inter-service
connection between both telephone systems is not much different. In
either case private property is subjected to a burden for public use
and benefit. If, under section 6, Article XIII, of the Constitution, the
State may, in the interest of national welfare, transfer utilities to public
ownership upon payment of just compensation, there is no reason
why the State may not require a public utility to render services in the
general interest, provided just compensation is paid therefor.
Ultimately, the beneficiary of the interconnecting service would be the
users of both telephone systems, so that the condemnation would be
for public use.
The Bureau of Telecommunications, under section 78 (b) of
Executive Order No. 94, may operate and maintain wire telephone or
radio telephone communications throughout the Philippines by
utilizing existing facilities in cities, towns, and provinces under such
terms and conditions or arrangement with present owners or
operators as may be agreed upon to the satisfaction of all concerned;
but there is nothing in this section that would exclude resort to
condemnation proceedings where unreasonable or unjust terms and
conditions are exacted, to the extent of crippling or seriously
hampering the operations of said Bureau.
A perusal of the complaint shows that the Republic's cause of action
is predicated upon the radio telephonic isolation of the Bureau's
facilities from the outside world if the severance of interconnection
were to be carried out by the PLDT, thereby preventing the Bureau of
Telecommunications from properly discharging its functions, to the
prejudice of the general public. Save for the prayer to compel the
PLDT to enter into a contract (and the prayer is no essential part of
the pleading), the averments make out a case for compulsory
rendering of inter-connecting services by the telephone company
upon such terms and conditions as the court may determine to be
just. And since the lower court found that both parties "are practically
at one that defendant (PLDT) is entitled to reasonable compensation
from plaintiff for the reasonable use of the former's telephone
facilities" (Decision, Record on Appeal, page 224), the lower court
should have proceeded to treat the case as one of condemnation of
such services independently of contract and proceeded to determine
the just and reasonable compensation for the same, instead of
dismissing the petition.
This view we have taken of the true nature of the Republic's petition
necessarily results in overruling the plea of defendant-appellant PLDT
that the court of first instance had no jurisdiction to entertain the
petition and that the proper forum for the action was the Public
Service Commission. That body, under the law, has no authority to
pass upon actions for the taking of private property under the
sovereign right of eminent domain. Furthermore, while the defendant
telephone company is a public utility corporation whose franchise,
equipment and other properties are under the jurisdiction, supervision
and control of the Public Service Commission (Sec. 13, Public Service
Act), yet the plaintiff's telecommunications network is a public service
owned by the Republic and operated by an instrumentality of the
National Government, hence exempt, under Section 14 of the Public
Service Act, from such jurisdiction, supervision and control. The
Bureau of Telecommunications was created in pursuance of a state
policy reorganizing the government offices —
to meet the exigencies attendant upon the establishment of
the free and independent Government of the Republic of the
Philippines, and for the purpose of promoting simplicity,
economy and efficiency in its operation (Section 1, Republic
Act No. 51) —
and the determination of state policy is not vested in the Commission
(Utilities Com. vs. Bartonville Bus Line, 290 Ill. 574; 124 N.E. 373).
Defendant PLDT, as appellant, contends that the court below was in
error in not holding that the Bureau of Telecommunications was not
empowered to engage in commercial telephone business, and in
ruling that said defendant was not justified in disconnecting the
telephone trunk lines it had previously leased to the Bureau. We find
that the court a quo ruled correctly in rejecting both assertions.
Executive Order No. 94, Series of 1947, reorganizing the Bureau of
Telecommunications, expressly empowered the latter in its Section
79, subsection (b), to "negotiate for, operate and maintain wire
telephone or radio telephone communication service throughout the
Philippines", and, in subsection (c), "to prescribe, subject to approval
by the Department Head, equitable rates of charges for messages
handled by the system and/or for time calls and other services that
may be rendered by the system". Nothing in these provisions limits
the Bureau to non-commercial activities or prevents it from serving the
general public. It may be that in its original prospectuses the Bureau
officials had stated that the service would be limited to government
offices: but such limitations could not block future expansion of the
system, as authorized by the terms of the Executive Order, nor could
the officials of the Bureau bind the Government not to engage in
services that are authorized by law. It is a well-known rule that
erroneous application and enforcement of the law by public officers do
not block subsequent correct application of the statute (PLDT vs.
Collector of Internal Revenue, 90 Phil. 676), and that the Government
is never estopped by mistake or error on the part of its agents (Pineda
vs. Court of First Instance of Tayabas, 52 Phil. 803, 807; Benguet
Consolidated Mining Co. vs. Pineda, 98 Phil. 711, 724).
The theses that the Bureau's commercial services constituted unfair
competition, and that the Bureau was guilty of fraud and abuse under
its contract, are, likewise, untenable.
First, the competition is merely hypothetical, the demand for
telephone service being very much more than the supposed
competitors can supply. As previously noted, the PLDT had 20,000
pending applications at the time, and the Bureau had another 5,000.
The telephone company's inability to meet the demands for service
are notorious even now. Second, the charter of the defendant
expressly provides:
 SEC. 14. The rights herein granted shall not be exclusive,
and the rights and power to grant to any corporation,
association or person other than the grantee franchise for the
telephone or electrical transmission of message or signals
shall not be impaired or affected by the granting of this
franchise: — (Act 3436)
And third, as the trial court correctly stated, "when the Bureau of
Telecommunications subscribed to the trunk lines, defendant knew or
should have known that their use by the subscriber was more or less
public and all embracing in nature, that is, throughout the Philippines,
if not abroad" (Decision, Record on Appeal, page 216).
The acceptance by the defendant of the payment of rentals, despite
its knowledge that the plaintiff had extended the use of the trunk lines
to commercial purposes, continuously since 1948, implies assent by
the defendant to such extended use. Since this relationship has been
maintained for a long time and the public has patronized both
telephone systems, and their interconnection is to the public
convenience, it is too late for the defendant to claim misuse of its
facilities, and it is not now at liberty to unilaterally sever the physical
connection of the trunk lines.
..., but there is high authority for the position that, when such
physical connection has been voluntarily made, under a fair
and workable arrangement and guaranteed by contract and
the continuous line has come to be patronized and established
as a great public convenience, such connection shall not in
breach of the agreement be severed by one of the parties. In
that case, the public is held to have such an interest in the
arrangement that its rights must receive due consideration.
This position finds approval in State ex rel. vs. Cadwaller, 172
Ind. 619, 636, 87 N.E. 650, and is stated in the elaborate and
learned opinion of Chief Justice Myers as follows: "Such
physical connection cannot be required as of right, but if such
connection is voluntarily made by contract, as is here alleged
to be the case, so that the public acquires an interest in its
continuance, the act of the parties in making such connection
is equivalent to a declaration of a purpose to waive the primary
right of independence, and it imposes upon the property such
a public status that it may not be disregarded" — citing Mahan
v. Mich. Tel. Co., 132 Mich. 242, 93 N.W. 629, and the
reasons upon which it is in part made to rest are referred to in
the same opinion, as follows: "Where private property is by the
consent of the owner invested with a public interest or privilege
for the benefit of the public, the owner can no longer deal with
it as private property only, but must hold it subject to the right
of the public in the exercise of that public interest or privilege
conferred for their benefit." Allnut v. Inglis (1810) 12 East, 527.
The doctrine of this early case is the acknowledged law.
(Clinton-Dunn Tel. Co. v. Carolina Tel. & Tel. Co., 74 S.E. 636,
638).
It is clear that the main reason for the objection of the PLDT lies in
the fact that said appellant did not expect that the Bureau's telephone
system would expand with such rapidity as it has done; but this
expansion is no ground for the discontinuance of the service agreed
upon.
The last issue urged by the PLDT as appellant is its right to
compensation for the use of its poles for bearing telephone wires of
the Bureau of Telecommunications. Admitting that section 19 of the
PLDT charter reserves to the Government —
the privilege without compensation of using the poles of the
grantee to attach one ten-pin cross-arm, and to install,
maintain and operate wires of its telegraph system
thereon; Provided, however, That the Bureau of Posts shall
have the right to place additional cross-arms and wires on the
poles of the grantee by paying a compensation, the rate of
which is to be agreed upon by the Director of Posts and the
grantee; —
the defendant counterclaimed for P8,772.00 for the use of its poles
by the plaintiff, contending that what was allowed free use, under the
aforequoted provision, was one ten-pin cross-arm attachment and
only for plaintiff's telegraph system, not for its telephone system; that
said section could not refer to the plaintiff's telephone system,
because it did not have such telephone system when defendant
acquired its franchise. The implication of the argument is that plaintiff
has to pay for the use of defendant's poles if such use is for plaintiff's
telephone system and has to pay also if it attaches more than one (1)
ten-pin cross-arm for telegraphic purposes.
 As there is no proof that the telephone wires strain the poles of the EN BANC
PLDT more than the telegraph wires, nor that they cause more
damage than the wires of the telegraph system, or that the G.R. No. L-10572 December 21, 1915
Government has attached to the poles more than one ten-pin cross-
arm as permitted by the PLDT charter, we see no point in this FRANCIS A. CHURCHILL and STEWART TAIT, plaintiffs-appellees,
assignment of error. So long as the burden to be borne by the PLDT vs.
poles is not increased, we see no reason why the reservation in favor JAMES J. RAFFERTY, Collector of Internal Revenue, defendant-
of the telegraph wires of the government should not be extended to its appellant.
telephone lines, any time that the government decided to engage also
in this kind of communication. Attorney-General Avanceña for appellant.
Aitken and DeSelms for appellees.
In the ultimate analysis, the true objection of the PLDT to continue
the link between its network and that of the Government is that the
latter competes "parasitically" (sic) with its own telephone services.
Considering, however, that the PLDT franchise is non-exclusive; that
it is well-known that defendant PLDT is unable to adequately cope TRENT, J.:
with the current demands for telephone service, as shown by the
number of pending applications therefor; and that the PLDT's right to
The judgment appealed from in this case perpetually restrains and
just compensation for the services rendered to the Government
prohibits the defendant and his deputies from collecting and enforcing
telephone system and its users is herein recognized and preserved,
against the plaintiffs and their property the annual tax mentioned and
the objections of defendant-appellant are without merit. To uphold the
described in subsection (b) of section 100 of Act No. 2339, effective
PLDT's contention is to subordinate the needs of the general public to
July 1, 1914, and from destroying or removing any sign, signboard, or
the right of the PLDT to derive profit from the future expansion of its
billboard, the property of the plaintiffs, for the sole reason that such
services under its non-exclusive franchise.
sign, signboard, or billboard is, or may be, offensive to the sight; and
decrees the cancellation of the bond given by the plaintiffs to secure
WHEREFORE, the decision of the Court of First Instance, now under the issuance of the preliminary injunction granted soon after the
appeal, is affirmed, except in so far as it dismisses the petition of the commencement of this action.
Republic of the Philippines to compel the Philippine Long Distance
Telephone Company to continue servicing the Government telephone
This case divides itself into two parts and gives rise to two main
system upon such terms, and for a compensation, that the trial court
questions; (1) that relating to the power of the court to restrain by
may determine to be just, including the period elapsed from the filing
injunction the collection of the tax complained of, and (2) that relating
of the original complaint or petition. And for this purpose, the records
to the validity of those provisions of subsection (b) of section 100 of
are ordered returned to the court of origin for further hearings and
Act No. 2339, conferring power upon the Collector of Internal
other proceedings not inconsistent with this opinion. No costs.
Revenue to remove any sign, signboard, or billboard upon the ground
that the same is offensive to the sight or is otherwise a nuisance.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Fernando, Capistrano, Teehankee and Barredo, JJ., concur.
The first question is one of the jurisdiction and is of vital importance to
the Government. The sections of Act No. 2339, which bear directly
Republic of the Philippines upon the subject, are 139 and 140. The first expressly forbids the use
SUPREME COURT
of an injunction to stay the collection of any internal revenue tax; the
Manila second provides a remedy for any wrong in connection with such
taxes, and this remedy was intended to be exclusive, thereby
precluding the remedy by injunction, which remedy is claimed to be
constitutional. The two sections, then, involve the right of a
dissatisfied taxpayers to use an exceptional remedy to test the validity
of any tax or to determine any other question connected therewith,
and the question whether the remedy by injunction is exceptional.
Preventive remedies of the courts are extraordinary and are not the
usual remedies. The origin and history of the writ of injunction show
that it has always been regarded as an extraordinary, preventive
remedy, as distinguished from the common course of the law to
redress evils after they have been consummated. No injunction issues
as of course, but is granted only upon the oath of a party and when
there is no adequate remedy at law. The Government does, by
section 139 and 140, take away the preventive remedy of injunction, if
it ever existed, and leaves the taxpayer, in a contest with it, the same
ordinary remedial actions which prevail between citizen and citizen.
The Attorney-General, on behalf of the defendant, contends that there
is no provisions of the paramount law which prohibits such a course.
While, on the other hand, counsel for plaintiffs urge that the two
sections are unconstitutional because (a) they attempt to deprive
aggrieved taxpayers of all substantial remedy for the protection of
their property, thereby, in effect, depriving them of their property
without due process of law, and (b) they attempt to diminish the
jurisdiction of the courts, as conferred upon them by Acts Nos. 136
and 190, which jurisdiction was ratified and confirmed by the Act of
Congress of July 1, 1902.
In the first place, it has been suggested that section 139 does not
apply to the tax in question because the section, in speaking of a
"tax," means only legal taxes; and that an illegal tax (the one
complained of) is not a tax, and, therefore, does not fall within the
inhibition of the section, and may be restrained by injunction. There is
no force in this suggestion. The inhibition applies to all internal
revenue taxes imposes, or authorized to be imposed, by Act No.
2339. (Snyder vs. Marks, 109 U.S., 189.) And, furthermore, the mere
fact that a tax is illegal, or that the law, by virtue of which it is imposed,
is unconstitutional, does not authorize a court of equity to restrain its
collection by injunction. There must be a further showing that there
are special circumstances which bring the case under some well
recognized head of equity jurisprudence, such as that irreparable
injury, multiplicity of suits, or a cloud upon title to real estate will result,
and also that there is, as we have indicated, no adequate remedy at
law. This is the settled law in the United States, even in the absence
of statutory enactments such as sections 139 and 140.
(Hannewinkle vs. Mayor, etc., of Georgetown, 82 U.S., 547; Indiana
Mfg. Co. vs. Koehne, 188 U.S., 681; Ohio Tax cases, 232 U. S., 576,
587; Pittsburgh C. C. & St. L. R. Co. vs. Board of Public Works, 172
U. S., 32; Shelton vs.Plat, 139 U.S., 591; State Railroad Tax Cases,
92 U. S., 575.) Therefore, this branch of the case must be controlled
by sections 139 and 140, unless the same be held unconstitutional,
and consequently, null and void.
The right and power of judicial tribunals to declare whether
enactments of the legislature exceed the constitutional
limitations and are invalid has always been considered a grave
responsibility, as well as a solemn duty. The courts invariably
give the most careful consideration to questions involving the
interpretation and application of the Constitution, and
approach constitutional questions with great deliberation,
exercising their power in this respect with the greatest possible
caution and even reluctance; and they should never declare a
statute void, unless its invalidity is, in their judgment, beyond
reasonable doubt. To justify a court in pronouncing a
legislative act unconstitutional, or a provision of a state
constitution to be in contravention of the Constitution of the
United States, the case must be so clear to be free from doubt,
and the conflict of the statute with the constitution must be
irreconcilable, because it is but a decent respect to the
wisdom, the integrity, and the patriotism of the legislative body
by which any law is passed to presume in favor of its validity
until the contrary is shown beyond reasonable doubt.
Therefore, in no doubtful case will the judiciary pronounce a
legislative act to be contrary to the constitution. To doubt the
constitutionality of a law is to resolve the doubt in favor of its
validity. (6 Ruling Case Law, secs. 71, 72, and 73, and cases
cited therein.)
It is also the settled law in the United States that "due process of law"
does not always require, in respect to the Government, the same
process that is required between citizens, though it generally implies
and includes regular allegations, opportunity to answer, and a trial
according to some well settled course of judicial proceedings. The
case with which we are dealing is in point. A citizen's property, both
real and personal, may be taken, and usually is taken, by the
government in payment of its taxes without any judicial proceedings
whatever. In this country, as well as in the United States, the officer
charged with the collection of taxes is authorized to seize and sell the
property of delinquent taxpayers without applying to the courts for
assistance, and the constitutionality of the law authorizing this
procedure never has been seriously questioned. (City of
Philadelphia vs. [Diehl] The Collector, 5 Wall., 720; Nicholl vs. U.S., 7
Wall., 122, and cases cited.) This must necessarily be the course,
because it is upon taxation that the Government chiefly relies to
obtain the means to carry on its operations, and it is of the utmost
importance that the modes adopted to enforce the collection of the
taxes levied should be summary and interfered with as little as
possible. No government could exist if every litigious man were
permitted to delay the collection of its taxes. This principle of public
policy must be constantly borne in mind in determining cases such as
the one under consideration.
With these principles to guide us, we will proceed to inquire whether
there is any merit in the two propositions insisted upon by counsel for
the plaintiffs. Section 5 of the Philippine Bill provides: "That no law
shall be enacted in said Islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person
therein the equal protection of the law."
The origin and history of these provisions are well-known. They are
found in substance in the Constitution of the United States and in that
of ever state in the Union.
Section 3224 of the Revised Statutes of the United States, effective
since 1867, provides that: "No suit for the purpose of restraining the
assessment or collection of any tax shall be maintained in any court."
Section 139, with which we have been dealing, reads: "No court shall
have authority to grant an injunction to restrain the collection of any
internal-revenue tax."
A comparison of these two sections show that they are essentially the
same. Both expressly prohibit the restraining of taxes by injunction. If
the Supreme Court of the United States has clearly and definitely held
that the provisions of section 3224 do not violate the "due process of
law" and "equal protection of the law" clauses in the Constitution, we
would be going too far to hold that section 139 violates those same
provisions in the Philippine Bill. That the Supreme Court of the United
States has so held, cannot be doubted.
In Cheatham vs. United States (92 U.S., 85,89) which involved the
validity of an income tax levied by an act of Congress prior to the one
in issue in the case of Pollock vs. Farmers' Loan & Trust Co. (157
U.S., 429) the court, through Mr. Justice Miller, said: "If there existed
in the courts, state or National, any general power of impeding or
controlling the collection of taxes, or relieving the hardship incident to
taxation, the very existence of the government might be placed in the
power of a hostile judiciary. (Dows vs. The City of Chicago, 11 Wall.,
108.) While a free course of remonstrance and appeal is allowed
within the departments before the money is finally exacted, the
General Government has wisely made the payment of the tax
claimed, whether of customs or of internal revenue, a condition
precedent to a resort to the courts by the party against whom the tax
is assessed. In the internal revenue branch it has further prescribed
that no such suit shall be brought until the remedy by appeal has been
tried; and, if brought after this, it must be within six months after the
decision on the appeal. We regard this as a condition on which alone
the government consents to litigate the lawfulness of the original tax.
It is not a hard condition. Few governments have conceded such a
right on any condition. If the compliance with this condition requires
the party aggrieved to pay the money, he must do it."
Again, in State Railroad Tax Cases (92 U.S., 575, 613), the court
said: "That there might be no misunderstanding of the universality of
this principle, it was expressly enacted, in 1867, that "no suit for the
purpose of restraining the assessment or collection of any tax shall be
maintained in any court." (Rev, Stat., sec. 3224.) And though this was
intended to apply alone to taxes levied by the United States, it shows
the sense of Congress of the evils to be feared if courts of justice
could, in any case, interfere with the process of collecting taxes on
which the government depends for its continued existence. It is a wise
policy. It is founded in the simple philosophy derived from the
experience of ages, that the payment of taxes has to be enforced by
summary and stringent means against a reluctant and often adverse
sentiment; and to do this successfully, other instrumentalities and
other modes of procedure are necessary, than those which belong to
courts of justice."
And again, in Snyder vs. Marks (109 U.S., 189), the court said: "The
remedy of a suit to recover back the tax after it is paid is provided by
statute, and a suit to restrain its collection is forbidden. The remedy so
given is exclusive, and no other remedy can be substituted for it. Such
has been the current of decisions in the Circuit Courts of the United
States, and we are satisfied it is a correct view of the law."itc-a1f
In the consideration of the plaintiffs' second proposition, we will
attempt to show (1) that the Philippine courts never have had, since
the American occupation, the power to restrain by injunction the
collection of any tax imposed by the Insular Government for its own
purpose and benefit, and (2) that assuming that our courts had or
have such power, this power has not been diminished or curtailed by
sections 139 and 140.
We will first review briefly the former and present systems of taxation.
Upon the American occupation of the Philippine, there was found a
fairly complete system of taxation. This system was continued in force
by the military authorities, with but few changes, until the Civil
Government assumed charge of the subject. The principal sources of
revenue under the Spanish regime were derived from customs
receipts, the so-called industrial taxes, the urbana taxes, the stamp
tax, the personal cedula tax, and the sale of the public domain. The
industrial and urbana taxes constituted practically an income tax of
some 5 per cent on the net income of persons engaged in industrial
and commercial pursuits and on the income of owners of improved
city property. The sale of stamped paper and adhesive stamp tax. The
cedula tax was a graduated tax, ranging from nothing up to P37.50.
The revenue derived from the sale of the public domain was not
considered a tax. The American authorities at once abolished the
cedula tax, but later restored it in a modified form, charging for each
cedula twenty centavos, an amount which was supposed to be just
sufficient to cover the cost of issuance. The urbana tax was abolished
by Act No. 223, effective September 6, 1901.
The "Municipal Code" (Act No. 82) and the Provincial Government Act
(No. 83), both enacted in 1901, authorize municipal councils and
provincial boards to impose an ad valorem tax on real estate. The
Municipal Code did not apply to the city of Manila. This city was given
a special charter (Act No. 183), effective August 30, 1901; Under this
charter the Municipal Board of Manila is authorized and empowered to
impose taxes upon real estate and, like municipal councils, to license
and regulate certain occupations. Customs matters were completely
reorganized by Act No. 355, effective at the port of Manila on
February 7, 1902, and at other ports in the Philippine Islands the day
after the receipt of a certified copy of the Act. The Internal Revenue
Law of 1904 (Act No. 1189), repealed all existing laws, ordinances,
etc., imposing taxes upon the persons, objects, or occupations taxed
under that act, and all industrial taxes and stamp taxes imposed under
the Spanish regime were eliminated, but the industrial tax was
continued in force until January 1, 1905. This Internal Revenue Law
did not take away from municipal councils, provincial boards, and the
Municipal Board of the city of Manila the power to impose taxes upon
real estate. This Act (No. 1189), with its amendments, was repealed
by Act No. 2339, an act "revising and consolidating the laws relative
to internal revenue."
Section 84 of Act No. 82 provides that "No court shall entertain any
suit assailing the validity of a tax assessed under this act until the
taxpayer shall have paid, under protest, the taxes assessed against
him, . . . ."
This inhibition was inserted in section 17 of Act No. 83 and applies to
taxes imposed by provincial boards. The inhibition was not inserted in
the Manila Charter until the passage of Act No. 1793, effective
October 12, 1907. Act No. 355 expressly makes the payment of the
exactions claimed a condition precedent to a resort to the courts by
dissatisfied importers. Section 52 of Act No. 1189 provides "That no
courts shall have authority to grant an injunction restraining the
collection of any taxes imposed by virtue of the provisions of this Act,
but the remedy of the taxpayer who claims that he is unjustly
assessed or taxed shall be by payment under protest of the sum
claimed from him by the Collector of Internal Revenue and by action
to recover back the sum claimed to have been illegally collected."
Sections 139 and 140 of Act No. 2339 contain, as we have indicated,
the same prohibition and remedy. The result is that the courts have
been expressly forbidden, in every act creating or imposing taxes or
imposts enacted by the legislative body of the Philippines since the
American occupation, to entertain any suit assailing the validity of any
tax or impost thus imposed until the tax shall have been paid under
protest. The only taxes which have not been brought within the
express inhibition were those included in that part of the old Spanish
system which completely disappeared on or before January 1, 1905,
and possibly the old customs duties which disappeared in February, procedure, which was there issued by the authority and under the seal
1902. of a court of equity, and limited, as in other cases where equitable
relief is sought, to those cases where there is no "plain, adequate,
Section 56 of the Organic Act (No. 136), effective June 16, 1901, and complete remedy at law,"which will not be granted while the rights
provides that "Courts of First Instance shall have original jurisdiction: between the parties are undetermined, except in extraordinary cases
where material and irreparable injury will be done,"which cannot be
xxx xxx xxx compensated in damages . . .

2. In all civil actions which involve the ... legality of any tax, By paragraph 2 of section 56 of Act No. 136, supra, and the
impost, or assessment, . . . . provisions of the various subsequent Acts heretofore mentioned, the
Insular Government has consented to litigate with aggrieved persons
xxx xxx xxx the validity of any original tax or impost imposed by it on condition that
this be done in ordinary civil actions after the taxes or exactions shall
7. Said courts and their judges, or any of them, shall have have been paid. But it is said that paragraph 2 confers original
power to issue writs of injunction, mandamus, certiorari, jurisdiction upon Courts of First Instance to hear and determine "all
prohibition, quo warranto, and habeas corpus in their civil actions" which involve the validity of any tax, impost or
respective provinces and districts, in the manner provided in assessment, and that if the all-inclusive words "all" and "any" be given
the Code of Civil Procedure. their natural and unrestricted meaning, no action wherein that
question is involved can arise over which such courts do not have
jurisdiction. (Barrameda vs. Moir, 25 Phil. Rep., 44.) This is true. But
The provisions of the Code of Civil Procedure (Act No. 190), effective
the term "civil actions" had its well defined meaning at the time the
October 1, 1901, which deals with the subject of injunctions, are
paragraph was enacted. The same legislative body which enacted
sections 162 to 172, inclusive. Injunctions, as here defined, are of two
paragraph 2 on June 16, 1901, had, just a few months prior to that
kinds; preliminary and final. The former may be granted at any time
time, defined the only kind of action in which the legality of any tax
after the commencement of the action and before final judgment, and
imposed by it might be assailed. (Sec. 84, Act 82, enacted January
the latter at the termination of the trial as the relief or part of the relief
31, 1901, and sec. 17, Act No. 83, enacted February 6, 1901.) That
prayed for (sec. 162). Any judge of the Supreme Court may grant a
kind of action being payment of the tax under protest and an ordinary
preliminary injunction in any action pending in that court or in any
suit to recover and no other, there can be no doubt that Courts of First
Court of First Instance. A preliminary injunction may also be granted
Instance have jurisdiction over all such actions. The subsequent
by a judge of the Court of First Instance in actions pending in his
legislation on the same subject shows clearly that the Commission, in
district in which he has original jurisdiction (sec. 163). But such
enacting paragraph 2, supra, did not intend to change or modify in any
injunctions may be granted only when the complaint shows facts
way section 84 of Act No. 82 and section 17 of Act No. 83, but, on the
entitling the plaintiff to the relief demanded (sec. 166), and before a
contrary, it was intended that "civil actions," mentioned in said
final or permanent injunction can be granted, it must appear upon the
paragraph, should be understood to mean, in so far as testing the
trial of the action that the plaintiff is entitled to have commission or
legality of taxes were concerned, only those of the kind and character
continuance of the acts complained of perpetually restrained (sec.
provided for in the two sections above mentioned. It is also urged that
171). These provisions authorize the institution in Courts of First
the power to restrain by injunction the collection of taxes or imposts is
Instance of what are known as "injunction suits," the sole object of
conferred upon Courts of First Instance by paragraph 7 of section
which is to obtain the issuance of a final injunction. They also
56, supra. This paragraph does empower those courts to grant
authorize the granting of injunctions as aiders in ordinary civil actions.
injunctions, both preliminary and final, in any civil action pending in
We have defined in Davesa vs. Arbes (13 Phil. Rep., 273), an
their districts, provided always, that the complaint shows facts entitling
injunction to be "A "special remedy" adopted in that code (Act 190)
the plaintiff to the relief demanded. Injunction suits, such as the one at
from American practice, and originally borrowed from English legal
bar, are "civil actions," but of a special or extraordinary character. It
cannot be said that the Commission intended to give a broader or
different meaning to the word "action," used in Chapter 9 of the Code
of Civil Procedure in connection with injunctions, than it gave to the
same word found in paragraph 2 of section 56 of the Organic Act. The
Insular Government, in exercising the power conferred upon it by the
Congress of the United States, has declared that the citizens and
residents of this country shall pay certain specified taxes and imposts.
The power to tax necessarily carries with it the power to collect the
taxes. This being true, the weight of authority supports the proposition
that the Government may fix the conditions upon which it will consent
to litigate the validity of its original taxes. (Tennessee vs. Sneed, 96
U.S., 69.)
We must, therefore, conclude that paragraph 2 and 7 of section 56 of
Act No. 136, construed in the light of the prior and subsequent
legislation to which we have referred, and the legislative and judicial
history of the same subject in the United States with which the
Commission was familiar, do not empower Courts of firs Instance to
interfere by injunction with the collection of the taxes in question in
this case.1awphil.net
If we are in error as to the scope of paragraph 2 and 7, supra, and the
Commission did intend to confer the power upon the courts to restrain
the collection of taxes, it does not necessarily follow that this power or
jurisdiction has been taken away by section 139 of Act No. 2339, for
the reason that all agree that an injunction will not issue in any case if
there is an adequate remedy at law. The very nature of the writ itself
prevents its issuance under such circumstances. Legislation
forbidding the issuing of injunctions in such cases is unnecessary. So
the only question to be here determined is whether the remedy
provided for in section 140 of Act No. 2339 is adequate. If it is, the
writs which form the basis of this appeal should not have been issued.
If this is the correct view, the authority to issue injunctions will not
have been taken away by section 139, but rendered inoperative only
by reason of an adequate remedy having been made available.
The legislative body of the Philippine Islands has declared from the
beginning (Act No. 82) that payment under protest and suit to recover
is an adequate remedy to test the legality of any tax or impost, and
that this remedy is exclusive. Can we say that the remedy is not
adequate or that it is not exclusive, or both? The plaintiffs in the case
at bar are the first, in so far as we are aware, to question either the
adequacy or exclusiveness of this remedy. We will refer to a few
cases in the United States where statutes similar to sections 139 and
140 have been construed and applied.
In May, 1874, one Bloomstein presented a petition to the circuit court
sitting in Nashville, Tennessee, stating that his real and personal
property had been assessed for state taxes in the year 1872 to the
amount of $132.60; that he tendered to the collector this amount in
"funds receivable by law for such purposes;" and that the collector
refused to receive the same. He prayed for an alternative writ
of mandamus to compel the collector to receive the bills in payment
for such taxes, or to show cause to the contrary. To this petition the
collector, in his answer, set up the defense that the petitioner's suit
was expressly prohibited by the Act of the General Assembly of the
State of Tennessee, passed in 1873. The petition was dismissed and
the relief prayed for refused. An appeal to the supreme court of the
State resulted in the affirmance of the judgment of the lower court.
The case was then carried to the Supreme Court of the United States
(Tennessee vs. Sneed, 96 U. S., 69), where the judgment was again
affirmed.
The two sections of the Act of [March 21,] 1873, drawn in question in
that cases, read as follows:
1. That in all cases in which an officer, charged by law with the
collection of revenue due the State, shall institute any
proceeding, or take any steps for the collection of the same,
alleged or claimed to be due by said officer from any citizen,
the party against whom the proceeding or step is taken shall, if
he conceives the same to be unjust or illegal, or against any
statute or clause of the Constitution of the State, pay the same
under protest; and, upon his making said payment, the officer
or collector shall pay such revenue into the State Treasury,
giving notice at the time of payment to the Comptroller that the
same was paid under protest; and the party paying said
revenue may, at any time within thirty days after making said
payment, and not longer thereafter, sue the said officer having
collected said sum, for the recovery thereof. And the same
may be tried in any court having the jurisdiction of the amount
and parties; and, if it be determined that the same was
wrongfully collected, as not being due from said party to the
 State, for any reason going to the merits of the same, then the
court trying the case may certify of record that the same was
wrongfully paid and ought to be refunded; and thereupon the
Comptroller shall issue his warrant for the same, which shall
be paid in preference to other claims on the Treasury.
2. That there shall be no other remedy, in any case of the
collection of revenue, or attempt to collect revenue illegally, or
attempt to collect revenue in funds only receivable by said
officer under the law, the same being other or different funds
than such as the tax payer may tender, or claim the right to
pay, than that above provided; and no writ for the prevention of
the collection of any revenue claimed, or to hinder or delay the
collection of the same, shall in anywise issue, either injunction,
supersedeas, prohibition, or any other writ or process
whatever; but in all cases in which, for any reason, any person
shall claim that the tax so collected was wrongfully or illegally
collected, the remedy for said party shall be as above
provided, and in no other manner."
In discussing the adequacy of the remedy provided by the Tennessee
Legislature, as above set forth, the Supreme Court of the United
States, in the case just cited, said: "This remedy is simple and
effective. A suit at law to recover money unlawfully exacted is as
speedy, as easily tried, and less complicated than a proceeding
by mandamus. ... In revenue cases, whether arising upon its (United
States) Internal Revenue Laws or those providing for the collection of
duties upon foreign imports, it (United States) adopts the rule
prescribed by the State of Tennessee. It requires the contestant to
pay the amount as fixed by the Government, and gives him power to
sue the collector, and in such suit to test the legality of the tax. There
is nothing illegal or even harsh in this. It is a wise and reasonable
precaution for the security of the Government."
Thomas C. Platt commenced an action in the Circuit Court of the
United States for the Eastern District of Tennessee to restrain the
collection of a license tax from the company which he represented.
The defense was that sections 1 and 2 of the Act of 1873, supra,
prohibited the bringing of that suit. This case also reached the
Supreme Court of the United States. (Shelton vs. Platt, 139 U. 591.)
In speaking of the inhibitory provisions of sections 1 and 2 of the Act
of 1873, the court said: "This Act has been sanctioned and applied by
the Courts of Tennessee. (Nashville vs. Smith, 86 Tenn., 213;
Louisville & N. R. Co. vs. State, 8 Heisk., 663, 804.) It is, as counsel
observe, similar to the Act of Congress forbidding suit for the purpose
of restraining the assessment or collection of taxes under the Internal
Revenue Laws, in respect to which this court held that the remedy by
suit to recover back the tax after payment, provided for by the Statute,
was exclusive. (Snyder vs. Marks, of this character has been called
for by the embarrassments resulting from the improvident employment
of the writ of injunction in arresting the collection of the public
revenue; and, even in its absence, the strong arm of the court of
chancery ought not to be interposed in that direction except where
resort to that court is grounded upon the settled principles which
govern its jurisdiction."
In Louisville & N.R. Co. vs. State (8 Heisk. [64 Tenn.], 663, 804), cited
by the Supreme Court of the United States in Shelton vs. Platt, supra,
the court said: "It was urged that this statute (sections 1 and 2 of the
Act of 1873, supra) is unconstitutional and void, as it deprives the
citizen of the remedy by certiorari, guaranteed by the organic law."
By the 10th section of the sixth article of the Constitution, [Tennessee]
it is provided that: "The judges or justices of inferior courts of law and
equity shall have power in all civil cases to issue writs of certiorari, to
remove any cause, or the transcript of the record thereof, from any
inferior jurisdiction into such court of law, on sufficient cause,
supported by oath or affirmation."
The court held the act valid as not being in conflict with these
provisions of the State constitution.
In Eddy vs. The Township of Lee (73 Mich., 123), the complainants
sought to enjoin the collection of certain taxes for the year 1886. The
defendants, in support of their demurrer, insisted that the remedy by
injunction had been taken away by section 107 of the Act of 1885,
which section reads as follows: "No injunction shall issue to stay
proceedings for the assessment or collection of taxes under this Act."
It was claimed by the complainants that the above quoted provisions
of the Act of 1885 were unconstitutional and void as being in conflict
with article 6, sec. 8, of the Constitution, which provides that: "The
circuit courts shall have original jurisdiction in all matters, civil and
criminal, not excepted in this Constitution, and not prohibited by law.
... They shall also have power to issue writs of habeas
corpus, mandamus, injunction, quo warranto, certiorari, and other
writs necessary to carry into effect their orders, judgments, and
decrees."
Mr. Justice Champlin, speaking for the court, said: "I have no doubt
that the Legislature has the constitutional authority, where it has
provided a plain, adequate, and complete remedy at law to recover
back taxes illegally assessed and collected, to take away the remedy
by injunction to restrain their collection."
Section 9 of the Philippine Bill reads in part as follows: "That the
Supreme Court and the Courts of First Instance of the Philippine
Islands shall possess and exercise jurisdiction as heretofore provided
and such additional jurisdiction as shall hereafter be prescribed by the
Government of said Islands, subject to the power of said Government
to change the practice and method of procedure."
It will be seen that this section has not taken away from the Philippine
Government the power to change the practice and method of
procedure. If sections 139 and 140, considered together, and this
must always be done, are nothing more than a mode of procedure,
then it would seem that the Legislature did not exceed its
constitutional authority in enacting them. Conceding for the moment
that the duly authorized procedure for the determination of the validity
of any tax, impost, or assessment was by injunction suits and that this
method was available to aggrieved taxpayers prior to the passage of
Act No. 2339, may the Legislature change this method of procedure?
That the Legislature has the power to do this, there can be no doubt,
provided some other adequate remedy is substituted in lieu thereof. In
speaking of the modes of enforcing rights created by contracts, the
Supreme Court of the United States, in Tennessee vs. Sneed, supra,
said: "The rule seems to be that in modes of proceedings and of
forms to enforce the contract the Legislature has the control, and may
enlarge, limit or alter them, provided that it does not deny a remedy,
or so embarrass it with conditions and restrictions as seriously to
impair the value of the right."
In that case the petitioner urged that the Acts of 1873 were laws
impairing the obligation of the contract contained in the charter of the
Bank of Tennessee, which contract was entered into with the State in
1838. It was claimed that this was done by placing such impediments
and obstructions in the way of its enforcement, thereby so impairing
the remedies as practically to render the obligation of no value. In
disposing of this contention, the court said: "If we assume that prior to
1873 the relator had authority to prosecute his claim against the State
by mandamus, and that by the statutes of that year the further use of
that form was prohibited to him, the question remains. whether an
effectual remedy was left to him or provided for him. We think the
regulation of the statute gave him an abundant means of enforcing
such right as he possessed. It provided that he might pay his claim to
the collector under protest, giving notice thereof to the Comptroller of
the Treasury; that at any time within thirty days thereafter he might
sue the officer making the collection; that the case should be tried by
any court having jurisdiction and, if found in favor of the plaintiff on the
merits, the court should certify that the same was wrongfully paid and
ought to be refunded and the Comptroller should thereupon issue his
warrant therefor, which should be paid in preference to other claim on
the Treasury."
But great stress is laid upon the fact that the plaintiffs in the case
under consideration are unable to pay the taxes assessed against
them and that if the law is enforced, they will be compelled to suspend
business. This point may be best answered by quoting from the case
of Youngblood vs. Sexton (32 Mich., 406), wherein Judge Cooley,
speaking for the court, said: "But if this consideration is sufficient to
justify the transfer of a controversy from a court of law to a court of
equity, then every controversy where money is demanded may be
made the subject of equitable cognizance. To enforce against a
dealer a promissory note may in some cases as effectually break up
his business as to collect from him a tax of equal amount. This is not
what is known to the law as irreparable injury. The courts have never
recognized the consequences of the mere enforcement of a money
demand as falling within that category."
Certain specified sections of Act No. 2339 were amended by Act No.
2432, enacted December 23, 1914, effective January 1, 1915, by
imposing increased and additional taxes. Act No. 2432 was amended,
were ratified by the Congress of the United States on March 4, 1915.
The opposition manifested against the taxes imposed by Acts Nos.
2339 and 2432 is a matter of local history. A great many business
men thought the taxes thus imposed were too high. If the collection of
the new taxes on signs, signboards, and billboards may be restrained,
we see no well-founded reason why injunctions cannot be granted
restraining the collection of all or at least a number of the other
increased taxes. The fact that this may be done, shows the wisdom of
the Legislature in denying the use of the writ of injunction to restrain
the collection of any tax imposed by the Acts. When this was done, an
equitable remedy was made available to all dissatisfied taxpayers.
The question now arises whether, the case being one of which the
court below had no jurisdiction, this court, on appeal, shall proceed to
express an opinion upon the validity of provisions of subsection (b) of
section 100 of Act No. 2339, imposing the taxes complained of. As a
general rule, an opinion on the merits of a controversy ought to be
declined when the court is powerless to give the relief demanded. But
it is claimed that this case is, in many particulars, exceptional. It is true
that it has been argued on the merits, and there is no reason for any
suggestion or suspicion that it is not a bona fide controversy. The
legal points involved in the merits have been presented with force,
clearness, and great ability by the learned counsel of both sides. If the
law assailed were still in force, we would feel that an opinion on its
validity would be justifiable, but, as the amendment became effective
on January 1, 1915, we think it advisable to proceed no further with
this branch of the case.
The next question arises in connection with the supplementary
complaint, the object of which is to enjoin the Collector of Internal
Revenue from removing certain billboards, the property of the
plaintiffs located upon private lands in the Province of Rizal. The
plaintiffs allege that the billboards here in question "in no sense
constitute a nuisance and are not deleterious to the health, morals, or
general welfare of the community, or of any persons." The defendant
denies these allegations in his answer and claims that after due
investigation made upon the complaints of the British and German
Consuls, he "decided that the billboard complained of was and still is
offensive to the sight, and is otherwise a nuisance." The plaintiffs
proved by Mr. Churchill that the "billboards were quite a distance from
the road and that they were strongly built, not dangerous to the safety
of the people, and contained no advertising matter which is filthy,
indecent, or deleterious to the morals of the community." The
defendant presented no testimony upon this point. In the agreed
statement of facts submitted by the parties, the plaintiffs "admit that
the billboards mentioned were and still are offensive to the sight."
The pertinent provisions of subsection (b) of section 100 of Act No.
2339 read: "If after due investigation the Collector of Internal Revenue
shall decide that any sign, signboard, or billboard displayed or
exposed to public view is offensive to the sight or is otherwise a
nuisance, he may by summary order direct the removal of such sign,
signboard, or billboard, and if same is not removed within ten days
after he has issued such order he my himself cause its removal, and
the sign, signboard, or billboard shall thereupon be forfeited to the
Government, and the owner thereof charged with the expenses of the
removal so effected. When the sign, signboard, or billboard ordered to
be removed as herein provided shall not comply with the provisions of
the general regulations of the Collector of Internal Revenue, no rebate
or refund shall be allowed for any portion of a year for which the tax
may have been paid. Otherwise, the Collector of Internal Revenue
may in his discretion make a proportionate refund of the tax for the
portion of the year remaining for which the taxes were paid. An appeal
may be had from the order of the Collector of Internal Revenue to the
Secretary of Finance and Justice whose decision thereon shall be
final."
The Attorney-General, on behalf of the defendant, says: "The
question which the case presents under this head for determination,
resolves itself into this inquiry: Is the suppression of advertising signs
displayed or exposed to public view, which are admittedly offensive to
the sight, conducive to the public interest?"
And cunsel for the plaintiffs states the question thus: "We contend that
that portion of section 100 of Act No. 2339, empowering the Collector
of Internal Revenue to remove billboards as nuisances, if
objectionable to the sight, is unconstitutional, as constituting a
deprivation of property without due process of law."
From the position taken by counsel for both sides, it is clear that our
inquiry is limited to the question whether the enactment assailed by
the plaintiffs was a legitimate exercise of the police power of the
Government; for all property is held subject to that power.
As a consequence of the foregoing, all discussion and authorities
cited, which go to the power of the state to authorize administrative
officers to find, as a fact, that legitimate trades, callings, and
businesses are, under certain circumstances, statutory nuisances,
and whether the procedure prescribed for this purpose is due process
of law, are foreign to the issue here presented.
There can be no doubt that the exercise of the police power of the
Philippine Government belongs to the Legislature and that this power
is limited only by the Acts of Congress and those fundamentals
principles which lie at the foundation of all republican forms of
government. An Act of the Legislature which is obviously and
undoubtedly foreign to any of the purposes of the police power and
interferes with the ordinary enjoyment of property would, without
doubt, be held to be invalid. But where the Act is reasonably within a
proper consideration of and care for the public health, safety, or
comfort, it should not be disturbed by the courts. The courts cannot
substitute their own views for what is proper in the premises for those
of the Legislature. In Munn vs. Illinois (94 U.S., 113), the United
States Supreme Court states the rule thus: "If no state of
circumstances could exist to justify such statute, then we may declare
this one void because in excess of the legislative power of this state;
but if it could, we must presume it did. Of the propriety of legislative
interference, within the scope of the legislative power, a legislature is
the exclusive judge."
This rule very fully discussed and declared in Powell vs. Pennsylvania
(127 U.S., 678) — "oleo-margarine" case. (See also
Crowley vs. Christensen, 137 U.S., 86, 87; Camfield vs. U.S., 167
U.S., 518.) While the state may interfere wherever the public interests
demand it, and in this particular a large discretion is necessarily
vested in the legislature to determine, not only what the interest of the
public require, but what measures are necessary for the protection of
such interests; yet, its determination in these matters is not final or
conclusive, but is subject to the supervision of the courts.
(Lawton vs. Steele, 152 U.S., 133.) Can it be said judicially that signs,
signboards, and billboards, which are admittedly offensive to the sight,
are not with the category of things which interfere with the public
safety, welfare, and comfort, and therefore beyond the reach of the
police power of the Philippine Government?
The numerous attempts which have been made to limit by definition
the scope of the police power are only interesting as illustrating its
rapid extension within comparatively recent years to points heretofore
deemed entirely within the field of private liberty and property rights.
Blackstone's definition of the police power was as follows: "The due
regulation and domestic order of the kingdom, whereby the individuals
of the state, like members of a well governed family, are bound to
conform their general behavior to the rules of propriety, good
neigborhood, and good manners, to be decent, industrious, and
inoffensive in their respective stations." (Commentaries, vol. 4, p.
162.)
Chanceller Kent considered the police power the authority of the state
"to regulate unwholesome trades, slaughter houses, operations
offensive to the senses." Chief Justice Shaw of Massachusetts
defined it as follows: "The power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome
and reasonable laws, statutes, and ordinances, either with penalties
or without, not repugnant to the constitution, as they shall judge to be
for the good and welfare of the commonwealth, and of the subjects of
the same." (Com. vs.Alger, 7 Cush., 53.)
In the case of Butchers' Union Slaughter-house, etc. Co. vs. Crescent
City Live Stock Landing, etc. Co. (111 U.S., 746), it was suggested
that the public health and public morals are matters of legislative
concern of which the legislature cannot divest itself. (See
State vs. Mountain Timber Co. [1913], 75 Wash., 581, where these
definitions are collated.)
In Champer vs. Greencastle (138 Ind., 339), it was said: "The police
power of the State, so far, has not received a full and complete
definition. It may be said, however, to be the right of the State, or state
functionary, to prescribe regulations for the good order, peace, health,
protection, comfort, convenience and morals of the community, which
do not ... violate any of the provisions of the organic law." (Quoted
with approval in Hopkins vs. Richmond [Va., 1915], 86 S.E., 139.)
In Com. vs. Plymouth Coal Co. ([1911] 232 Pa., 141), it was said:
"The police power of the state is difficult of definition, but it has been
held by the courts to be the right to prescribe regulations for the good
order, peace, health, protection, comfort, convenience and morals of
the community, which does not encroach on a like power vested in
congress or state legislatures by the federal constitution, or does not
violate the provisions of the organic law; and it has been expressly
held that the fourteenth amendment to the federal constitution was not
designed to interfere with the exercise of that power by the state."
In People vs. Brazee ([Mich., 1914], 149 N.W., 1053), it was said: "It
[the police power] has for its object the improvement of social and
economic conditioned affecting the community at large and
collectively with a view to bring about "he greatest good of the
greatest number."Courts have consistently and wisely declined to set
any fixed limitations upon subjects calling for the exercise of this
power. It is elastic and is exercised from time to time as varying social
conditions demand correction."
In 8 Cyc., 863, it is said: "Police power is the name given to that
inherent sovereignty which it is the right and duty of the government
or its agents to exercise whenever public policy, in a broad sense,
demands, for the benefit of society at large, regulations to guard its
morals, safety, health, order or to insure in any respect such
economic conditions as an advancing civilization of a high complex
character requires." (As quoted with approval in Stettler vs. O'Hara
[1914], 69 Ore, 519.)
Finally, the Supreme Court of the United States has said in Noble
State Bank vs. Haskell (219 U.S. [1911], 575: "It may be said in a
general way that the police power extends to all the great public
needs. It may be put forth in aid of what is sanctioned by usage, or
held by the prevailing morality or strong and preponderant opinion to
be greatly and immediately necessary to the public welfare."
This statement, recent as it is, has been quoted with approval by
several courts. (Cunningham vs. Northwestern Imp. Co. [1911], 44
Mont., 180; State vs. Mountain Timber Co. [1913], 75 Wash., 581;
McDavid vs. Bank of Bay Minette [Ala., 1915], 69 Sou., 452;
Hopkins vs. City of Richmond [Va., 1915], 86 S.E., 139;
State vs. Philipps [Miss. 1915], 67 Sou., 651.)
It was said in Com. vs. Alger (7 Cush., 53, 85), per Shaw, C.J., that:
"It is much easier to perceive and realize the existence and sources of
this police power than to mark its boundaries, or to prescribe limits to
its exercise." In Stone vs. Mississippi (101 U.S., 814), it was said:
"Many attempts have been made in this court and elsewhere to define
the police power, but never with entire success. It is always easier to
determine whether a particular case comes within the general scope
of the power, than to give an abstract definition of the power itself,
which will be in all respects accurate."
Other courts have held the same vow of efforts to evolve a
satisfactory definition of the police power. Manifestly, definitions which
fail to anticipate cases properly within the scope of the police power
are deficient. It is necessary, therefore, to confine our discussion to
the principle involved and determine whether the cases as they come
up are within that principle. The basic idea of civil polity in the United
States is that government should interfere with individual effort only to
the extent necessary to preserve a healthy social and economic
condition of the country. State interference with the use of private
property may be exercised in three ways. First, through the power of
taxation, second, through the power of eminent domain, and third,
through the police power. Buy the first method it is assumed that the
individual receives the equivalent of the tax in the form of protection
and benefit he receives from the government as such. By the second
method he receives the market value of the property taken from him.
But under the third method the benefits he derived are only such as
may arise from the maintenance of a healthy economic standard of
society and is often referred to as damnum absque
injuria. (Com. vs. Plymouth Coal Co. 232 Pa., 141; Bemis vs. Guirl
Drainage Co., 182 Ind., 36.) There was a time when state interference
with the use of private property under the guise of the police power
was practically confined to the suppression of common nuisances. At
the present day, however, industry is organized along lines which
make it possible for large combinations of capital to profit at the
expense of the socio-economic progress of the nation by controlling
prices and dictating to industrial workers wages and conditions of
labor. Not only this but the universal use of mechanical contrivances
by producers and common carriers has enormously increased the toll
of human life and limb in the production and distribution of
consumption goods. To the extent that these businesses affect not
only the public health, safety, and morals, but also the general social
and economic life of the nation, it has been and will continue to be
necessary for the state to interfere by regulation. By so doing, it is true
that the enjoyment of private property is interfered with in no small
degree and in ways that would have been considered entirely
unnecessary in years gone by. The regulation of rates charged by
common carriers, for instance, or the limitation of hours of work in
industrial establishments have only a very indirect bearing upon the
public health, safety, and morals, but do bear directly upon social and
economic conditions. To permit each individual unit of society to feel
that his industry will bring a fair return; to see that his work shall be
done under conditions that will not either immediately or eventually
ruin his health; to prevent the artificial inflation of prices of the things
which are necessary for his physical well being are matters which the
individual is no longer capable of attending to himself. It is within the
province of the police power to render assistance to the people to the
extent that may be necessary to safeguard these rights. Hence, laws
providing for the regulation of wages and hours of labor of coal miners
(Rail & River Coal Co. vs. Taylor, 234 U.S., 224); requiring payment of
employees of railroads and other industrial concerns in legal tender
and requiring salaries to be paid semimonthly (Erie R.R.
Co. vs. Williams, 233 U.S., 685); providing a maximum number of
hours of labor for women (Miller vs. Wilson, U.S. Sup. Ct. [Feb. 23,
1915], Adv. Opns., p. 342); prohibiting child labor (Sturges &
Burn vs. Beauchamp, 231 U.S., 320); restricting the hours of labor in
public laundries (In re Wong Wing, 167 Cal., 109); limiting hours of
labor in industrial establishment generally (State vs.Bunting, 71 Ore.,
259); Sunday Closing Laws (State vs. Nicholls [Ore., 1915], 151 Pac.,
473; People vs. C. Klinck Packing Co. [N.Y., 1915], 108 N. E., 278;
Hiller vs. State [Md., 1914], 92 Atl., 842; State vs. Penny, 42 Mont.,
118; City of Springfield vs. Richter, 257 Ill., 578, 580;
State vs. Hondros [S.C., 1915], 84 S.E., 781); have all been upheld as
a valid exercise of the police power. Again, workmen's compensation
laws have been quite generally upheld. These statutes discard the
common law theory that employers are not liable for industrial
accidents and make them responsible for all accidents resulting from
trade risks, it being considered that such accidents are a legitimate
charge against production and that the employer by controlling the
prices of his product may shift the burden to the community. Laws
requiring state banks to join in establishing a depositors' guarantee
fund have also been upheld by the Federal Supreme Court in Noble
State Bank vs. Haskell (219 U. S., 104), and Assaria State
Bank vs. Dolley (219 U.S., 121).
Offensive noises and smells have been for a long time considered
susceptible of suppression in thickly populated districts. Barring livery
stables from such locations was approved of in Reinman vs. Little
Rock (U.S. Sup. Ct. [Apr. 5, 1915], U.S. Adv. Opns., p. 511). And a
municipal ordinance was recently upheld (People vs. Ericsson, 263
Ill., 368), which prohibited the location of garages within two hundred
feet of any hospital, church, or school, or in any block used
exclusively for residential purposes, unless the consent of the majority
of the property owners be obtained. Such statutes as these are
usually upheld on the theory of safeguarding the public health. But we
apprehend that in point of fact they have little bearing upon the health
of the normal person, but a great deal to do with his physical comfort
and convenience and not a little to do with his peace of mind. Without
entering into the realm of psychology, we think it quite demonstrable
that sight is as valuable to a human being as any of his other senses,
and that the proper ministration to this sense conduces as much to his
contentment as the care bestowed upon the senses of hearing or
smell, and probably as much as both together. Objects may be
offensive to the eye as well as to the nose or ear. Man's esthetic
feelings are constantly being appealed to through his sense of sight.
Large investments have been made in theaters and other forms of
amusement, in paintings and spectacular displays, the success of
which depends in great part upon the appeal made through the sense
of sight. Moving picture shows could not possible without the sense of
sight. Governments have spent millions on parks and boulevards and
other forms of civic beauty, the first aim of which is to appeal to the
sense of sight. Why, then, should the Government not interpose to
protect from annoyance this most valuable of man's senses as readily
as to protect him from offensive noises and smells?
The advertising industry is a legitimate one. It is at the same time a
cause and an effect of the great industrial age through which the
world is now passing. Millions are spent each year in this manner to
guide the consumer to the articles which he needs. The sense of sight
is the primary essential to advertising success. Billboard advertising,
as it is now conducted, is a comparatively recent form of advertising. It
is conducted out of doors and along the arteries of travel, and
compels attention by the strategic locations of the boards, which
obstruct the range of vision at points where travelers are most likely to
direct their eyes. Beautiful landscapes are marred or may not be seen
at all by the traveler because of the gaudy array of posters
announcing a particular kind of breakfast food, or underwear, the
coming of a circus, an incomparable soap, nostrums or medicines for
the curing of all the ills to which the flesh is heir, etc. It is quite natural
for people to protest against this indiscriminate and wholesale use of
the landscape by advertisers and the intrusion of tradesmen upon
their hours of leisure and relaxation from work. Outdoor life must lose
much of its charm and pleasure if this form of advertising is permitted
to continue unhampered until it converts the streets and highways into
veritable canyons through which the world must travel in going to work
or in search of outdoor pleasure.
The success of billboard advertising depends not so much upon the
use of private property as it does upon the use of the channels of
travel used by the general public. Suppose that the owner of private
property, who so vigorously objects to the restriction of this form of
advertising, should require the advertiser to paste his posters upon
the billboards so that they would face the interior of the property
instead of the exterior. Billboard advertising would die a natural death
if this were done, and its real dependency not upon the unrestricted
use of private property but upon the unrestricted use of the public
highways is at once apparent. Ostensibly located on private property,
the real and sole value of the billboard is its proximity to the public
thoroughfares. Hence, we conceive that the regulation of billboards
and their restriction is not so much a regulation of private property as
it is a regulation of the use of the streets and other public
thoroughfares.
We would not be understood as saying that billboard advertising is not
a legitimate business any more than we would say that a livery stable
or an automobile garage is not. Even a billboard is more sightly than
piles of rubbish or an open sewer. But all these businesses are
offensive to the senses under certain conditions.
It has been urged against ministering to the sense of sight that tastes
are so diversified that there is no safe standard of legislation in this
direction. We answer in the language of the Supreme Court in Noble
State Bank vs.Haskell (219 U.S., 104), and which has already been
adopted by several state courts (see supra), that "the prevailing
morality or strong and preponderating opinion" demands such
legislation. The agitation against the unrestrained development of the
billboard business has produced results in nearly all the countries of
Europe. (Ency. Britannica, vol. 1, pp. 237-240.) Many drastic
ordinances and state laws have been passed in the United States
seeking to make the business amenable to regulation. But their
regulation in the United states is hampered by what we conceive an
unwarranted restriction upon the scope of the police power by the
courts. If the police power may be exercised to encourage a healthy
social and economic condition in the country, and if the comfort and
convenience of the people are included within those subjects,
everything which encroaches upon such territory is amenable to the
police power. A source of annoyance and irritation to the public does
not minister to the comfort and convenience of the public. And we are
of the opinion that the prevailing sentiment is manifestly against the
erection of billboards which are offensive to the sight.
We do not consider that we are in conflict with the decision in
Eubank vs. Richmond (226 U.S., 137), where a municipal ordinance
establishing a building line to which property owners must conform
was held unconstitutional. As we have pointed out, billboard
advertising is not so much a use of private property as it is a use of
the public thoroughfares. It derives its value to the power solely
because the posters are exposed to the public gaze. It may well be
that the state may not require private property owners to conform to a
building line, but may prescribe the conditions under which they shall
make use of the adjoining streets and highways. Nor is the law in
question to be held invalid as denying equal protection of the laws. In
Keokee Coke Co. vs. Taylor (234 U.S., 224), it was said: "It is more
pressed that the act discriminates unconstitutionally against certain
classes. But while there are differences of opinion as to the degree
and kind of discrimination permitted by the Fourteenth Amendment, it
is established by repeated decisions that a statute aimed at what is
deemed an evil, and hitting it presumably where experience shows it
to be most felt, is not to be upset by thinking up and enumerating
other instances to which it might have been applied equally well, so
far as the court can see. That is for the legislature to judge unless the
case is very clear."
But we have not overlooked the fact that we are not in harmony with
the highest courts of a number of the states in the American Union
upon this point. Those courts being of the opinion that statutes which
are prompted and inspired by esthetic considerations merely, having
for their sole purpose the promotion and gratification of the esthetic
sense, and not the promotion or protection of the public safety, the
public peace and good order of society, must be held invalid and
contrary to constitutional provisions holding inviolate the rights of
private property. Or, in other words, the police power cannot interfere
with private property rights for purely esthetic purposes. The courts,
taking this view, rest their decisions upon the proposition that the
esthetic sense is disassociated entirely from any relation to the public
health, morals, comfort, or general welfare and is, therefore, beyond
the police power of the state. But we are of the opinion, as above
indicated, that unsightly advertisements or signs, signboards, or
billboards which are offensive to the sight, are not disassociated from
the general welfare of the public. This is not establishing a new
principle, but carrying a well recognized principle to further
application. (Fruend on Police Power, p. 166.)
For the foregoing reasons the judgment appealed from is hereby
reversed and the action dismissed upon the merits, with costs. So
ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
DECISION ON THE MOTION FOR A REHEARING, JANUARY 24,
1916.
TRENT, J.:
Counsel for the plaintiffs call our attention to the case of Ex
parte Young (209 U.S., 123); and say that they are of the opinion that
this case "is the absolutely determinative of the question of jurisdiction
in injunctions of this kind." We did not refer to this case in our former
opinion because we were satisfied that the reasoning of the case is
not applicable to section 100 (b), 139 and 140 of Act No. 2339. The
principles announced in the Young case are stated as follows: "It may
therefore be said that when the penalties for disobedience are by
fines so enormous and imprisonment so severe as to intimidate the
company and its officers from resorting to the courts to test the validity
of the legislation, the result is the same as if the law in terms
prohibited the company from seeking judicial construction of laws
which deeply affect its rights.
It is urged that there is no principle upon which to base the
claim that a person is entitled to disobey a statute at least
once, for the purpose of testing its validity without subjecting
himself to the penalties for disobedience provided by the
statute in case it is valid. This is not an accurate statement of
the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the
jurisdiction of the legislature is complete in any event. In these
case, however, of the establishment of certain rates without
any hearing, the validity of such rates necessarily depends
upon whether they are high enough to permit at least some
return upon the investment (how much it is not now necessary
to state), and an inquiry as to that fact is a proper subject of
judicial investigation. If it turns out that the rates are too low for
that purpose, then they are illegal. Now, to impose upon a
party interested the burden of obtaining a judicial decision of
such a question (no prior hearing having ever been given) only
upon the condition that, if unsuccessful, he must suffer
imprisonment and pay fines as provided in these acts, is, in
effect, to close up all approaches to the courts, and thus
prevent any hearing upon the question whether the rates as
provided by the acts are not too low, and therefore invalid. The
distinction is obvious between a case where the validity of the
acts depends upon the existence of a fact which can be
determined only after investigation of a very complicated and
technical character, and the ordinary case of a statute upon a
subject requiring no such investigation and over which the
jurisdiction of the legislature is complete in any event.
An examination of the sections of our Internal Revenue Law and of
the circumstances under which and the purposes for which they were
enacted, will show that, unlike the statutes under consideration in the
above cited case, their enactment involved no attempt on the part of
the Legislature to prevent dissatisfied taxpayers "from resorting to the
courts to test the validity of the legislation;" no effort to prevent any
inquiry as to their validity. While section 139 does prevent the testing
of the validity of subsection (b) of section 100 in injunction suits
instituted for the purpose of restraining the collection of internal
revenue taxes, section 140 provides a complete remedy for that
purpose. And furthermore, the validity of subsection (b) does not
depend upon "the existence of a fact which can be determined only
after investigation of a very complicated and technical character," but
the jurisdiction of the Legislature over the subject with which the
subsection deals "is complete in any event." The judgment of the
court in the Young case rests upon the proposition that the aggrieved
parties had no adequate remedy at law.
Neither did we overlook the case of General Oil Co. vs. Crain
(209 U.S., 211), decided the same day and citing Ex
parte Young, supra. In that case the plaintiff was a Tennessee
corporation, with its principal place of business in Memphis,
Tennessee. It was engaged in the manufacture and sale of
coal oil, etc. Its wells and plant were located in Pennsylvania
and Ohio. Memphis was not only its place of business, at
which place it sold oil to the residents of Tennessee, but also a
distributing point to which oils were shipped from Pennsylvania
and Ohio and unloaded into various tanks for the purpose of
being forwarded to the Arkansas, Louisiana, and Mississippi
customers. Notwithstanding the fact that the company
separated its oils, which were designated to meet the
requirements of the orders from those States, from the oils for
sale in Tennessee, the defendant insisted that he had a right,
under the Act of the Tennessee Legislature, approved April 21,
1899, to inspect all the oils unlocated in Memphis, whether for
sale in that State or not, and charge and collect for such
inspection a regular fee of twenty-five cents per barrel. The
company, being advised that the defendant had no such right,
instituted this action in the inferior States court for the purpose
of enjoining the defendant, upon the grounds stated in the bill,
from inspecting or attempting to inspect its oils. Upon trial, the
preliminary injunction which had been granted at the
commencement of the action, was continued in force. Upon
appeal, the supreme court of the State of Tennessee decided
that the suit was one against the State and reversed the
judgment of the Chancellor. In the Supreme Court of the
United States, where the case was reviewed upon a writ of
error, the contentions of the parties were stated by the court as
follows: "It is contended by defendant in error that this court is
without jurisdiction because no matter sought to be litigated by
plaintiff in error was determined by the Supreme Court of
Tennessee. The court simply held, it is paid, that, under the
laws of the State, it had no jurisdiction to entertain the suit for
any purpose. And it is insisted "hat this holding involved no
Federal question, but only the powers and jurisdiction of the
courts of the State of Tennessee, in respect to which the
Supreme Court of Tennessee is the final arbiter."
Opposing these contentions, plaintiff in error urges that
whether a suit is one against a State cannot depend upon the
declaration of a statute, but depends upon the essential nature
ofthe suit, and that the Supreme Court recognized that the
statute "aded nothing to the axiomatic principle that the State,
as a sovereign, is not subject to suit save by its own
consent."And it is hence insisted that the court by dismissing
the bill gave effect to the law which was attacked. It is further
insisted that the bill undoubtedly present rights under the
Constitution of the United States and conditions which entitle
plaintiff in error to an injunction for the protection of such
rights, and that a statute of the State which operates to deny
such rights, or such relief, `is itself in conflict with the
Constitution of the United States."
That statute of Tennessee, which the supreme court of that State
construed and held to be prohibitory of the suit, was an act passed
February 28, 1873, which provides: "That no court in the State of
Tennessee has, nor shall hereafter have, any power, jurisdiction, or
authority to entertain any suit against the State, or any officer acting
by the authority of the State, with a view to reach the State, its
treasury, funds or property; and all such suits now pending, or
hereafter brought, shall be dismissed as to the State, or such officer,
on motion, plea or demurrer of the law officer of the State, or counsel
employed by the State."
The Supreme Court of the United States, after reviewing many cases,
said: "Necessarily, to give adequate protection to constitutional rights
a distinction must be made between valid and invalid state laws, as
determining the character of the suit against state officers. And the
suit at bar illustrates the necessity. If a suit against state officer is
precluded in the national courts by the Eleventh Amendment to the
Constitution, and may be forbidden by a State to its courts, as it is
contended in the case at bar that it may be, without power of review
by this court, it must be evident that an easy way is open to prevent
the enforcement of many provisions of the Constitution; and the
Fourteenth Amendment, which is directed at state action, could be
nullified as to much of its operation. ... It being then the right of a party
to be protected against a law which violates a constitutional right,
whether by its terms or the manner of its enforcement, it is manifest
that a decision which denies such protection gives effect to the law,
and the decision is reviewable by this court."
The court then proceeded to consider whether the law of 1899 would,
if administered against the oils in question, violate any constitutional
right of the plaintiff and after finding and adjudging that the oils were
not in movement through the States, that they had reached the
destination of their first shipment, and were held there, not in
necessary delay at means of transportation but for the business
purposes and profit of the company, and resting its judgment upon the
taxing power of the State, affirmed the decree of the supreme court of
the State of Tennessee.
From the foregoing it will be seen that the Supreme Court of
Tennessee dismissed the case for want of jurisdiction because the
suit was one against the State, which was prohibited by the
Tennessee Legislature. The Supreme Court of the United States took
jurisdiction of the controversy for the reasons above quoted and
sustained the Act of 1899 as a revenue law.
The case of Tennessee vs. Sneed (96 U.S., 69), and Shelton vs. Platt
(139 U.S., 591), relied upon in our former opinion, were not cited in
General Oil Co. vs. Crain, supra, because the questions presented
and the statutes under consideration were entirely different. The Act
approved March 31, 1873, expressly prohibits the courts from
restraining the collection of any tax, leaving the dissatisfied taxpayer
to his exclusive remedy — payment under protest and suit to recover
— while the Act approved February 28, 1873, prohibits suits against
the State.
In upholding the statute which authorizes the removal of signboards or
billboards upon the sole ground that they are offensive to the sight, we
recognized the fact that we are not in harmony with various state
courts in the American Union. We have just examined the decision of
the Supreme Court of the State of Illinois in the recent case (October
[December], 1914) of Thomas Cusack Co. vs. City of Chicago (267
Ill., 344), wherein the court upheld the validity of a municipal
ordinances, which reads as follows: "707. Frontage consents
required. It shall be unlawful for any person, firm or corporation to
erect or construct any bill-board or sign-board in any block on any
public street in which one-half of the buildings on both sides of the
street are used exclusively for residence purposes, without first
obtaining the consent, in writing, of the owners or duly authorized
agents of said owners owning a majority of the frontage of the
property, on both sides of the street, in the block in which such bill-
board or sign-board is to be erected, constructed or located. Such
written consent shall be filed with the commissioner of buildings
before a permit shall be issued for the erection, construction or
location of such bill-board or sign-board."
The evidence which the Illinois court relied upon was the danger of
fires, the fact that billboards promote the commission of various
immoral and filthy acts by disorderly persons, and the inadequate
police protection furnished to residential districts. The last objection
has no virtue unless one or the other of the other objections are valid.
If the billboard industry does, in fact, promote such municipal evils to
noticeable extent, it seems a curious inconsistency that a majority of
the property owners on a given block may legalize the business.
However, the decision is undoubtedly a considerable advance over
the views taken by other high courts in the United States and
distinguishes several Illinois decisions. It is an advance because it
permits the suppression of billboards where they are undesirable. The
ordinance which the court approved will no doubt cause the virtual
suppression of the business in the residential districts. Hence, it is
recognized that under certain circumstances billboards may be
suppressed as an unlawful use of private property. Logically, it would
seem that the premise of fact relied upon is not very solid. Objections
to the billboard upon police, sanitary, and moral grounds have been,
as pointed out by counsel for Churchill and Tait, duly considered by
numerous high courts in the United States, and, with one exception,
have been rejected as without foundation. The exception is the
Supreme Court of Missouri, which advances practically the same line
of reasoning as has the Illinois court in this recent case. (St. Louis
Gunning Advt. Co. vs. City of St. Louis, 137 S. W., 929.) In fact, the
Illinois court, in Haller Sign Works vs. Physical Culture Training
School (249 Ill., 436), "distinguished" in the recent case, said: "There
is nothing inherently dangerous to the health or safety of the public in
structures that are properly erected for advertising purposes."
If a billboard is so constructed as to offer no room for objections on
sanitary or moral grounds, it would seem that the ordinance above
quoted would have to be sustained upon the very grounds which we
have advanced in sustaining our own statute.
It might be well to note that billboard legislation in the United States is
attempting to eradicate a business which has already been firmly
established. This business was allowed to expand unchecked until its
very extent called attention to its objectionable features. In the
Philippine Islands such legislation has almost anticipated the
business, which is not yet of such proportions that it can be said to be
fairly established. It may be that the courts in the United States have
committed themselves to a course of decisions with respect to
billboard advertising, the full consequences of which were not
perceived for the reason that the development of the business has
been so recent that the objectionable features of it did not present
themselves clearly to the courts nor to the people. We, in this country,
have the benefit of the experience of the people of the United States
and may make our legislation preventive rather than corrective. There
are in this country, moreover, on every hand in those districts where
Spanish civilization has held sway for so many centuries, examples of
architecture now belonging to a past age, and which are attractive not
only to the residents of the country but to visitors. If the billboard
industry is permitted without constraint or control to hide these historic
sites from the passerby, the country will be less attractive to the tourist
and the people will suffer a district economic loss.
The motion for a rehearing is therefore denied.
Arellano, C.J., Torres, and Carson, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-59234 September 30, 1982
TAXICAB OPERATORS OF METRO MANILA, INC., FELICISIMO
CABIGAO and ACE TRANSPORTATION
CORPORATION, petitioners,
vs.
THE BOARD OF TRANSPORTATION and THE DIRECTOR OF THE
BUREAU OF LAND TRANSPORTATION, respondents.
MELENCIO-HERRERA, J.:
This Petition for "Certiorari, Prohibition and mandamus with
Preliminary Injunction and Temporary Restraining Order" filed by the
Taxicab Operators of Metro Manila, Inc., Felicisimo Cabigao and Ace
Transportation, seeks to declare the nullity of Memorandum Circular
No. 77-42, dated October 10, 1977, of the Board of Transportation,
and Memorandum Circular No. 52, dated August 15, 1980, of the
Bureau of Land Transportation.
Petitioner Taxicab Operators of Metro Manila, Inc. (TOMMI) is a
domestic corporation composed of taxicab operators, who are
grantees of Certificates of Public Convenience to operate taxicabs
within the City of Manila and to any other place in Luzon accessible to
vehicular traffic. Petitioners Ace Transportation Corporation and
Felicisimo Cabigao are two of the members of TOMMI, each being an
operator and grantee of such certificate of public convenience.
On October 10, 1977, respondent Board of Transportation (BOT)
issued Memorandum Circular No. 77-42 which reads:
SUBJECT: Phasing out and Replacement of
Old and Dilapidated Taxis
WHEREAS, it is the policy of the government to insure
that only safe and comfortable units are used as public
conveyances;
WHEREAS, the riding public, particularly in Metro-
Manila, has, time and again, complained against, and
condemned, the continued operation of old and
dilapidated taxis;
WHEREAS, in order that the commuting public may be
assured of comfort, convenience, and safety, a
program of phasing out of old and dilapidated taxis
should be adopted;
WHEREAS, after studies and inquiries made by the
Board of Transportation, the latter believes that in six
years of operation, a taxi operator has not only covered
the cost of his taxis, but has made reasonable profit for
his investments;
NOW, THEREFORE, pursuant to this policy, the Board
hereby declares that no car beyond six years shall be
operated as taxi, and in implementation of the same
hereby promulgates the following rules and regulations:
 1. As of December 31, 1977, all taxis of Model 1971
and earlier are ordered withdrawn from public service
and thereafter may no longer be registered and
operated as taxis. In the registration of cards for 1978,
only taxis of Model 1972 and later shall be accepted for
registration and allowed for operation;
2. As of December 31, 1978, all taxis of Model 1972
are ordered withdrawn from public service and
thereafter may no longer be registered and operated as
taxis. In the registration of cars for 1979, only taxis of
Model 1973 and later shall be accepted for registration
and allowed for operation; and every year thereafter,
there shall be a six-year lifetime of taxi, to wit:
1980 — Model 1974
1981 — Model 1975, etc.
All taxis of earlier models than those provided above
are hereby ordered withdrawn from public service as of
the last day of registration of each particular year and
their respective plates shall be surrendered directly to
the Board of Transportation for subsequent turnover to
the Land Transportation Commission.
For an orderly implementation of this Memorandum
Circular, the rules herein shall immediately be effective
in Metro-Manila. Its implementation outside Metro-
Manila shall be carried out only after the project has
been implemented in Metro-Manila and only after the
date has been determined by the Board. 1
Pursuant to the above BOT circular, respondent Director of the
Bureau of Land Transportation (BLT) issued Implementing Circular
No. 52, dated August 15, 1980, instructing the Regional Director, the
MV Registrars and other personnel of BLT, all within the National
Capitol Region, to implement said Circular, and formulating a
schedule of phase-out of vehicles to be allowed and accepted for
registration as public conveyances. To quote said Circular:
Pursuant to BOT Memo-Circular No. 77-42, taxi units
with year models over six (6) years old are now banned
from operating as public utilities in Metro Manila. As
such the units involved should be considered as
automatically dropped as public utilities and, therefore,
do not require any further dropping order from the
BOT.
Henceforth, taxi units within the National Capitol
Region having year models over 6 years old shall be
refused registration. The following schedule of phase-
out is herewith prescribed for the guidance of all
concerned:
Year Model Automatic
Phase-Out
Year
1980
1974 1981
1975 1982
1976 1983
1977
etc. etc.
Strict compliance here is desired. 2
In accordance therewith, cabs of model 1971 were phase-out in
registration year 1978; those of model 1972, in 1979; those of model
1973, in 1980; and those of model 1974, in 1981.
On January 27, 1981, petitioners filed a Petition with the BOT,
docketed as Case No. 80-7553, seeking to nullify MC No. 77-42 or to
stop its implementation; to allow the registration and operation in 1981
and subsequent years of taxicabs of model 1974, as well as those of
earlier models which were phased-out, provided that, at the time of
registration, they are roadworthy and fit for operation.
On February 16, 1981, petitioners filed before the BOT a
"Manifestation and Urgent Motion", praying for an early hearing of
their petition. The case was heard on February 20, 1981. Petitioners
presented testimonial and documentary evidence, offered the same,
and manifested that they would submit additional documentary proofs.
Said proofs were submitted on March 27, 1981 attached to petitioners'
pleading entitled, "Manifestation, Presentation of Additional Evidence
and Submission of the Case for Resolution." 3
On November 28, 1981, petitioners filed before the same Board a
"Manifestation and Urgent Motion to Resolve or Decide Main Petition"
praying that the case be resolved or decided not later than December
10, 1981 to enable them, in case of denial, to avail of whatever
remedy they may have under the law for the protection of their
interests before their 1975 model cabs are phased-out on January 1,
1982.
Petitioners, through its President, allegedly made personal follow-ups
of the case, but was later informed that the records of the case could
not be located.
On December 29, 1981, the present Petition was instituted wherein
the following queries were posed for consideration by this Court:
A. Did BOT and BLT promulgate the questioned
memorandum circulars in accord with the manner
required by Presidential Decree No. 101, thereby
safeguarding the petitioners' constitutional right to
procedural due process?
B. Granting, arguendo, that respondents did comply
with the procedural requirements imposed by
Presidential Decree No. 101, would the implementation
and enforcement of the assailed memorandum
circulars violate the petitioners' constitutional rights to.
(1) Equal protection of
the law;
(2) Substantive due
process; and
(3) Protection against
arbitrary and
unreasonable
classification and
standard?
On Procedural and Substantive Due Process:
Presidential Decree No. 101 grants to the Board of Transportation the
power
4. To fix just and reasonable standards, classification,
regulations, practices, measurements, or service to be
furnished, imposed, observed, and followed by
operators of public utility motor vehicles.
Section 2 of said Decree provides procedural guidelines for said
agency to follow in the exercise of its powers:
Sec. 2. Exercise of powers. — In the exercise of the
powers granted in the preceding section, the Board
shag proceed promptly along the method of legislative
inquiry.
Apart from its own investigation and studies, the Board,
in its discretion, may require the cooperation and
assistance of the Bureau of Transportation, the
Philippine Constabulary, particularly the Highway
Patrol Group, the support agencies within the
Department of Public Works, Transportation and
Communications, or any other government office or
agency that may be able to furnish useful information
or data in the formulation of the Board of any policy,
plan or program in the implementation of this Decree.
The Board may also can conferences, require the
submission of position papers or other documents,
information, or data by operators or other persons that
may be affected by the implementation of this Decree,
or employ any other suitable means of inquiry.
In support of their submission that they were denied procedural due
process, petitioners contend that they were not caged upon to submit
their position papers, nor were they ever summoned to attend any
conference prior to the issuance of the questioned BOT Circular.
It is clear from the provision aforequoted, however, that the leeway
accorded the Board gives it a wide range of choice in gathering
necessary information or data in the formulation of any policy, plan or
program. It is not mandatory that it should first call a conference or
require the submission of position papers or other documents from
operators or persons who may be affected, this being only one of the
options open to the Board, which is given wide discretionary authority.
Petitioners cannot justifiably claim, therefore, that they were deprived
of procedural due process. Neither can they state with certainty that
public respondents had not availed of other sources of inquiry prior to
issuing the challenged Circulars. operators of public conveyances are
not the only primary sources of the data and information that may be
desired by the BOT.
Dispensing with a public hearing prior to the issuance of the Circulars
is neither violative of procedural due process. As held in Central Bank
vs. Hon. Cloribel and Banco Filipino, 44 SCRA 307 (1972):
Pevious notice and hearing as elements of due
process, are constitutionally required for the protection
of life or vested property rights, as well as of liberty,
when its limitation or loss takes place in consequence
of a judicial or quasi-judicial proceeding, generally
dependent upon a past act or event which has to be
established or ascertained. It is not essential to the
validity of general rules or regulations promulgated to
govern future conduct of a class or persons or
enterprises, unless the law provides otherwise.
(Emphasis supplied)
Petitioners further take the position that fixing the ceiling at six (6)
years is arbitrary and oppressive because the roadworthiness of
taxicabs depends upon their kind of maintenance and the use to
which they are subjected, and, therefore, their actual physical
condition should be taken into consideration at the time of registration.
As public contend, however, it is impractical to subject every taxicab
to constant and recurring evaluation, not to speak of the fact that it
can open the door to the adoption of multiple standards, possible
collusion, and even graft and corruption. A reasonable standard must
be adopted to apply to an vehicles affected uniformly, fairly, and justly.
The span of six years supplies that reasonable standard. The product
of experience shows that by that time taxis have fully depreciated,
their cost recovered, and a fair return on investment obtained. They
are also generally dilapidated and no longer fit for safe and
comfortable service to the public specially considering that they are in
continuous operation practically 24 hours everyday in three shifts of
eight hours per shift. With that standard of reasonableness and
absence of arbitrariness, the requirement of due process has been
met.
On Equal Protection of the Law:
Petitioners alleged that the Circular in question violates their right to
equal protection of the law because the same is being enforced in
Metro Manila only and is directed solely towards the taxi industry. At
the outset it should be pointed out that implementation outside Metro
Manila is also envisioned in Memorandum Circular No. 77-42. To
repeat the pertinent portion:
For an orderly implementation of this Memorandum
Circular, the rules herein shall immediately be effective
in Metro Manila. Its implementation outside Metro
Manila shall be carried out only after the project has
been implemented in Metro Manila and only after the
date has been determined by the Board. 4
In fact, it is the understanding of the Court that implementation of the
Circulars in Cebu City is already being effected, with the BOT in the
process of conducting studies regarding the operation of taxicabs in
other cities.
The Board's reason for enforcing the Circular initially in Metro Manila
is that taxicabs in this city, compared to those of other places, are
subjected to heavier traffic pressure and more constant use. This is of
common knowledge. Considering that traffic conditions are not the
same in every city, a substantial distinction exists so that infringement
of the equal protection clause can hardly be successfully claimed.
As enunciated in the preambular clauses of the challenged BOT
Circular, the overriding consideration is the safety and comfort of the
riding public from the dangers posed by old and dilapidated taxis. The
State, in the exercise, of its police power, can prescribe regulations to
promote the health, morals, peace, good order, safety and general
welfare of the people. It can prohibit all things hurtful to comfort, safety
and welfare of society. 5 It may also regulate property rights. 6 In the
language of Chief Justice Enrique M. Fernando "the necessities
imposed by public welfare may justify the exercise of governmental
authority to regulate even if thereby certain groups may plausibly
assert that their interests are disregarded". 7
In so far as the non-application of the assailed Circulars to other
transportation services is concerned, it need only be recalled that the
equal protection clause does not imply that the same treatment be
accorded all and sundry. It applies to things or persons Identically or
similarly situated. It permits of classification of the object or subject of
the law provided classification is reasonable or based on substantial
distinction, which make for real differences, and that it must apply
equally to each member of the class. 8 What is required under the
equal protection clause is the uniform operation by legal means so
that all persons under Identical or similar circumstance would be
accorded the same treatment both in privilege conferred and the
liabilities imposed. 9 The challenged Circulars satisfy the foregoing
criteria.
Evident then is the conclusion that the questioned Circulars do not
suffer from any constitutional infirmity. To declare a law
unconstitutional, the infringement of constitutional right must be clear,
categorical and undeniable. 10
WHEREFORE, the Writs prayed for are denied and this Petition is
hereby dismissed. No costs.
SO ORDERED.
Fernando, CJ., Barredo, Makasiar, Concepcion, Jr., Guerrero, Abad
Santos, De Castro, Plana, Escolin, Vasquez, Relova and Gutierrez,
Jr., JJ., concur.
Teehankee and Aquino, JJ., concur in the result.
G.R. No. 133879 November 21, 2001
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,
vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be
ruled upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is
valid until rescinded, it is equally true that ownership of the thing sold
is not acquired by mere agreement, but by tradition or delivery. The
peculiar facts of the present controversy as found by this Court in an
earlier relevant Decision show that delivery was not actually effected;
in fact, it was prevented by a legally effective impediment. Not having
been the owner, petitioner cannot be entitled to the civil fruits of
ownership like rentals of the thing sold. Furthermore, petitioner's bad
faith, as again demonstrated by the specific factual milieu of said
Decision, bars the grant of such benefits. Otherwise, bad faith would
be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the
Rules of Court, challenging the March 11, 1998 Order2 of the
Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-
85141. The dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant
Mayfair is hereby GRANTED, and the complaint filed by
plaintiff Equatorial is hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order4 denying petitioner's
Motion for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of
record, because it arose out of an earlier case decided by this Court
on November 21, 1996, entitled Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc.5(henceforth referred to as the "mother case"),
docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land,
together with two 2-storey buildings constructed thereon, located at
Claro M. Recto Avenue, Manila, and covered by TCT No. 18529
issued in its name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with
Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease
covered a portion of the second floor and mezzanine of a two-storey
building with about 1,610 square meters of floor area, which
respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of the
latter's property — namely, a part of the second floor of the two-storey
building, with a floor area of about 1,064 square meters; and two store
spaces on the ground floor and the mezzanine, with a combined floor
area of about 300 square meters. In that space, Mayfair put up
another movie house known as Miramar Theater. The Contract of
Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first
refusal to purchase the subject properties. However, on July 30, 1978
— within the 20-year-lease term — the subject properties were sold
by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for
the total sum of P11,300,000, without their first being offered to
Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair
filed a Complaint before the Regional Trial Court of Manila (Branch 7)
for (a) the annulment of the Deed of Absolute Sale between Carmelo
and Equatorial, (b) specific performance, and (c) damages. After trial
on the merits, the lower court rendered a Decision in favor of Carmelo
and Equatorial. This case, entitled "Mayfair" Theater, Inc. v. Carmelo
and Bauermann, Inc., et al.," was docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals
(CA) completely reversed and set aside the judgment of the lower
court.
The controversy reached this Court via G.R No. 106063. In this
mother case, it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00."6
The foregoing Decision of this Court became final and executory on
March 17, 1997. On April 25, 1997, Mayfair filed a Motion for
Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the
order of execution of the trial court, Mayfair deposited with the clerk of
court a quo its payment to Carmelo in the sum of P11,300,000 less;
P847,000 as withholding tax. The lower court issued a Deed of
Reconveyance in favor of Carmelo and a Deed of Sale in favor of
Mayfair. On the basis of these documents, the Registry of Deeds of
Manila canceled Equatorial's titles and issued new Certificates of
Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting
the foregoing manner of execution, the CA in its Resolution of
November 20, 1998, explained that Mayfair had no right to deduct the
P847,000 as withholding tax. Since Carmelo could no longer be
located, the appellate court ordered Mayfair to deposit the said sum
with the Office of the Clerk of Court, Manila, to complete the full
amount of P11,300,000 to be turned over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this
Court in G.R No. 136221 entitled "Equatorial Realty Development,
Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12,
2000,8 this Court directed the trial court to follow strictly the Decision
in GR. No. 106063, the mother case. It explained its ruling in these
words:
"We agree that Carmelo and Bauermann is obliged to return
the entire amount of eleven million three hundred thousand
pesos (P11,300,000.00) to Equatorial. On the other hand,
Mayfair may not deduct from the purchase price the amount of
eight hundred forty-seven thousand pesos (P847,000.00) as
withholding tax. The duty to withhold taxes due, if any, is
imposed on the seller Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 — barely five months after
Mayfair had submitted its Motion for Execution before the RTC of
Manila, Branch 7 — Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for the collection of a sum of money
against Mayfair, claiming payment of rentals or reasonable
compensation for the defendant's use of the subject premises after its
lease contracts had expired. This action was the progenitor of the
present case.
In its Complaint, Equatorial alleged among other things that the Lease
Contract covering the premises occupied by Maxim Theater expired
on May 31, 1987, while the Lease Contract covering the premises
occupied by Miramar Theater lapsed on March 31,
1989.10 Representing itself as the owner of the subject premises by
reason of the Contract of Sale on July 30, 1978, it claimed rentals
arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the herein
assailed Order and denied the Motion for Reconsideration filed by
Equatorial.11
The lower court debunked the claim of petitioner for unpaid back
rentals, holding that the rescission of the Deed of Absolute Sale in the
mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical
issue was whether Equatorial was the owner of the subject property
and could thus enjoy the fruits or rentals therefrom. It declared the
rescinded Deed of Absolute Sale as avoid at its inception as though it
did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set
aside. In the case of Ocampo v. Court of Appeals, G.R. No.
97442, June 30, 1994, the Supreme Court held that, 'to
rescind is to declare a contract void in its inception and to put
an end as though it never were. It is not merely to terminate it
and release parties from further obligations to each other but
to abrogate it from the beginning and restore parties to relative
positions which they would have occupied had no contract
ever been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale
between Equatorial and Carmelo dated July 31, 1978 is void at
its inception as though it did not happen.
"The argument of Equatorial that this complaint for back
rentals as 'reasonable compensation for use of the subject
property after expiration of the lease contracts presumes that
the Deed of Absolute Sale dated July 30, 1978 from whence
the fountain of Equatorial's all rights flows is still valid and
existing.
xxx xxx xxx
"The subject Deed of Absolute Sale having been rescinded by
the Supreme Court, Equatorial is not the owner and does not
have any right to demand backrentals from the subject
property. . .12
The trial court added: "The Supreme Court in the Equatorial case,
G.R No. 106063, has categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this Court, the following
issues:15
"A
The basis of the dismissal of the Complaint by the Regional
Trial Court not only disregards basic concepts and principles in
the law on contracts and in civil law, especially those on
rescission and its corresponding legal effects, but also ignores
the dispositive portion of the Decision of the Supreme Court in
G.R. No. 106063 entitled 'Equatorial Realty Development, Inc.
& Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of
Absolute Sale in favor of petitioner by Carmelo & Bauermann,
Inc., dated July 31, 1978, over the premises used and
occupied by respondent, having been 'deemed rescinded' by
the Supreme Court in G.R. No. 106063, is 'void at its inception
as though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the
aforesaid Deed of Absolute Sale, dated July 31, 1978, having
been 'deemed rescinded' by the Supreme Court in G.R. No.
106063, petitioner 'is not the owner and does not have any
right to demand backrentals from the subject property,' and
that the rescission of the Deed of Absolute Sale by the
Supreme Court does not confer to petitioner 'any vested right
nor any residual proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the
civil case, as stated in its Order of March 11, 1998, was not
raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court
dismissed Civil Case No. 97-85141 is not one of the grounds
of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997
Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive
issue of whether Equatorial is entitled to back rentals; and (2) the
procedural issue of whether the court a quo's dismissal of Civil Case
No. 97-85141 was based on one of the grounds raised by respondent
in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case
at bar, as found by this Court en banc in its Decision promulgated in
1996 in the mother case, no right of ownership was transferred from
Carmelo to Equatorial in view of a patent failure to deliver the property
to the buyer.
Rental — a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin
with some basic parameters. Rent is a civil fruit16 that belongs to the
owner of the property producing it17 by right of
accession.18 Consequently and ordinarily, the rentals that fell due from
the time of the perfection of the sale to petitioner until its rescission by
final judgment should belong to the owner of the property during that
period.
By a contract of sale, "one of the contracting parties obligates himself
to transfer ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent."19
Ownership of the thing sold is a real right,20 which the buyer acquires
only upon delivery of the thing to him "in any of the ways specified in
articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the
vendee."21 This right is transferred, not merely by contract, but also by
tradition or delivery.22 Non nudis pactis sed traditione dominia rerum
transferantur. And there is said to be delivery if and when the thing
sold "is placed in the control and possession of the vendee."23 Thus, it
has been held that while the execution of a public instrument of sale is
recognized by law as equivalent to the delivery of the thing
sold,24 such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take
actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which both
parties must join and the minds of both parties concur. It is an act by
which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the
same. In its natural sense, delivery means something in addition to
the delivery of property or title; it means transfer of possession.26 In
the Law on Sales, delivery may be either actual or constructive, but
both forms of delivery contemplate "the absolute giving up of the
control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From
the peculiar facts of this case, it is clear that petitioner never
took actual control and possession of the property sold, in view of
respondent's timely objection to the sale and the continued actual
possession of the property. The objection took the form of a court
action impugning the sale which, as we know, was rescinded by a
judgment rendered by this Court in the mother case. It has been held
that the execution of a contract of sale as a form of constructive
delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee.28 When there is such
impediment, "fiction yields to reality — the delivery has not been
effected."29
Hence, respondent's opposition to the transfer of the property by way
of sale to Equatorial was a legally sufficient impediment that
effectively prevented the passing of the property into the latter's
hands.
This was the same impediment contemplated in Vda. de Sarmiento v.
Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the
sale in question from which we can infer that the vendor did
not intend to deliver outright the possession of the lands to the
vendee? We find none. On the contrary, it can be clearly seen
therein that the vendor intended to place the vendee in actual
possession of the lands immediately as can be inferred from
the stipulation that the vendee 'takes actual possession
thereof . . . with full rights to dispose, enjoy and make use
thereof in such manner and form as would be most
advantageous to herself.' The possession referred to in the
contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? she
did not. As provided in Article 1462, the thing sold shall be
deemed delivered when the vendee is placed in
the control and possession thereof, which situation does not
here obtain because from the execution of the sale up to the
present the vendee was never able to take possession of the
lands due to the insistent refusal of Martin Deloso to surrender
them claiming ownership thereof. And although it is postulated
in the same article that the execution of a public document is
equivalent to delivery, this legal fiction only holds true when
there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the
vendee. x x x."31
The execution of a public instrument gives rise, therefore, only to a
prima facie presumption of delivery. Such presumption is destroyed
when the instrument itself expresses or implies that delivery was not
intended; or when by other means it is shown that such delivery was
not effected, because a third person was actually in possession of the
thing. In the latter case, the sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil
Code, Equatorial as buyer acquired a right to the fruits of the thing
sold from the time the obligation to deliver the property to petitioner
arose.32 That time arose upon the perfection of the Contract of Sale
on July 30, 1978, from which moment the laws provide that the parties
to a sale may reciprocally demand performance.33 Does this mean
that despite the judgment rescinding the sale, the right to the
fruits34 belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative,
because "[r]escission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; x x x" Not only the land and building sold, but also the
rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial
x x x has received rents" from Mayfair "during all the years that this
controversy has been litigated." The Separate Opinion of Justice
Teodoro Padilla in the mother case also said that Equatorial was
"deriving rental income" from the disputed property. Even
herein ponente's Separate Concurring Opinion in the mother case
recognized these rentals. The question now is: Do all these
statements concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial
during the litigation should not be interpreted to mean either actual
delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial — as
alleged buyer of the disputed properties and as alleged successor-in-
interest of Carmelo's rights as lessor — submitted two ejectment suits
against Mayfair. Filed in the Metropolitan Trial Court of Manila,
the first was docketed as Civil Case No. 121570 on July 9, 1987; and
the second, as Civil Case No. 131944 on May 28, 1990. Mayfair
eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely
to avoid imminent eviction. It is in this context that one should
understand the aforequoted factual statements in the ponencia in the
mother case, as well as the Separate Opinion of Mr. Justice Padilla
and the Separate Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible
contract is valid until rescinded. However, this general principle is not
decisive to the issue of whether Equatorial ever acquired the right to
collect rentals. What is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by this Court in
the mother case, Equatorial was never put in actual and effective
control or possession of the property because of Mayfair's timely
objection.
As pointed out by Justice Holmes, general propositions do not decide
specific cases. Rather, "laws are interpreted in the context of the
peculiar factual situation of each case. Each case has its own flesh
and blood and cannot be decided on the basis of isolated clinical
classroom principles."36
In short, the sale to Equatorial may have been valid from inception,
but it was judicially rescinded before it could be consummated.
Petitioner never acquired ownership, not because the sale was void,
as erroneously claimed by the trial court, but because the sale was
not consummated by a legally effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the "rescinded"
Deed of Absolute Sale because of its bad faith. This being the law of
the mother case decided in 1996, it may no longer be changed
because it has long become final and executory. Petitioner's bad faith
is set forth in the following pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 'inutile.'
 xxx xxx xxx
"Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts. As
such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
xxx xxx xxx
"As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
xxx xxx xxx
"On the part of Equatorial, it cannot be a buyer in good
faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the property
superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the
purchase price it paid to Carmelo; no more, no less. This Court has
firmly ruled in the mother case that neither of them is entitled to any
consideration of equity, as both "took unconscientious advantage of
Mayfair."38
In the mother case, this Court categorically denied the payment of
interest, a fruit of ownership. By the same token, rentals, another fruit
of ownership, cannot be granted without mocking this Court's en banc
Decision, which has long become final.
Petitioner's claim of reasonable compensation for respondent's use
and occupation of the subject property from the time the lease expired
cannot be countenanced. If it suffered any loss, petitioner must bear it
in silence, since it had wrought that loss upon itself. Otherwise, bad
faith would be rewarded instead of punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but
for (a) the patent failure to deliver the property and (b) petitioner's bad
faith, as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from the
accepted and usual course of judicial proceedings when it dismissed
Civil Case No. 97-85141 on a ground not raised in respondent's
Motion to Dismiss. Worse, it allegedly based its dismissal on a ground
not provided for in a motion to dismiss as enunciated in the Rules of
Court.@lawphil.net
We are not convinced A review of respondent's Motion to Dismiss
Civil Case No. 97-85141 shows that there were two grounds invoked,
as follows:
"(A)
Plaintiff is guilty of forum-shopping.itc-alf
"(B)
Plaintiff's cause of action, if any, is barred by prior judgment."39
The court a quo ruled, inter alia, that the cause of action of petitioner
plaintiff in the case below) had been barred by a prior judgment of this
Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was avoid," we hold,
nonetheless, that petitioner's cause of action is indeed barred by a
prior judgment of this Court. As already discussed, our Decision in
G.R No. 106063 shows that petitioner is not entitled to back rentals,
because it never became the owner of the disputed properties due to
a failure of delivery. And even assuming arguendo that there was a
valid delivery, petitioner's bad faith negates its entitlement to the civil
fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter
that has been adjudicated by a court of competent jurisdiction must be
deemed to have been finally and conclusively settled if it arises in any
subsequent litigation between the same parties and for the same
cause.40 Thus, "[a] final judgment on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and
their privies and constitutes an absolute bar to subsequent actions
involving the same claim, demand, or cause of action."41 Res
judicata is based on the ground that the "party to be affected, or some
other with whom he is in privity, has litigated the same matter in a
former action in a court of competent jurisdiction, and should not be
permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of
unnecessary suits and repetitive trials. At the same time, it prevents
the clogging of court dockets. Equally important, it stabilizes rights
and promotes the rule of law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue
to show satisfaction of the elements of res judicata. Suffice it to say
that, clearly, our ruling in the mother case bars petitioner from
claiming back rentals from respondent. Although the court a quo erred
when it declared "void from inception" the Deed of Absolute Sale
between Carmelo and petitioner, our foregoing discussion supports
the grant of the Motion to Dismiss on the ground that our prior
judgment in G.R No. 106063 has already resolved the issue of back
rentals.
On the basis of the evidence presented during the hearing of
Mayfair's Motion to Dismiss, the trial court found that the issue of
ownership of the subject property has been decided by this Court in
favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063
has categorically stated that the Deed of Absolute Sale dated
July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."43(Emphasis in the original)
Hence, the trial court decided the Motion to Dismiss on the basis of
res judicata, even if it erred in interpreting the meaning of "rescinded"
as equivalent to "void" In short, it ruled on the ground raised; namely,
bar by prior judgment. By granting the Motion, it disposed correctly,
even if its legal reason for nullifying the sale was wrong. The correct
reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against
petitioner.itc-alf
SO ORDERED.
Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and
Carpio, JJ., concur.
Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., concurring opinion.
Puno, J., concur and also join the concurring opinion of J. Melo.
Vitug, J., see dissenting opinion.
Kapunan, J., join the dissenting opinions of Justices Vitug and
Sandoval-Gutierrez.
Mendoza, J., concur in this and Melo, J.'s concurring opinion.
De Leon, Jr., J., join the dissenting opinion of Justice J.C. Vitug.
Concurring Opinion
MELO, J., concurring:
While I express my conformity to the ponencia of our distinguished
colleague, Mr. Justice Artemio V. Panganiban, I would just like to
make the following observations:
1. The issue in this case was squarely resolved in our 1996 En
Banc decision in the main case. What petitioner is asking us to
do now is to reverse or modify a judgment which is accurate in
every respect, conformable to law and jurisprudence, and
faithful to principles of fairness and justice.
 2. Petitioner's submissions are deceiving. It is trying to collect
unjustified and unbelievably increased rentals by provoking a
purely academic discussion, as far as respondent is
concerned, of a non-applicable provision of the Civil Code on
contracts.
3. To grant the petition is to reward bad faith, for petitioner has
deprived respondent of the latter's property rights for twenty-
three (23) years and has forced it to defend its interests in
case after case during that lengthy period. Petitioner now tries
to inflict further injury in the fantastic and groundless amount of
P115,947,867.00. To remand this case to the lower court in
order to determine the back rentals allegedly due to petitioner
Equatorial Realty Development Corporation, Inc. is to
encourage continuation of crafty tactics and to allow the further
dissipation of scarce judicial time and resources.
The instant petition arose from a complaint for back rentals, increased
rentals and interests filed by petitioner Equatorial Realty
Development, Inc. (Equatorial) against respondent Mayfair Theater,
Inc. (Mayfair). It has to be adjudicated in the context of three earlier
petitions decided by this Court.
A dispute between the two parties over the ownership of a commercial
lot and building along Claro M. Recto Avenue in Manila has led to 23
years of protracted litigation, including the filing of 4 petitions with the
Court, namely, G.R. No. L-106063, decided on November 21, 1996
(264 SCRA 483); G.R. No. 103311 decided on March 4, 1992; G.R.
No. 136221, decided on May 12, 2000; and the present petition, G.R.
No. 133879.
The case at bar is a classic illustration of how a dubious interpretation
of the dispositive portion of the 1996 decision for petitioner could lead
to 5 more years of bitter litigation after the initial 18 years of legal
proceedings over the first case.
Lease contracts over the subject property were executed on June 1,
1967 and March 31, 1969 by original owner Carmelo and Bauermann,
Inc. (Carmelo) in favor of herein respondent Mayfair. The leases
expired on May 31, 1987 and March 31, 1989, respectively. The lease
contracts embodied provisions giving Mayfair a right-of-first-refusal
should Carmelo sell the property.
In an act characterized as bad faith by this Court, the property, in
violation of the right of first refusal, was sold by Carmelo to herein
petitioner Equatorial, on July 31, 1978 for P11,300,000.00. On
September 13, 1978, Mayfair filed the first case for annulment of the
contract of sale, specific performance of the right-of-first-refusal
provision, and damages. The Regional Trial Court (RTC) of Manila
decided the case in favor of Equatorial on February 7, 1991.
Counterclaims for compensation arising from the use of the premises
were awarded to Equatorial by the 1991 RTC decision.
On June 23, 1992, the Court of Appeals reversed the RTC decision,
thus leading to the first petition, G.R. No. 106063, filed against Mayfair
by both Equatorial and Carmelo.
On November 21, 1996, this Court En Banc rendered its decision (264
SCRA 483 [1996]), disposing:
WHEREFORE, the petition for review of the decision of the
Court of Appeals dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby rescinded; petitioner
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo and Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23,
1992) in the main case, raised to this Court, Mayfair was ordered to
directly pay P11,300,000.00 to Equatorial whereupon Equatorial
would execute the deeds and documents necessary for the transfer of
ownership to Mayfair and the registration of the property in its name.
The execution of documents and the transfer of the property were
directly between Equatorial and Mayfair. Our decision in 1996 (G.R.
No. 106063) affirmed the appellate decision. However, while the 1978
deed of sale questioned by Mayfair was rescinded, we ordered
Carmelo to first return to Equatorial the purchase price of the property,
whereupon Equatorial would return ownership to Carmelo, after which
Mayfair would buy the lot for P11,300,000.00 from Carmelo.
When the case was remanded to the RTC for execution of the
decision, it was ascertained that Carmelo and Bauermann, Inc. was
no longer in existence. The Sheriff could not enforce the portions of
the judgment calling for acts to be performed by Carmelo. Mayfair,
therefore, deposited the amount of P11,300,000.00 with the RTC for
payment to Equatorial, hoping that the latter would faithfully comply
with this Court's decision. In this regard, it may be mentioned that
buyer Mayfair also paid P847,000.00 in taxes which the vendors
should have paid. The RTC ordered the execution of deeds of
transfer, the cancellation of Equatorial's titles to the property, and the
issuance of new titles in favor of Mayfair. Accordingly, the property
was registered in the name of Mayfair and titles issued in its favor.
Equatorial, however, saw an opening for further litigation. It
questioned the method employed by the RTC to execute the Court's
judgment, arguing that the directives involving Carmelo's participation
were ignored by the trial court. The litigation over the alleged
incorrectness of the execution eventually led to the second petition
earlier mentioned — G.R. No. 136221.
It may be mentioned at this point that on July 9, 1987, while the right-
of-first-refusal and cancellation case was pending, Equatorial filed an
action for ejectment against Mayfair. Because the issue of ownership
was still pending in the case for rescission of deed of sale including
the enforcement of the right-of-first-refusal provision, the ejectment
case was dismissed. Appeals to the RTC and the Court of Appeals
were denied.
On March 26, 1990, still another ejectment case was filed by
Equatorial. In decisions which reached all the way to this Court in
G.R. No. 103311, the cases for ejectment did not prosper. Mayfair
won the cases on March 4, 1992.
The three cases decided by the Court in these litigations between
Equatorial and Mayfair, all of them in favor of Mayfair, are
antecedents of the present and fourth petition. Equatorial has been
adjudged as having unlawfully and in bad faith acquired property that
should have belonged to Mayfair since 1978. Ownership and title
have been unquestionably transferred to Mayfair.
Seemingly, Equatorial now seeks to profit from its bad faith. While the
case involving the allegedly incorrect execution of the 1996 decision
on cancellation of the deed of sale in G.R. No. 106063 was being
litigated, Equatorial filed on September 18, 1997 with the RTC of
Manila two complaints for payment of back and increased rentals
arising from the use by Mayfair of the lot, building, and other fixed
improvements. From the time the property was sold by Carmelo to
Equatorial, lessee Mayfair had been paying to Equatorial the rentals
fixed in the 1967 and 1969 lease contracts with the original owner.
This was during the pendency of the complaint for annulment of the
contract of sale, specific performance of the right-of-first-refusal
provision, and damages.
As found in our 1998 decision in G.R. No. 106063, the disputed
property should have actually belonged to Mayfair at the time.
However, to avoid the ejectment cases, which Equatorial nonetheless
later filed, Mayfair was forced to pay rentals to Equatorial. It paid the
rentals based on the rates fixed by Carmelo in the lease contracts.
Equatorial, claiming the 1967 and 1969 rentals to be inadequate,
claimed increased amounts as reasonable compensation. Because
the amounts fixed by the lease contract with Carmelo but paid to
Equatorial were only at the rate of P17,966.21 monthly while
Equatorial wanted P210,000.00 every month plus legal interests, the
suit was for the payment of P115,947,867.68 as of June 19, 1997.
Citing the 1996 decision in G.R. No. 106063, Mayfair contended that it
owned the property under the decision. It stated that the sale by
Carmelo to Equatorial had been cancelled, and, as owner, Mayfair
owed no increased rentals to Equatorial based on said decision.
The present case on back rentals could not be conclusively decided
because the execution and finality of the issue of ownership were
being contested for 5 years in the petition on the proper execution
filed in G.R. No. 136221. This petition had to wait for the resolution of
G.R. No. 136221.
In its decision dated May 12, 2000, in G.R. No. 136221 (First Division,
per Mr. Justice Pardo; Davide, Jr., C.J., Kapunan, and Ynares-
Santiago, JJ., concurring), this Court reiterated the judgment in G.R.
No. 106063. It emphasized that the 1996 decision awarding the
property to Mayfair was clear. It stated that the decision having
attained finality, there was nothing left for the parties to do but to
adhere to the mandates of the decision.
In the dispositive portion, however, the Court ordered the trial court "to
carry out the execution following strictly the terms" of the 1996
decision. However, as earlier stated, this could not be done because
Carmelo had ceased to exist. There was no longer any Carmelo
which could return the P11,300,000.00 consideration of the 1978 sale
to Equatorial as ordered in the dispositive portion of the 1996
decision. Equatorial could not and would not also execute the deeds
returning the property to Carmelo, as directed in the decision. Neither
could the defunct Carmelo sell the property to Mayfair at the sale price
in 1978 when the right of first refusal was violated.
Mayfair had to file a motion for partial reconsideration, emphasizing
that it was impossible for a corporation which has gone out of
existence to obey the specific orders of this Court. A resolution was,
therefore, rendered on June 25, 2001 putting an end to the
controversy over the proper implementation of the 1996 judgment.
This June 25, 2001 Resolution in G.R. No. 136221 validated the
issuance of new titles in the name of the adjudicated owner, Mayfair.
The Court ordered the direct release to Equatorial of the
P11,300,000.00 deposited in court for the account of the defunct
Carmelo.
In the follow-up Resolution of the First Division in G.R. No. 136221
dated June 25, 2001, the Court, after describing the case as a
Promethean one involving the execution of a decision which has been
long final, and after calling the efforts to stave off execution as a
travesty of justice, instructed the trial court:
1. To execute the Court's Decision strictly in accordance with
the ruling in G.R. No. 106063 by validating the acts of the
sheriff of Manila and the titles in the name of Mayfair Theater,
Inc. issued by the Register of Deeds of Manila consistent
therewith;
2. In case of failure of Carmelo and Bauermann to accept the
amount of P11,300,000.00 deposited by Mayfair Theater, Inc.
with the Clerk of Court, Regional Trial Court, Manila, to
authorize the Clerk of Court to RELEASE the amount of
P11,300,000.00 deposited with the court for the account of
Carmelo and Bauermann, Inc. to petitioner;
3. To devolve upon the trial court the determination of other
issues that may remain unresolved among the parties, relating
to the execution of this Court's final decision in G.R. No.
106063.
In light of the Court's judgments in G.R. No. 106063 and G.R. No.
136221, the present petition in G.R. No. 133879 for back rentals
should now be finally resolved, applying the rulings in those earlier
decisions.
Indubitably, the 1978 deed of sale executed by Carmelo in favor of
Equatorial over the disputed property has been set aside by this
Court. Equatorial was declared a buyer in bad faith. The contract was
characterized as a fraudulent sale and the entirety of the indivisible
property sold to Equatorial was the property we ordered to be
conveyed to Mayfair for the same price paid by Equatorial to Carmelo.
It is also beyond question that the method of execution of the 1996
decision by the RTC, the direct payment by Mayfair to Equatorial,
bypassing and detouring the defunct Carmelo corporation, has been
validated by this Court. There are no longer any procedural obstacles
to the full implementation of the decision.
And finally, the property sold to Equatorial in violation of Mayfair's
right of first refusal is now indisputably possessed by, and owned and
titled in the name of, respondent Mayfair.
Parenthetically, the issue on the payment of back and increased
rentals, plus interests, was actually settled in the 1996 decision in
G.R. No. 106063. It could not be enforced at the time only because of
the controversy unfortunately raised by Equatorial over the proper
execution of the 1996 decision.
It is now time to reiterate the 1996 decision on interests and settle the
dispute between Mayfair and Equatorial once and for all.
Thus, we reiterate that:
On the question of interest payments on the principal amount
of P11,300.000.00, it must be borne in mind that both Carmelo
and Equatorial acted in bad faith. Carmelo knowingly and
 deliberately broke a contract entered into with Mayfair. It sold
the property to Equatorial with purpose and intent to withhold
any notice or knowledge of the sale coming to the attention of
Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first
refusal.
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full knowledge
the Mayfair had a right to or interest in the property superior to
its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of consideration
based on equity which might warrant the grant of
interests. The vendor received as payment from the vendee
what, at the time, was a full and fair price for the property. It
has used the P11,300,000.00 all these years earning income
or interest from the amount. Equatorial, on the other hand, has
received rents and otherwise profited from the use of the
property turned over to it by Carmelo. In fact, during all the
years that this controversy was being litigated. Mayfair paid
rentals regularly to the buyer who had an inferior right to
purchase the property. Mayfair is under no obligation to pay
any interests arising from this judgment to either Carmelo or
Equatorial (264 SCRA 483, pp. 511-512).
Worthy quoting too is the concurring opinion in our 1996 decision of
Mr. Justice Teodoro R. Padilla as follows:
The equities of the case support the foregoing legal
disposition. During the intervening years between 1 August
1978 and this date, Equatorial (after acquiring the C.M. Recto
property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of
the lessees in the property was Mayfair. Carmelo had, in turn,
been using the proceeds of the sale, investment-wise and/or
operation wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the
solution submitted by this opinion, because the price of
P11,300,000.00 which it has to pay Carmelo in the exercise of its right
of first refusal, has been subjected to the inroads of inflation so that its
purchasing power today is less than when the same amount was paid
by Equatorial to Carmelo. But then it cannot be overlooked that it was
Carmelo's breach of Mayfair's right of first refusal that prevented
Mayfair from paying the price of P11,300,000.00 to Carmelo at about
the same time the amount was paid by Equatorial to Carmelo.
Moreover, it cannot be ignored that Mayfair had also incurred
consequential or "opportunity" losses by reason of its failure to
acquire and use the property under its right of first refusal. In fine, any
loss in purchasing power of the price of P11,300,000.00 is for
Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property. (ibid.,
pp. 511-512).
It can be seen from the above ruling that the issue of rentals and
interests was fully discussed and passed upon in 1996. Equatorial
profited from the use of the building for all the years when it had no
right or, as stated in our decision, had an inferior right over the
property. Mayfair, which had the superior right, continued to pay rent
but it was the rate fixed in the lease contract with Carmelo. We see no
reason for us to now deviate from the reasoning given in our main
decision. The decision has been final and executory for five (5) years
and petitioner has failed to present any valid and reasonable ground
to reconsider, modify or reverse it. Let that which has been fairly
adjudicated remain final.
My second observation relates to the clever but, to my mind,
deceptive argument foisted by Equatorial on the Court.
Equatorial relies on the Civil Code provision on rescissible contracts
to bolster its claim. Its argument is that a rescissible contract remains
valid and binding upon the parties thereto until the same is rescinded
in an appropriate judicial proceeding.
Equatorial conveniently fails to state that the July 31, 1978 Deed of
Absolute Sale was between Equatorial and Carmelo only.
Respondent Mayfair was not a party to the contract. The deed of sale
was surreptitiously entered into between Carmelo and Equatorial
behind the back and in violation of the rights of Mayfair. Why should
the innocent and wronged party now be made to bear the
consequences of an unlawful contract to which it was not privy?
Insofar as Equatorial and Carmelo are concerned, their 1978 contract
may have validly transferred ownership from one to the other. But not
as far as Mayfair is concerned.
Mayfair starts its arguments with a discussion of Article 1381 of the
Civil Code that contracts entered into in fraud of creditors are
rescissible. There is merit in Mayfair's contention that the legal effects
are not restricted to the contracting parties only. On the contrary, the
rescission is for the benefit of a third party, a stranger to the contract.
Mayfair correctly states that as far as the injured third party is
concerned, the fraudulent contract, once rescinded, is non-existent or
void from its inception. Hence, from Mayfair's standpoint, the deed of
absolute sale which should not have been executed in the first place
by reason of Mayfair's superior right to purchase the property and
which deed was cancelled for that reason by this Court, is legally non-
existent. There must be a restoration of things to the condition prior to
the celebration of the contract (Respondent relies on Almeda vs. J. M.
& Company, 43072-R, December 16, 1975, as cited in the Philippine
Law Dictionary; IV Arturo M. Tolentino, Civil Code of the Philippines,
570, 1990 Ed., citing Manresa; IV Edgardo L. Paras, Civil Code of the
Philippines, 717-718, 1994 Ed.).
It is hard not to agree with the explanations of Mayfair, to wit:
4.22. As a consequence of the rescission of the Deed of
Absolute Sale, it was as if Equatorial never bought and
became the lessor of the subject properties. Thus, the court a
quo did not err in ruling that Equatorial is not the owner and
does not have any right to demand back rentals from [the]
subject property.
4.23. Tolentino, supra, at 577-578 further explains that the
effects of rescission in an accion pauliana retroact to the date
when the credit or right being enforced was acquired.
"While it is necessary that the credit of the plaintiff in
the accion pauliana must be prior to the fraudulent
alienation, the date of the judgment enforcing it is
immaterial. Even if the judgment be subsequent to the
alienation, it is merely declaratory, with retroactive
effect to the date when the credit was constituted . . ."
(emphasis supplied)
4.24. The clear rationale behind this is to prevent conniving
parties, such as Equatorial and Carmelo, from benefiting in
any manner from their unlawful act of entering into a contract
in fraud of innocent parties with superior rights like Mayfair.
Thus, to allow Equatorial to further collect rentals from Mayfair
is to allow the former to profit from its own act of bad faith. Ex
dolo malo non oritur actio. (Respondent's Comment, pp. 338-
339, Rollo).
This brings me to my third and final observation in this case. This
Court emphasized in the main case that the contract of sale between
Equatorial and Carmelo was characterized by bad faith. The Court
described the sale as "fraudulent" in its 1996 decision. It stated that
the damages which Mayfair suffered are in terms of actual injury and
lost opportunities, emphasizing that Mayfair should not be given an
empty or vacuous victory. Moreover, altogether too many suits have
been filed in this case. Four separate petitions have come before us,
necessitating full length decisions in at least 3 of them. The 1996
decision stressed that the Court has always been against multiplicity
of suits.
There was bad faith from the execution of the deed of sale because
Equatorial and Carmelo affirmatively operated with furtive design or
with some motive of self-interest or ill-will or for ulterior purposes (Air
France vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a
known duty by the two parties to the unlawful contract arising from
motives of interests or ill-will calculated to cause damage to another
(Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]).
The presence of bad faith is clear from the records. Our resolution of
this issue in 1996 (G.R. 106063) is res judicata.
We stated:
First and foremost is that the petitioners (referring to Equatorial
and Carmelo) acted in bad faith to render Paragraph 8
"inutile".
xxx xxx xxx
 Since Equatorial is a buyer in bad faith, this finding renders the
sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact
that Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As
such Equatorial cannot tenably claim to be a purchaser in
good faith and, therefore, rescission lies.
xxx xxx xxx
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it
to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
xxx xxx xxx
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior to
its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair (264 SCRA 506, 507-511).
We ruled that because of bad faith, neither may Carmelo and
Equatorial avail themselves of considerations based on equity which
might warrant the grant of interests and, in this case, unconscionably
increased rentals.
Verily, if Mayfair were a natural person it could very well have asked
for moral damages instead of facing a lengthy and expensive suit to
pay rentals many times higher than those stipulated in the contract of
lease. Under the Civil Code, Mayfair is the victim in a breach of
contract where Carmelo and Equatorial acted fraudulently and in bad
faith.
Considering the judgments in our 3 earlier decisions, Mayfair is under
no obligation to pay any interests, whether based on law or equity, to
Carmelo or Equatorial. Mayfair is the wronged entity, the one which
has suffered injury since 1978 or for the 23 years it was deprived of
the property.
Equatorial has received rentals and other benefits from the use of the
property during these 23 years, rents and benefits which would have
accrued to Mayfair if its rights had not been violated.
There is no obligation on the part of respondent Mayfair to pay any
increased, additional, back or future rentals or interests of any kind to
petitioner Equatorial under the circumstances of this case.
I, therefore, concur with the majority opinion in denying due course
and dismissing the petition.
Puno and Mendoza, JJ., concur.
Dissenting Opinion
VITUG, J., dissenting:
Civil Law, in its usual sophistication, classifies defective contracts
(unlike the seemingly generic treatment in Common Law), into, first,
the rescissible contracts,1 which are the least infirm; followed
by, second, the voidable contracts;2 then, third, the unenforceable
contracts;3 and, finally, fourth, the worst of all or the void contracts.4 In
terms of their efficaciousness, rescissible contracts are regarded,
among the four, as being the closest to perfectly executed contracts.
A rescissible contract contains all the requisites of a valid contract and
are considered legally binding, but by reason of injury or damage to
either of the contracting parties or to third persons, such as creditors,
it is susceptible to rescission at the instance of the party who may be
prejudiced thereby. A rescissible contract is valid, binding and
effective until it is rescinded. The proper way by which it can be
assailed is by an action for rescission based on any of the causes
expressly specified by law.5
The remedy of rescission in the case of rescissible contracts under
Article 1381 is not to be confused with the remedy of rescission, or
more properly termed "resolution," of reciprocal obligations under
Article 1191 of the Civil Code. While both remedies presuppose the
existence of a juridical relation that, once rescinded, would require
mutual restitution, it is basically, however, in this aspect alone when
the two concepts coincide.
Resolution under Article 1191 would totally release each of the
obligors from compliance with their respective covenants. It might be
worthwhile to note that in some cases, notably Ocampo vs. Court of
Appeals,6 and Velarde vs. Court of Appeals,7 where the Court referred
to rescission as being likened to contracts which are deemed "void at
inception," the focal issue is the breach of the obligation involved that
would allow resolution pursuant to Article 1191 of the Civil Code. The
obvious reason is that when parties are reciprocally bound, the refusal
or failure of one of them to comply with his part of the bargain should
allow the other party to resolve their juridical relationship rather than
to leave the matter in a state of continuing uncertainty. The result of
the resolution, when decreed, renders the reciprocal obligations
inoperative "at inception."
Upon the other hand, the rescission of a rescissible contract under
Article 1381, taken in conjunction with Article 1385, is a relief which
the law grants for the protection of a contracting party or a third
person from injury and damage that the contract may cause, or to
protect some incompatible and preferent right created by the
contract.8Rescissible contracts are not void ab initio, and the principle,
"quod nullum est nullum producit effectum," in void and inexistent
contracts is inapplicable. Until set aside in an appropriate action
rescissible contracts are respected as being legally valid, binding and
in force. It would be wrong to say that rescissible contracts produce
no legal effects whatsoever and that no acquisition or loss of rights
could meanwhile occur and be attributed to the terminated contract.
The effects of the rescission, prospective in nature, can come about
only upon its proper declaration as such.
Thus when the Court9 held the contract to be "deemed rescinded" in
G.R. No. 106063, the Court did not mean a "declaration of nullity" of
the questioned contract. The agreement between petitioner and
Carmelo being efficacious until rescinded, validly transferred
ownership over the property to petitioner from the time the deed of
sale was executed in a public instrument on 30 July 1978 up to the
time that the decision in G.R. No. 106063 became final on 17 March
1997. It was only from the latter date that the contract had ceased to
be efficacious. The fact that the subject property was in the hands of a
lessee, or for that matter of any possessor with a juridical title derived
from an owner, would not preclude a conferment of ownership upon
the purchaser nor be an impediment from the transfer of ownership
from the seller to the buyer. Petitioner, being the owner of the property
(and none other) until the judicial rescission of the sale in its favor,
was entitled to all incidents of ownership inclusive of, among its other
elements, the right to the fruits of the property. Rentals or rental value
over that disputed property from 30 July 1978 up to 17 March 1997
should then properly pertain to petitioner. In this respect, the much
abused terms of "good faith" or "bad faith " play no role; ownership,
unlike other concepts, is never described as being either in good faith
or in bad faith.
With all due respect, I am thus unable to join in this instance my
colleagues in the majority.
Kapunan and De Leon, Jr., JJ., concur.
Dissenting Opinion
SANDOVAL-GUTIERREZ, J., dissenting:
"Stare decisis et non quieta movere — follow past precedents and do
not disturb what has been settled. Adherence to this principle is
imperative if this Court is to maintain stability in jurisprudence.
I regret that I am unable to agree with the majority opinion.
The principal issue in this case is whether a rescissible contract is
void and ineffective from its inception. This issue is not a novel one.
Neither is it difficult to resolve as it involves the application of
elementary principles in the law on contracts, specifically on
rescissible contracts, as distinguished from void or inexistent
contracts.
The facts are simple.
On June 1, 1967, respondent Mayfair Theater, Inc. (Mayfair) leased
portions of the ground, mezzanine and second floors of a two storey
commercial building located along C.M. Recto Avenue Manila. The
building together with the land on which it was constructed was then
owned by Carmelo & Bauermann, Inc. (Carmelo). Respondent used
these premises as "Maxim Theater." The lease was for a period of
twenty (20) years.
On March 31, 1969, Mayfair leased from Carmelo another portion of
the second floor, as well as two (2) store spaces on the ground and
mezzanine floors of the same building. Respondent Mayfair used the
premises as a movie theater known as "Miramar Theater."
Both leases contained the following identical provisions:
"That if the LESSOR should desire to sell the leased premises,
the LESSEE shall be given 30-days exclusive option to
purchase the same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in
the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions
thereof.
On July 31, 1978, Carmelo entered into a Deed of Absolute Sale
whereby it sold the subject land and two-storey building to petitioner
Equatorial Realty Development, Inc. (Equatorial) for P11,300,000.00.
Having acquired from Carmelo ownership of the subject property,
Equatorial received rents from Mayfair for sometime.
Subsequently, Mayfair, claiming it had been denied its right to
purchase the leased property in accordance with the provisions of its
lease contracts with Carmelo, filed with the Regional Trial Court,
Branch 7, Manila, a suit for specific performance and annulment of
sale with prayer to enforce its "exclusive option to purchase" the
property. The dispute between Mayfair, on the one hand, and
Carmelo and Equatorial on the other, reached this Court in G.R. No.
106063, "Equatorial Realty Development, Inc. & Carmelo &
Bauermann, Inc. vs. Mayfair Theater, Inc."1On November 21, 1996,
this Court rendered a Decision, the dispositive portion of which reads:
"WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty-Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter
is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED."
The Decision of this Court in G.R. No. 106063 became final and
executory on March 17, 1997.
On April 25, 1997, Mayfair filed with the trial court a motion for
execution which was granted.
However, Carmelo could no longer be located. Thus, Mayfair
deposited with the trial court its payment to Carmelo in the sum of
P11,300,000.00 less P847,000.00 as withholding tax.
The Clerk of Court of the Manila Regional Trial Court, as sheriff,
executed a deed of re-conveyance in favor of Carmelo and a deed of
sale in favor of Mayfair. On the basis of these documents, the
Registry of Deeds of Manila cancelled Equatorial's titles and issued
new Certificates of Title2 in the name of Mayfair.
In G.R. No. 136221,3 "Equatorial Realty Development, Inc. vs. Mayfair
Theater, Inc.," this Court instructed the trial court to execute strictly
this Court's Decision in G.R. No. 106063.
On September 18, 1997, or after the execution of this Court's
Decision in G.R. No. 106063, Equatorial filed with the Regional Trial
Court of Manila, Branch 8, an action for collection of a sum of money
against Mayfair, docketed as Civil Case No. 97-85141. Equatorial
prayed that the trial court render judgment ordering Mayfair to pay:
(1) the sum of P11,548,941.76 plus legal interest, representing
the total amount of unpaid monthly rentals/reasonable
compensation from June 1, 1987 (Maxim Theater) and March
31,1989 (Miramar Theater) to July 31, 1997;
(2) the sums of P849,567.12 and P458,853.44 a month, plus
legal interest, as rental/reasonable compensation for the use
and occupation of the subject property from August 1, 1997 to
May 31, 1998 (Maxim Theater) and March 31, 1998 (Miramar
Theater);
(3) the sum of P500,000.00 as and for attorney's fees, plus
other expenses of litigation; and
(4) the costs of the suit.4
On October 14, 1997, before filing its answer, Mayfair filed a "Motion
to Dismiss" Civil Case No. 97-85141 on the following grounds:
"(A)
PLAINTIFF IS GUILTY OF FORUM SHOPPING.
(B)
PLAINTIFF'S CAUSE OF ACTION, IF ANY, IS BARRED BY PRIOR
JUDGMENT."5
On March 11, 1998, the court a quo issued an order dismissing Civil
Case No. 97-85141 on the ground that since this Court, in G.R. No.
106063, rescinded the Deed of Absolute Sale between Carmelo and
Equatorial, the contract is void at its inception.6 Correspondingly,
Equatorial is not the owner of the subject property and, therefore,
does not have any right to demand from Mayfair payment of rentals or
reasonable compensation for its use and occupation of the premises.
Equatorial filed a motion for reconsideration but was denied.
Hence, the present petition.
At this stage, I beg to disagree with the ruling of the majority that (1)
Equatorial did not acquire ownership of the disputed property from
Carmelo because of lack of delivery; and that (2) Equatorial is not
entitled to the payment of rentals because of its bad faith.
Firmly incorporated in our Law on Sales is the principle that ownership
is transferred to the vendee by means of delivery, actual or
constructive.7 There is actual delivery when the thing sold is placed in
the control and possession of the vendee.8 Upon the other hand,
there is constructive delivery when the delivery of the thing sold is
represented by other signs or acts indicative thereof. Article 1498 of
the Civil Code is in point. It provides that "When the sale is made
through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from
the deed the contrary does not appear or cannot clearly be inferred."9
Contrary to the majority opinion, the facts and circumstances of the
instant case clearly indicate that there was indeed actual and
constructive delivery of the disputed property from Carmelo to
Equatorial.
Let me substantiate my claim.
First, I must take exception to the majority's statement that this Court
found in G.R. No. 10606310 that, "no right of ownership was
transferred from Carmelo to Equatorial in view of a patent failure to
deliver the property to the buyer."11
A perusal of the Decision dated November 21, 1996 would reveal
otherwise.
To say that this Court found no transfer of ownership between
Equatorial and Carmelo is very inaccurate. For one, this Court, in
disposing of G.R. No. 106063, explicitly ordered Equatorial to
"execute the deeds and documents necessary to return ownership to
Carmelo & Bauermann of the disputed lots."12 I suppose this Court
would not have made such an order if it did not recognize the transfer
of ownership from Carmelo to Equatorial under the contract of sale.
For why would the Court order Equatorial to execute the deeds and
documents necessary to return ownership to Carmelo if, all along, it
believed that ownership remained with Carmelo?
Furthermore, is Court explicitly stated in the Decision that Equatorial
received rentals from Mayfair during the pendency of the case. Let me
quote the pertinent portion of the Decision, thus:
". . . Equatorial, on the other hand, has received rents and
otherwise profited from the use of the property turned over to it
by Carmelo. In fact, during all the years that this controversy
was being litigated, Mayfairpaid rentals regularly to the buyer
(Equatorial) who had an inferior right to purchase the property.
Mayfair is under no obligation to pay any interests arising from
this judgment to either Carmelo or Equatorial."13
Justice Teodoro R. Padilla, in his Separate Opinion, made the
following similar observations:
"The equities of the case support the foregoing legal
disposition. During the intervening years between 1 August
1978 and this date, Equatorial (after acquiring the C.M. Recto
property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of
the lessees in the property was Mayfair. Carmelo had, in turn,
been using the proceeds of the sale, investment-wise and/or
operation-wise in its own business."14
Obviously, this Court acknowledged the delivery of the property from
Carmelo to Equatorial. As aptly described by Justice Panganiban
himself, the sale between Carmelo and Equatorial had not only been
"perfected" but also "consummated".15
That actual possession of the property was turned over by Carmelo to
Equatorial is clear from the fact that the latter received rents from
Mayfair. Significantly, receiving rentals is an exercise of actual
possession. Possession, as defined in the Civil Code, is the holding of
a thing or the enjoyment of a right.16 It may either be by material
occupation or by merely subjecting the thing or right to the action of
our will.17 Possession may therefore be exercised through one's self
or through another.18 It is not necessary that the person in possession
should himself be the occupant of the property, the occupancy can be
held by another in the name of the one who claims possession. In the
case at bench, Equatorial exercised possession over the disputed
property through Mayfair. When Mayfair paid its monthly rentals to
Equatorial, the said lessee recognized the superior right of Equatorial
to the possession of the property. And even if Mayfair did not
recognize Equatorial's superior right over the disputed property, the
fact remains that Equatorial was then enjoying the fruits of its
possession.
At this juncture, it will be of aid to lay down the degrees of possession.
The first degree is the mere holding, or possession without title
whatsoever, and in violation of the right of the owner. Here, both the
possessor and the public know that the possession is wrongful. An
example of this is the possession of a thief or a usurper of land.
The second is possession with juridical title, but not that of ownership.
This is possession peaceably acquired, such that of a tenant,
depositary, or pledge. The third is possession with a just title, or a title
sufficient to transfer ownership, but not from the true owner. An
example is the possession of a vendee of a piece of land from one
who pretends to be the owner but is in fact not the owner thereof. And
the fourth is possession with a just title from the true owner. This is
possession that springs from ownership.19 Undoubtedly, Mayfair's
possession is by virtue of juridical title under the contract of lease,
while that of Equatorial is by virtue of its right of ownership under the
contract of sale.
Second, granting arguendo that there was indeed no actual delivery,
would Mayfair's alleged "timely objection to the sale and continued
actual possession of the property" constitute an "impediment" that
may prevent the passing of the property from Carmelo to
Equatorial?20
I believe the answer is no.
The fact that Mayfair has remained in "actual possession of the
property," after the perfection of the contract of sale between Carmelo
and Equatorial up to the finality of this Court's Decision in G.R. No.
106063 (and even up to the present), could not prevent the
consummation of such contract. As I have previously intimated,
Mayfair's possession is not under a claim of ownership. It cannot in
any way clash with the ownership accruing to Equatorial by virtue of
the sale. The principle has always been that the one who possesses
as a mere holder acknowledges in another a superior right or right of
ownership. A tenant possesses the thing leased as a mere holder, so
does the usufructuary of the thing in usufruct; and the borrower of the
thing loaned in commodatum. None of these holders asserts a claim
of ownership in himself over the thing. Similarly, Mayfair does not
claim ownership, but only possession as a lessee with the prior right
to purchase the property.
In G.R. No. 106063, Mayfair's main concern in its action for specific
performance was the recognition of its right of first refusal. Hence, the
most that Mayfair could secure from the institution of its suit was to be
allowed to exercise its right to buy the property upon rescission of the
contract of sale. Not until Mayfair actually exercised what it was
allowed to do by this Court in G.R. No. 106063, specifically to buy the
disputed property for P11,300,000.00, would it have any right of
ownership. How then, at that early stage, could Mayfair's action be an
impediment in the consummation of the contract between Carmelo
and Equatorial?
Pertinently, it does not always follow that, because a transaction is
prohibited or illegal, title, as between the parties to the transaction,
does not pass from the seller, donor, or transferor to the vendee,
donee or transferee.21
And third, conformably to the foregoing disquisition, I maintain that
Equatorial has the right to be paid whatever monthly rentals during the
period that the contract of sale was in existence minus the rents
already paid. In Guzman v. Court of Appeals,22 this Court decreed that
upon the purchase of the leased property and proper notice by the
vendee, the lessee must pay the agreed monthly rentals to the new
owner since, by virtue of the sale the vendee steps into the shoes of
the original lessor to whom the lessee bound himself to pay. His belief
that the subject property should have been sold to him does not justify
the unilateral withholding of rental payments due to the new owner of
the property.23 It must be stressed that under Article 1658 of the Civil
Code, there are only two instances wherein the lessee may suspend
payment of rent, namely: in case the lessor fails to make the
necessary repairs or to maintain the lessee in peaceful and adequate
enjoyment of the property leased.24 In this case, the fact remains that
Mayfair occupied the leased property. It derived benefit from such
occupation, thus, it should pay the corresponding rentals due. Nemo
cum alterius detrimento locupletari potest. No one shall enrich himself
at the expense of another.25
Neither should the presence of bad faith prevent the award of rent to
Equatorial. While Equatorial committed bad faith in entering into the
contract with Camelo, it has been equitably punished when this Court
rendered the contract rescissible. That such bad faith was the very
reason why the contract was declared rescissible is evident from the
Decision itself.26 To utilize it again, this time, to deprive Equatorial of
its entitlement to the rent corresponding to the period during which the
contract was supposed to validly exist, would not only be unjust, it
would also disturb the very nature of a rescissible contract.
Let me elucidate on the matter.
Articles 1380 through 1389 of the Civil Code deal with rescissible
contracts. A rescissible contract is one that is validly entered into, but
is subsequently terminated or rescinded for causes provided for by
law.
This is the clear implication of Article 1380 of the same Code which
provides:
"Art. 1380. Contracts validly agreed upon may be rescinded in
the cases established by law."
Rescission has been defined as follows:
"Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at
the moment prior to the celebration of said contract. It is a
relief for the protection of one of the contracting parties and
third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right
created by the contract. It implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to
someone. It sets aside the act or contract for justifiable
reasons of equity."27
Necessarily, therefore, a rescissible contract remains valid and
binding upon the parties thereto until the same is rescinded in an
appropriate judicial proceeding.
On the other hand, a void contract, which is treated in Articles 1409
through 1422 of the Civil Code, is inexistent and produces no legal
effect whatsoever. The contracting parties are not bound thereby and
such contract is not subject to ratification.
In dismissing petitioner Equatorial's complaint in Civil Case No. 97-
85141, the trial court was apparently of the impression that a
rescissible contract has the same effect as a void contract, thus:
"However, the words in the dispositive portion of the Supreme
Court "is hereby deemed rescinded" does not allow any other
meaning. The said Deed of Absolute Sale is void at its
inception.
xxx xxx xxx
The subject Deed of Absolute Sale having been rescinded by
the Supreme Court, Equatorial is not the owner and does not
have any right to demand back rentals from subject property.
The law states that only an owner can enjoy the fruits of a
certain property or jus utendi which includes the right to
receive from subject property what it produces, . . ."
The trial court erred. In G.R. No. 106063 (involving Mayfair's suit for
specific performance), this Court clearly characterized the Deed of
Absolute Sale between Carmelo and petitioner Equatorial as a
rescissible contract. We stated therein that:
"Since Equatorial is a buys in bad faith. this finding renders the
sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact
that Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As
such, Equatorial cannot tenably claim to be a purchaser in
good faith, and therefore, rescission lies."
This Court did not declare the Deed of Absolute Sale between
Carmelo and Equatorial void but merely rescissible. Consequently,
the contract was, at inception, valid and naturally, it validly transferred
ownership of the subject property to Equatorial. It bears emphasis that
Equatorial was not automatically divested of its ownership. Rather, as
clearly directed in the dispositive portion of our Decision, Carmelo
should return the purchase price to Equatorial which, in turn, must
execute such deeds and documents necessary to enable Carmelo to
reacquire its ownership of the property.
As mentioned earlier, Mayfair deposited with the Regional Trial Court,
Branch 7, Manila, the purchase price of P10,452,000.00
(P11,300,000.00 less P847,000.00 as withholding tax). In turn, the
Clerk of Court executed the deed of sale of the subject property in
favor of Mayfair.
In the meantime, Mayfair has continued to occupy and use the
premises, the reason why Equatorial filed against it Civil Case No. 97-
85141 for sum of money representing rentals and reasonable
compensation.
At this point, I must reiterate that Equatorial purchased the subject
property from Carmelo and became its owner on July 31, 1978. While
the contract of sale was "deemed rescinded" by this Court in G.R. No.
106063, nevertheless the sale had remained valid and binding
between the contracting parties until March 17, 1997 when the
Decision in G.R. No. 106063 became final. Consequently, being the
owner, Equatorial has the right to demand from Mayfair payment of
rentals corresponding to the period from July 31, 1978 up to March
17, 1997.
Records show that the rentals and reasonable compensation which
Equatorial demands from Mayfair are those which accrued from the
year 1987 to 1998. As earlier stated, prior thereto, Mayfair had been
paying the rents to Equatorial.
In line with this Court's finding that Equatorial was the owner of the
disputed property from July 31, 1978 to March 17, 1997, it is,
therefore, entitled to the payment of rentals accruing to such period.
Consequently, whether or not Mayfair paid Equatorial the rentals
specified in the lease contracts from June 1, 1987 to March 17,
1997 is for the trial court to resolve.
One last word. In effect, the majority have enunciated that:
 1. A lessor, in a contract of sale, cannot transfer ownership of
his property, occupied by the lessee, to the buyer because
there can be no delivery of such property to the latter; and
2. Not only a possessor, but also an owner, can be in bad
faith.
I cannot subscribe to such doctrines.
WHEREFORE, I vote to GRANT the petition.
Bellosillo and Kapunan, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23497 April 26, 1968
J.M. TUASON and CO., INC., petitioner,
vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS
(FIFTH DIVISION), respondents.
Tuason and Sison for petitioner.
Jose Chuico and Wilfredo E. Dizon for respondents.
REYES, J.B.L., Actg. C.J.:
J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the
decision issued by the Court of Appeals (Fifth Division) in its case CA-
G.R. No. 27259-R, reversing the judgment rendered by the Court of
First Instance of Rizal (Civil Case No. Q-4243) that ordered defendant
(now respondent) Estrella Vda. de Lumanlan to vacate the lot
occupied by her in Sta. Mesa Heights Subdivision, barrio Tatalon,
Quezon City, and to remove therefrom the house and other structures
constructed thereon, paying P240.00 a month until restoration of the
premises to plaintiff.
The facts are stated in the decision of the Court of Appeals (accepted
by both parties) in this wise:1äwphï1.ñët
. . . That in the complaint filed in this case by plaintiff, J. M.
Tuason & Co., Inc., hereinafter called Tuason, on 30 April,
1969, the basis is that it being the registered owner of the
property known as Santa Mesa Heights Subdivision, situated
at Barrio North Tatalon, Quezon City, herein defendant
sometime in April, 1949 unlawfully entered into possession of
800 square meters, and therein constructed his house so that
plaintiff prayed for ejectment and damages for the occupancy;
and defendant in her answer set forth affirmative defense that
on 12 March, 1949, she had bought the property she was
occupying from one Pedro Deudor, and that in a compromise
agreement between Pedro and Tuason on 16 March 1953,
approved by the Court of First Instance of Quezon City, she
was one of the buyers therein recognized, so that she asked
that her rights be recognized and the complaint dismissed; but
on the basis of the evidence presented by both parties in the
trial, Lower Court sustained plaintiff, holding that Tuason being
the registered owner, and the question being purely one of
possession, therefore, defendant's said evidence was
"completely immaterial". . . . (Page 2 of Decision, Annex "A" of
Petition.)
Upon the facts thus stated, the Fifth Division of the Court of Appeals
held that, pursuant to this Supreme Court's ruling in Evangelista vs.
Deudor, L-12826, September 10, 1959, the Compromise Agreement
(Exh. 2) between the petitioner Tuason & Co. and the Deudors
constituted a valid defense against the possessory action filed by
Tuason & Co.; that under paragraph 7 of said Compromise
Agreement, petitioner bound and committed itself to sell to respondent
Lumanlan the lot occupied by her at a reasonable price; that said
respondent had a right to compel petitioner to accept payment for the
lot in question; and that the compromise agreement legalized the
possession of respondent.
These pronouncements are assailed by the petitioner in this appeal as
legally incorrect and contrary to the decisions of this Court.
The terms of the compromise agreement between the heirs of
Telesforo Deudor and J. M. Tuason & Co. have been taken
cognizance of in many decisions of this Court (Evangelista vs.
Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30,
1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al.,
L-18932-34, Sept. 30, 1963; J. M. Tuason vs. Macalindong, L-15398,
Dec. 29, 1962 and others). The Deudors had therein recognized the
registered title of Tuason & Co. over the lands claimed by them, and
received payment of certain sums of money; but as the Deudors had,
prior to the compromise, sold their possessory rights to various
persons, paragraph seventh of the compromise agreement (case Q-
135 of the court of origin) provided:
That the sales of the possessory rights claimed by the
DEUDORS, are described in the lists submitted by them to the
OWNERS which are attached hereto marked Annexes "B" and
"C" and made part hereof. Whatever amounts may have been
collected by the DEUDORS on account thereof, shall be
deducted from the total sum of P1,201,063.00 to be paid to
them. It shall be the joint and solidary obligation of the
DEUDORS to make the buyer of the lots purportedly sold by
them to recognize the title of the OWNERS over the property
purportedly bought by them, and to make them sign, whenever
possible, new contracts of purchase for said property at the
current paces and terms specified by the OWNERS in their
sales of lots in their subdivision known at "Sta. Mesa Heights
Subdivision." The DEUDORS HEREBY advised the OWNERS
that the buyer listed in Annex "B" herein with the annotation
"continue" shall buy the lots respectively occupied by them
and shall sign contracts, but the sums already paid by them to
the DEUDORS amounting to P134,922.84 (subject to
verification by the Court) shall be credited to the buyers and
shall be deducted from the sums to be paid to the DEUDORS
by the OWNERS. The DEUDORS also advise the OWNERS
that, the buyers listed in Annex "C" herein with the annotation
"Refund" have decided not to continue with their former
contracts or purchases with the DEUDORS and the sums
already paid by them to the DEUDORS TOTALLING
P101,182.42 (subject to verification by the Court) shall be
refunded to them by the OWNERS and deducted from the
sums that may be due to the DEUDORS from the OWNERS
(J.M. Tuason & Co., Inc. vs. Jaramillo, L-18932, Sept. 30,
1963);
Careful analysis of this paragraph of the compromise agreement will
show that while the same created "a sort of contractual relation"
between the J. M. Tuason & Co., Inc., and the Deudor vendees (as
ruled by this Court in Evangelista vs. Deudor, ante), the same in no
way obligated Tuason & Co. to sell to those buyers the lots occupied
by them at the price stipulated with the Deudors, but at "the current
prices and terms specified by the OWNERS (Tuason) in their sales of
lots in their subdivision known as 'Sta. Mesa Heights Subdivision'".
This is what is expressly provided. Further, the paragraph plainly
imports that these buyers of the Deudors must "recognize the title of
the OWNERS (Tuason) over the property purportedly bought by
them" from the Deudors, and "sign, whenever possible, new contracts
of purchase for said property"; and, if and when they do so, "the sums
paid by them to the Deudors . . . shall be credited to the buyers." All
that Tuason & Co. agreed to, therefore, was to grant the Deudor
buyers preferential right to purchase "at current prices and terms" the
lots occupied by them, upon their recognizing the title of Tuason &
Co., Inc., and signing new contracts therefor; and to credit them for
the amounts they had paid to the Deudors.
Nowhere in her answer did the respondent Estrella Vda. de Lumanlan
claim that she had signed a new contract with J. M. Tuason & Co.,
Inc. for the purchase of the lot occupied. What is worse, instead of
recognizing the title of the owners (Tuason & Co.) as required by the
aforementioned compromise agreement, she charged in paragraph 6
of her special defense (Rec. on Appeal, p. 10) that "Pedro Deudor
and his co-owners and the plaintiff herein . . . conspired together and
helped each other . . . by entering into a supposed Compromise"
whereby "Pedro Deudor and his co-owners renounced, ceded, waived
and quitclaimed all their rights, title and interest in the property
including the land sold to herein defendant, in favor of the plaintiff J.
M. Tuason & Co., Inc., in consideration of the sum of P1,201,063.00,
without the knowledge and consent, and much less the intervention of
the herein defendant." In other words, the respondent Lumanlan in
her answer repudiated and assailed the compromise between the
Deudors and J. M. Tuason & Co. How then can she now claim to take
advantage and derive rights from that compromise?
Without the compromise agreement, Lumanlan must justify her
possession on the basis of a pretended superiority of the Deudors' old
Spanish informacion posesoria over Tuason's Certificate of Title No.
1267, traceable back to the original Certificate of Title No. 735 of
Rizal, issued under the Registration Act No. 496. But, as ruled by this
Court in previous cases, Lumanlan is by now barred from assailing
the decree of registration in favor of Tuason & Co., Inc.'s
predecessors twenty years after its issuance (Tiburcio vs. PHHC, L-
13429, Oct. 31, 1959; Tuason & Co. vs. Bolaños, 95 Phil. 107;
Tuason & Co. vs. Santiago, 99 Phil. 622-623; Tuason & Co. vs.
Macalindong, supra; Tuason & Co. vs. Jaramillo, L-16827, Jan. 31,
1963).
It is thus apparent that no legal basis exists for the pronouncement in
the appealed decision that Tuason & Co. had committed itself to sell
to Lumanlan the lot occupied by her at a reasonable price, or that the
compromise agreement legalized the possession of the respondent,
since the latter does not rely on the compromise but, on the contrary,
she assails it.
The Court of Appeals ruled that the price to be paid by Lumanlan to
Tuason & Co., Inc., is governed by Article 1474 of the new Civil Code
of the Philippines, which provides that:
Where the price cannot be determined in accordance with the
preceding articles, or in any other manner, the contract is
inefficacious. However, if the thing or any part thereof has
been delivered to and appropriated by the buyer, he must pay
a reasonable price therefor. What is a reasonable price is a
question of fact dependent on the circumstances of each
particular case.
Since there has been no contract between petitioner Tuason & Co.
and respondent Lumanlan for the sale of the lot occupied by the latter,
and by paragraph 7 of the Compromise Agreement (assuming that
respondent-appellee still has the right to invoke the same, and seek
refuge thereunder), Tuason & Co. did not consider itself bound by the
sales made by the Deudors, but demanded that the Deudor buyers
should sign new contracts with it at current prices specified for the
sales of lots in "Sta. Mesa Heights Subdivision" (ante) the aforequoted
Article 1474 can have no bearing on the case, Lumanlan not being a
buyer from Tuason & Co.
As to Lumanlan's allegation in her counterclaim that she should be
deemed a builder in good faith, a similar contention has been rejected
in Tuason & Co. vs. Macalindong, L-15398, December 29, 1962,
where we ruled that there being a presumptive knowledge of the
Torrens titles issued to Tuason & Co. and its predecessors-in-interest
since 1914, the buyer from the Deudors (or from their transferees) can
not, in good conscience, say now that she believed her vendor had
rights of ownership over the lot purchased. The reason given by the
Court is that —
Had he investigated before buying and before building his
house on the questioned lot, he would have been informed
that the land is registered under the Torrens system in the
name of J. M. Tuason & Co., Inc., If he failed to make the
necessary inquiry, appellant is now bound conclusively by
appellee's Torrens title (Sec. 51, Act 496; Emas vs.
Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs.
Macalindong, ante).
Lumanlan had chosen to ignore the Torrens title of Tuason & Co., Inc.
and relied instead upon the Deudors' claim of ownership, perhaps
because such course appeared to her as more advantageous; hence,
she has only herself to blame for the consequences now that the
Deudors' claim has been abandoned by the Deudors themselves, and
can not pretend good faith. The Court of First Instance, therefore, did
not err in holding that she was not a rightful possessor and sentencing
her to vacate.
Respondent could have asked that she recover or be credited with the
amounts paid by her to the Deudors, but as no claim to such credit
was ever advanced by her in the trial Court, no pronouncement can
be made thereon in this appeal. Equity demands, however, that her
right to claim such return, or to have the amount offset against the
sums she was sentenced to pay, should be, as it is, reserved.
WHEREFORE, the decision of the Court of Appeals is reversed and
that of the Court of First Instance reinstated. Costs against
respondent, Estrella Vda. de Lumanlan.
Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and
Fernando, JJ., concur.
Angeles, J., took no part.
Concepcion, C.J., is on leave.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-25462 February 21, 1980
MARIANO FLOREZA, petitioner,
vs.
MARIA D. de EVANGELISTA and SERGIO
EVANGELISTA, respondents.
R.D. Hipolito & B. P. Fabir for petitioner.
E.G. Tanjuatco & Associates for respondents.
MELENCIO-HERRERA, J:
This is a Petition for Review on certiorari of the Decision of the Court
of Appeals (CA-G.R. No. 23516-R) promulgated on November 4,
1965, entitled "Maria de Evangelista and Sergio Evangelists, (now the
respondents) vs. Mariano Floreza (petitioner herein)," reversing the
judgment of the Court of First Instance of Rizal rendered on July 17,
1957, and instead ordering petitioner to vacate respondents'
residential lot, to remove his house at his own expenses and to pay
rental from May 5, 1956.
Plaintiffs Maria de Evangelista and Sergio Evangelista, who are
mother and son, (the EVANGELISTAS, for short) are the owners of a
residential lot located at Sumilang St., Tanay, Rizal, with an area of
204.08 sq. ms., assessed at P410.00. In May 1945, the
EVANGELISTAS borrowed from FLOREZA the amount of P100.00.
On or about November 1945, with the consent of the
EVANGELISTAS, FLOREZA occupied the above residential lot and
built thereon a house of light materials (barong- barong) without any
agreement as to payment for the use of said residential lot owing to
the fact that the EVANGELISTAS has then a standing loan of P100.00
in favor of FLOREZA. 1
On the following dates, the EVANGELISTAS again borrowed the
indicated amounts: September 16, 1946 — P100.00; 2 August 17,
1947 — P200,00; 3 January 30, 1949 — P200.00; 4 April 1, 1949 —
P140.00, 5 or a total of P740.00 including the first loan. The last three
items are evidenced by private documents stating that the residential
lot stands as security therefor and that the amounts covered
thereunder are payable within six years from date, without mention of
interest. The document executed on September 16, 1946 stated
specifically that the loan was without interest "walang anumang
patubo."
On January 10, 1949, FLOREZA demolished this house of light
materials and in its place constructed one of strong materials
assessed in his name at P1,410.00 under Tax Declaration No. 4448.
FLOREZA paid no rental as before. 6
On August 1, 1949, the EVANGELISTAS, for and in consideration of
P1,000.00 representing the total outstanding loan of P740.00 plus
P260.00 in cash, sold their residential lot to FLOREZA, with a right to
repurchase within a period of 6 years from date, or up to August 1,
1955, as evidenced by a notarial document, Exh. B, registered under
Act 3344 on December 6, 1949, as Inscription No. 2147. 7
On January 2, 1955, or seven months before the expiry of the
repurchase period, the EVANGELISTAS paid in full the repurchase
price of P1,000.00.
On April 25, 1956, the EVANGELISTAS, through their counsel, wrote
FLOREZA a letter 8 asking him to vacate the premises as they wanted
to make use of their residential lot besides the fact that FLOREZA had
already been given by them more than one year within which to move
his house to another site. On May 4, 1956, the EVANGELISTAS
made a formal written demand to vacate, within five days from notice,
explaining that they had already fully paid the consideration for the
repurchase of the lot. 9 FLOREZA refused to vacate unless he was
first reimbursed the value of his house. Hence, the filing of this
Complaint on May 18, 1956 by the EVANGELISTAS.
The EVANGELISTAS prayed that: 1) they be declared the owners of
the house of strong materials built by FLOREZA on their residential
lot, without payment of indemnity; or, in the alternative to order
FLOREZA to remove said house; 2) that FLOREZA pay them the sum
of P10.00 per month as the reasonable value for the use and
occupation of the same from January 2, 1955 (the date the
repurchase price was paid) until FLOREZA removes the house and
delivers the lot to them; and 3) to declare the transaction between
them and FLOREZA as one of mortgage and not of pacto de retro.
In his Answer, FLOREZA admitted the repurchase but controverted by
stating that he would execute a deed of repurchase and leave the
premises upon payment to him of the reasonable value of the house
worth P7,000.00.
In a Decision dated July 17, 1957, the Court of First Instance of Rizal
opined that the question of whether the transaction between the
parties is one of mortgage or pacto de retro is no longer material as
the indebtedness of P1,000.00 of the EVANGELISTAS to FLOREZA
had already been fully paid. And, applying Article 448 of the Civil
Code, 10 it rendered a decision dispositively decreeing:
FOR ALL THE FOREGOING CONSIDERATIONS, the
Court hereby renders judgment granting the plaintiffs
the right to elect, as owners of the land, to purchase
the house built, on the said lot in question by the
defendant for P2,500 or to sell their said land to e
defendant for P1,500. In the event that the plaintiffs
shall decide not to purchase the house in question the
defendant should be allowed to remain in plaintiffs'
premises by, paying a monthly rental of P10.00 which
is the reasonable value for the use of the same per
month as alleged by plaintiffs in their complaint. The
Court also orders the defendant to pay a monthly rental
of P10.00 for the use of the land in question from May
18, 1956, the date of the commencement of this action.
The counterclaim of the defendant is hereby ordered
dismissed. Without pronouncement as to costs.
SO ORDERED. 11
Both parties appealed to the Court of Appeals.
On November 4, 1965, the Court of Appeals concluded that Article
448 of the Civil Code, supra, was inapplicable; that FLOREZA was not
entitled to reimbursement for his house but that he could remove the
same at his expense; and accordingly rendered judgment thus:
WHEREFORE, judgment is hereby rendered: (1)
adjudging the defendant-appellant Mariano Floreza to
vacate plaintiffs' residential lot described in the
complaint and to pay rental of P10.00 a month from
May 5, 1956, until he (defendant) shall have vacated
the premises; (2) ordering defendant to remove his
house from the land in question within 30 days from the
time this decision becomes final and executory; (3)
ordering the Register of Deeds of Rizal to cancel
inscription No. 2147, Page 210, Vol. 36, in the
Registration Book under Act 3344 upon payment of his
lawful fees; and (4) taxing the costs in both instances
against defendant-appellant Mariano Floreza. 12
Hence, this Petition for Review on certiorari by FLOREZA, seeking a
reversal of the aforestated judgment and ascribing the following
errors:
1) That the Court of Appeals erred in holding that
petitioner Floreza was a builder in bad faith without
likewise holding that respondents as owners of the land
in dispute, were likewise in bad faith and therefore both
parties should in accordance with Art. 453 of the New
Civil Code be considered as having acted in good faith.
2) That the Court of Appeals erred in completely
ignoring the issue raised on appeal as to whether or
not respondents as owners of the questioned lot, were
in bad faith in the sense that they had knowledge of
and acquiseced to the construction of the house of
petitioner on their lot.
3) That the Court of Appeals erred in not applying Art.
448 of the New Civil Code in the adjudication of the
rights of petitioner and respondent.
4) That the Court of Appeals erred in declaring that
petitioner is not entitled to reimbursement for the value
 of his house and that he should instead remove the
same at his expense.
5) That the Court of Appeals erred in adjudging
petitioner to vacate respondents' lot in question and to
pay rentals commencing from May 5, 1956, until he
shall have vacated the premises, notwithstanding that
petitioner is entitled under Arts. 448 and 546 of the
New Civil Code, to retention without payment of rental
while the corresponding indemnity of his house had not
been paid.
6) That the Court of Appeals erred in taxing costs
against petitioner.
7) That the Court of Appeals erred in not awarding
petitioner's counterclaim.
During the pendency of this appeal, petitioner Maria D. de Evangelista
died and was ordered substituted by her son, petitioner Sergio, as her
legal representative, in a Resolution dated May 14, 1976.
On October 20, 1978. the EVANGELISTAS filed a Motion to Dismiss
stating that FLOREZA had since died and that his heirs had
voluntarily vacated the residential lot in question. The date FLOREZA
passed away and the date his heirs had voluntarily vacated the
property has not been stated. Required to comment, "petitioner
(represented by his heirs)", through counsel, confirmed his death and
the removal of the house and manifested that thereby the question of
reimbursement had moot and academic. He objected to the dismissal
of the case, however, on the ground that the issue of rentals still
pends. On January 21, 1980, complying with a Resolution of 'his
Court, the EVANGELISTAS clarified that the dismissal they were
praying for was not of the entire case but only of this Petition for
Review on Certiorari.
We are not in agreement that the question of reimbursement of the
value of the improvement erected on the subject property has become
moot. Petitioner's right of retention of subject property until he is
reimbursed for the value of his house, as he had demanded, is
inextricably linked with the question of rentals. For if petitioner has the
right to indemnity, he has the right of retention and no rentals need be
paid. Conversely, if no right of retention exists, damages in the form of
rentals for the continued use and occupation of the property should be
allowed.
We uphold the Court of Appeals in its conclusion that Article 448 of
the Civil Code is inapplicable to the factual milieu herein. Said codal
provision applies only when the builder, planter, or sower believes he
had the right so to build, plant or sow because he thinks he owns the
land or believes himself to have a claim of title. 13 In this case,
petitioner makes no pretensions of ownership whatsoever.
Petitioner concedes that he was a builder in bad faith but maintains
that' the EVANGELISTAS should also be held in bad faith, so that
both of them being in bad faith, Article 453 of the Civil Code 14 should
apply. By the same token, however, that Article 448 of the same Code
is not applicable, neither is Article 453 under the ambiance of this
case.
Would petitioner, as vendee a retro, then be entitled to the rights
granted iii Article 1616 of the Civil Code (Art. 1518 of the old Code)?
To quote:
Art. 1616. The vendor cannot avail himself of the right
of repurchase without returning to the vendee the price
of the sale, and in addition:
(1) The expenses of the contract, and any other
legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the
thing sold.
The question again calls for a negative answer. It should be noted that
petitioner did not construct his house as a vendee a retro. The house
had already been constructed as far back as 1949 (1945 for the
house of light materials) even before the pacto de retro sale in 1949.
Petitioner incurred no useful expense, therefore, after that sale. The
house was already there at the tolerance of the EVANGELISTAS in
consideration of the several loans extended to them. Since petitioner
cannot be classified as a builder in good faith within the purview of
Article 448 of the Civil Code, nor as a vendee a retro, who made
useful improvements during the lifetime of the pacto de retro, THIRD DIVISION
petitioner has no right to reimbursement of the value of the house
which he had erected on the residential lot of the EVANGELISTAS, G.R. No. L-47475 August 19, 1988
much less to retention of the premises until he is reimbursed.The
rights of petitioner are more akin to those of a usufructuary who, MANOTOK REALTY, INC., petitioner,
under Article 579 of the Civil (Art. 487 of the old Code), may make on vs.
the property useful improvements but with no right to be indemnified THE HONORABLE JOSE H. TECSON, Judge of the Court of First
therefor. He may, however, remove such improvements should it be Instance of Manila and NILO MADLANGAWA, respondents.
possible to do so without damage to the property: For if the
improvements made by the usufructuary were subject to indemnity, Ceferino V. Argueza for petitioner.
we would have a dangerous and unjust situation in which the
usufructuary could dispose of the owner's funds by compelling him to
Magtanggol C. Gunigundo for respondents.
pay for improvements which perhaps he would not have made. 15

We come now to the issue of rentals. It is clear that from the date that
the redemption price had been paid by the EVANGELISTAS on
GUTIERREZ, JR., J.:
January 2, 1955, petitioner's right to the use of the residential lot
without charge had ceased. Having retained the property although a
redemption had been made, he should be held liable for damages in In a complaint filed by the petitioner for recovery of possession and
the form of rentals for the continued use of the subject residential damages against the private respondent, the then Court of First
lot16 at the rate of P10.00 monthly from January 3, 1955, and not Instance of Manila rendered judgment, the dispositive portion of which
merely from the date of demand on May 4, 1956, as held by the Court provides inter alia:
of Appeals, until the house was removed and the property vacated by
petitioner or his heirs. WHEREFORE, judgment is hereby rendered:

WHEREFORE, the judgment appealed from is hereby affirmed, with xxx xxx xxx
the modification that payment of rentals by the heir, of Mariano
Floreza, who are hereby ordered substituted for him, shall commence xxx xxx xxx
on January 3, 1955 until the date that the residential lot in question
was vacated. (c) In Civil Case No. 72872, declaring the defendant
Nilo Madlangawa as a builder or possessor in good
Costs against petitioner. faith; ordering the plaintiff to recognize the right of said
defendant to remain in Lot No. 345, Block 1, of the
SO ORDERED. Clara Tambunting Subdivision until after he shall have
been reimbursed by the plaintiff the sum of P7,500.00,
Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and De without pronouncement as to costs. (p. 24, Rollo)
Castro, JJ., concur.
Not satisfied with the trial court's decision, the petitioner appealed to
Republic of the Philippines the Court of Appeals and upon affirmance by the latter of the decision
SUPREME COURT below, the petitioner elevated its case to this Court.
Manila
On July 13, 1977, we issued a resolution dated July 11, 1977 denying
the petitioner's petition for lack of merit. Hence, on August 5, 1977,
the petitioner filed with the trial court, presided over by respondent
Judge Jose H. Tecson, a motion for the approval of petitioner's
exercise of option and for satisfaction of judgment, praying that the
court issue an order: a) approving the exercise of petitioner's option to
appropriate the improvements introduced by the private respondent
on the property; b) thereafter, private respondent be ordered to deliver
possession of the property in question to the petitioner.
On October 7, 1977, the respondent judge issued the disputed order,
to wit:
Acting on the motion for approval of plaintiffs exercise
of option and for satisfaction of judgment filed by the
plaintiff, and the opposition thereto interposed by the
defendant, both through counsels, and after a judicious
review of all the facts and circumstances obtaining in
this case, in the light of statutory provisions (Art. 6,
New Civil Code) and jurisprudential doctrines (Vide,
Benares v. Capitol Subdivision, Inc., L-7330 (Nov. 29,
1960), and considering further the definitive ruling of
our Supreme Tribunal in the case of Jose C. Cristobal
v. Alejandro Melchor, G.R. No. L-43203 promulgated
on July 29, 1977, wherein the Court says:
"This Court, applying the principle of equity, need not
be bound to a rigid application of the law but rather its
action should conform to the conditions or exigencies
of a given problem or situation in order to grant relief
that it will serve the ends of justice."
xxx xxx xxx
the Court is of the considered view that under the peculiar
circumstances which supervened after the institution of this case, like,
for instance, the introduction of certain major repairs of and other
substantial improvements on the controverted property, the instant
motion of the plaintiff is not well-taken and therefore not legally proper
and tenable.
WHEREFORE, and for lack of merit, the instant motion
for approval of the plaintiff's fai-rn of option and for
satisfaction of judgment should be, as hereby it is,
denied. (pp. 45-46, Rollo)
After a denial of its motion for reconsideration, the petitioner filed the
present petition for mandamus alleging that the respondent judge
committed grave abuse of discretion in denying his motion to exercise
option and for execution of judgment on the grounds that under
Articles 448 and 546 of the Civil Code, the exercise of option belongs
to the owner of the property, who is the petitioner herein, and that
upon finality of judgment, the prevailing party is entitled, as a matter of
right, to its execution which is only a ministerial act on the part of the
respondent judge.
On April 15, 1978, the private respondent filed his comment on the
petition alleging that the same has already become moot and
academic for two reasons: first, fire gutted not only the house of the
private respondent but the majority of the houses in Tambunting
Estate; and second, as a result of the said fire, the then First Lady and
Metro Manila Governor Imelda R. Marcos has placed the disputed
area under her Zonal Improvement Project, thereby allowing the
victims of the fire to put up new structures on the premises, so that the
willingness and readiness of the petitioner to exercise the alleged
option can no longer be exercised since the subject-matter thereof
has been extinguished by the fire. Furthermore, the President of the
Philippines has already issued a Presidential Decree for the
expropriation of certain estates in Metro Manila including the
Tambunting Estate. Therefore, the beneficient and humanitarian
purpose of the Zonal Improvement Project and the expropriation
proceeding would be defeated if petitioner is allowed to exercise an
option which would result in the ejectment of the private respondent.
On December 28, 1980, Presidential Decree (P.D.) No. 1669 was
issued providing for the expropriation of the Tambunting Estate.
However, this decree was challenged before this Court in G.R. No,
55166 entitled The "Elisa R. Manotok, et al. v. National Housing
Authority, et al." Hence, we decided to hold the decision on this
petition pending the resolution of the above entitled case.
On May 21, 1987, the Court rendered a decision in the Elisa Manotok
case (Manotok v. National Housing Authority, 150 SCRA 89) ruling
that P.D. 1669 is unconstitutional for being violative of the due
process clause. Thus, since the present petition has not been
rendered moot and academic by the decision in said case, we will
now decide on its merits.
As stated earlier, the petitioner argues that since the judgment of the
trial court has already become final, it is entitled to the execution of
the same and that moreover, since the house of the private
respondent was gutted by fire, the execution of the decision would
now involve the delivery of possession of the disputed area by the
private respondent to the petitioner.
We find merit in these arguments.
When the decision of the trial court became final and executory, it
became incumbent upon the respondent judge to issue the necessary
writ for the execution of the same. There is, therefore, no basis for the
respondent judge to deny the petitioner's motion to avail of its option
to approriate the improvements made on its property.
In the case of Duenas v. Mandi (151 SCRA 530, 545), we said:
xxx xxx xxx
...Likewise settled is the rule that after a judgment has
become final, no additions can be made thereto, and
nothing can be done therewith except its execution,
otherwise there would be no end to legal processes.
(Fabular v. Court of Appeals, 11 9 SCRA 329)
Neither can the respondent judge deny the issuance of a writ of
execution because the private respondent was adjudged a builder in
good faith or on the ground of "peculiar circumstances which
supervened after the institution of this case, like, for instance, the
introduction of certain major repairs of and other substantial
improvements..." because the option given by law either to retain the
premises and pay for the improvements thereon or to sell the said
premises to the builder in good faith belongs to the owner of the
property. As we have in Quemel v. Olaes (1 SCRA 1159,1163):
xxx xxx xxx
...The plaintiffs claim that their second cause of action
is based on Article 448 in connection with Art. 546, of
the new Civil Code. A cursory reading of these
provisions, however, will show that they are not
applicable to plaintiff's case. Under Article 448, the
right to appropriate the works or improvements or to
oblige the one who built or planted to pay the price of
the land' belongs to the owner of the land. The only
right given to the builder in good faith is the right to
reimbursement for the improvements; the builder,
cannot compel the owner of the land to sell such land
to the former. ...
Again, in the recent case of Paz Mercado, et al. v. Hon. Court of
Appeals, et al., (G.R. No. L- 44001, June 10, 1988), we said:
... To be deemed a builder in good faith, it is essential
that a person assert title to the land on which he builds;
i.e., that he be a possessor in concept of owner (Art.
525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading
Co., Inc., 98 Phil. 348) and that he be unaware 'that
there exists in his title or mode of acquisition any flaw
which invalidates it.' (Art. 526, Civil Code; Granados v.
Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14
Phil. 627; See also Manotok Realty, Inc. v. C.A., 134
SCRA 329, citing Caram v. Laureta, 103 SCRA 7) It is
such a builder in good faith who is given the 1ight to
retain the thing, even as against the real owner, until
he has been reimbursed in full not only for the
necessary expenses but also for useful expenses. (Art.
546, Civil Code; Policarpio v. CA., 129 SCRA 51;
Sarmiento v. Agana, 129 SCRA 1221; cf, Queto v.
C.A., 122 SCRA 206) ...
Furthermore, the private respondent's good faith ceased after the
filing of the complaint below by the petitioner. In the case of Mindanao
Academy, Inc. v. Yap (13 SCRA 190,196), we ruled:
xxx xxx xxx
...Although the bad faith of one party neutralizes that of
the other and hence as between themselves their
 rights would be as if both of them had acted in good
faith at the time of the transaction, this legal fiction of
Yap's good faith ceased when the complaint against
him was filed, and consequently the court's declaration
of liability for the rents thereafter is correct and proper .
A possessor in good faith is entitled to the fruits only so
long as his possession is not legally interrupted, and
such interruption takes place upon service of judicial
summons (Arts. 544 and 1123, Civil Code).
Thus, the repairs and improvements introduced by the said
respondents after the complaint was filed cannot be considered to
have been built in good faith, much less, justify the denial of the
petitioner's fai-rn of option.
Since the improvements have been gutted by fire, and therefore, the
basis for private respondent's right to retain the premises has already
been extinguished without the fault of the petitioner, there is no other
recourse for the private respondent but to vacate the premises and
deliver the same to herein petitioner.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
GRANTED and the respondent judge is hereby ordered to
immediately issue a writ of execution ordering the private respondent
to vacate the disputed premises and deliver possession of the same
to the petitioner.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortos, JJ., concur.
SECOND DIVISION
[G.R. No. 126000. October 7, 1998]
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
(MWSS), petitioner, vs. COURT OF APPEALS, HON.
PERCIVAL LOPEZ, AYALA CORPORATION and AYALA
LAND, INC., respondents.
[G.R. No. 128520. October 7, 1998]
METROPOLITAN WATERWORKS AND SEWERAGE
SYSTEM, petitioner, vs. HON. PERCIVAL MANDAP
LOPEZ, CAPITOL HILLS GOLF AND COUNTRY CLUB INC.,
SILHOUETTE TRADING CORPORATION, and PABLO
ROMAN JR., respondents.
DECISION
MARTINEZ, J.:
These are consolidated petitions for review emanating from Civil
Case No. Q-93-15266 of the Regional Trial Court of Quezon City,
Branch 78, entitled "Metropolitan Waterworks and Sewerage System
(hereafter MWSS) vs. Capitol Hills Golf & Country Club Inc.
(hereafter, CHGCCI), STC (hereafter, SILHOUETTE), Ayala
Corporation, Ayala Land, Inc.(hereafter AYALA) Pablo Roman, Jr.,
Josefino Cenizal, Jose A. Roxas, Jesus Hipolito, Alfredo Juinio,
National Treasurer of the Philippines and the Register of Deeds of
Quezon City."
From the voluminous pleadings and other documents submitted
by the parties and their divergent styles in the presentation of the
facts, the basic antecedents attendant herein are as follows:
Sometime in 1965, petitioner MWSS (then known as NAWASA)
leased around one hundred twenty eight (128) hectares of its land
(hereafter, subject property) to respondent CHGCCI (formerly the
International Sports Development Corporation) for twenty five (25)
years and renewable for another fifteen (15) years or until the year
2005, with the stipulation allowing the latter to exercise a right of first
refusal should the subject property be made open for sale. The terms
and conditions of respondent CHGCCI's purchase thereof shall
nonetheless be subject to presidential approval.
 Pursuant to Letter of Instruction (LOI) No. 440 issued on July 29,
1976 by then President Ferdinand E. Marcos directing petitioner
MWSS to negotiate the cancellation of the MWSS-CHGCCI lease
agreement for the disposition of the subject property, Oscar Ilustre,
then General Manager of petitioner MWSS, sometime in November of
1980 informed respondent CHGCCI, through its president herein
respondent Pablo Roman, Jr., of its preferential right to buy the
subject property which was up for sale. Valuadation thereof was to be
made by an appraisal company of petitioner MWSS'choice, the Asian
Appraisal Co., Inc. which, on January 30, 1981, pegged a fair market
value of P40.00 per square meter or a total of P53,800,000.00 for the
subject property.
Upon being informed that petitioner MWSS and respondent
CHGCCI had already agreed in principle on the purchase of the
subject property, President Marcos expressed his approval of the sale
as shown in his marginal note on the letter sent by respondents Jose
Roxas and Pablo Roman, Jr. dated December 20, 1982.
The Board of Trustees of petitioner MWSS thereafter passed
Resolution 36-83, approving the sale of the subject property in favor
of respondent SILHOUETTE, as assignee of respondent CHGCCI, at
the appraised value given by Asian Appraisal Co., Inc. Said Board
Resolution reads:
"NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved,
that in accordance with Section 3, Par. (g) of the MWSS Charter and
subject to the approval of the President of the Philippines, the sale of
a parcel of land located in Balara, Quezon City, covered by TCT No.
36069 of the Registry of Deeds of Quezon City, containing an area of
ONE HUNDRED TWENTY SEVEN (127.313) hectares more or less,
which is the remaining portion of the area under lease after
segregating a BUFFER ZONE already surveyed along the
undeveloped area near the treatment plant and the developed portion
of the CHGCCI golf course, to SILHOUETTE TRADING
CORPORATION as Assignee of Capitol Hills Golf & Country Club,
Inc., at FORTY (P40.00) PESOS per square meter, be and is hereby
approved.
"BE IT RESOLVED FURTHER, that the General Manager be
authorized, as he is hereby authorized to sign for and in behalf of the
MWSS the contract papers and other pertinent documents relative
thereto."
The MWSS-SILHOUETTE sales agreement eventually pushed
through. Per the Agreement dated May 11, 1983 covering said
purchase, the total price for the subject property is P50,925,200, P25
Million of which was to be paid upon President Marcos' approval of
the contract and the balance to be paid within one (1) year from the
transfer of the title to respondent SILHOUETTE as vendee with
interest at 12% per annum. The balance was also secured by an
irrevocable letter of credit. A Supplemental Agreement was forged
between petitioner MWSS and respondent SILHOUETTE on August
11, 1983 to accurately identify the subject property.
Subsequently, respondent SILHOUETTE, under a deed of sale
dated July 26, 1984, sold to respondent AYALA about sixty-seven
(67) hectares of the subject property at P110.00 per square meter. Of
the total price of around P74 Million, P25 Million was to be paid by
respondent AYALA directly to petitioner MWSS for respondent
SILHOUETTE's account and P2 Million directly to respondent
SILHOUETTE. P11,600,000 was to be paid upon the issuance of title
in favor of respondent AYALA, and the remaining balance to be
payable within one (1) year with 12% per annum interest.
Respondent AYALA developed the land it purchased into a prime
residential area now known as the Ayala Heights Subdivision.
Almost a decade later, petitioner MWSS on March 26, 1993 filed
an action against all herein named respondents before the Regional
Trial Court of Quezon City seeking for the declaration of nullity of the
MWSS-SILHOUETTE sales agreement and all subsequent
conveyances involving the subject property, and for the recovery
thereof with damages.
Respondent AYALA filed its answer pleading the affirmative
defenses of (1) prescription, (2) laches, (3)
waiver/estoppel/ratification, (4) no cause of action, (5) non-joinder of
indispensable parties, and (6) non-jurisdiction of the court for non-
specification of amount of damages sought.
On June 10, 1993; the trial court issued an Order dismissing the
complaint of petitioner MWSS on grounds of prescription, laches,
estoppel and non-joinder of indispensable parties.
Petitioner MWSS's motion for reconsideration of such Order was
denied, forcing it to seek relief from the respondent Court where its
appeal was docketed as CA-G.R. CV No. 50654. It assigned as errors
the following:
 "I. The court a quo committed manifest serious error and gravely
abused its discretion when it ruled that plaintiff's cause of
action is for annulment of contract which has already
prescribed in the face of the clear and unequivocal
recitation of six causes of action in the complaint, none of
which is for annulment.
II. The lower court erred and exceeded its jurisdiction when,
contrary to the rules of court and jurisprudence, it treated
and considered the affirmative defenses of Ayalas -
defenses not categorized by the rules as grounds for a
motion to dismiss - as grounds of a motion to dismiss
which justify the dismissal of the complaint.
III. The lower court abused its discretion and exceeded its
jurisdiction when it favorably acted on Ayala's motion for
preliminary hearing of affirmative defenses (motion to
dismiss) by dismissing the complaint without conducting a
hearing or otherwise requiring the Ayalas to present
evidence on the factual moorings of their motion.
IV. The lower court acted without jurisdiction and committed
manifest error when it resolved factual issues and made
findings and conclusions of facts all in favor of the Ayalas
in the absence of any evidence presented by the parties.
V. The court a quo erred when, contrary to the rules and
jurisprudence, it prematurely ruled that laches and
estoppel bar the complaint as against Ayalas or that
otherwise the alleged failure to implead indispensable
parties dictates the dismissal of the complaint."
In the meantime, respondents CHGCCI and Roman filed their
own motions to hear their affirmative defenses which were identical to
those adduced by respondent AYALA. For its part, respondent
SILHOUETTE filed a similarly grounded motion to dismiss.
Ruling upon these motions, the trial court issued an order dated
December 13, 1993 denying all of them. The motions for
reconsideration of the respondents concerned met a similar fate in the
May 9, 1994 Order of the trial court. They thus filed special civil
actions for certiorari before the respondent Court which were
docketed as CA-G.R. SP Nos. 34605, 34718 and 35065 and
thereafter consolidated with CA-G.R. CV No. 50694 for disposition.
Respondent court, on August 19, 1996, rendered the assailed
decision, the dispositive portion of which reads:
"WHEREFORE, judgment is rendered:
1.) DENYING the petitions for writ of certiorari for lack of
merit; and
2.) AFFIRMING the order of the lower court dismissing the
complaint against the appellees Ayalas.
"SO ORDERED."
Petitioner MWSS appealed to this Court that portion of the
respondent Court's decision affirming the trial court's dismissal of its
complaint against respondent AYALA, docketed as G.R. No.
126000. The portion dismissing the petition for certiorari (CA-GR Nos.
34605, 347718 and 35065) of respondents Roman, CHGCCI and
SILHOUETTE, however, became final and executory for their failure
to appeal therefrom. Nonetheless, these respondents were able to
thereafter file before the trial court another motion to dismiss
grounded, again, on prescription which the trial court in an Order of
October 1996 granted.
This prompted petitioner MWSS to file another petition for review
of said trial court Order before this Court and docketed as G.R. No.
128520. On motion of petitioner MWSS, this Court in a Resolution
dated December 3, 1997 directed the consolidation of G.R. Nos.
126000 and 128520.
The errors assigned by petitioner MWSS in CA-GR No. 126000
are:
I
In holding, per the questioned Decision dated 19 August 1996,
that plaintiffs cause of action is for annulment of contract which
has already prescribed in the face of the clear and unequivocal
recitation of six causes of action in the complaint, none of which
is for annulment and in effect affirming the dismissal by the
respondent judge of the complaint against respondent dated 19 August 1996. The lower court cannot choose to
Ayalas. This conclusion of respondent CH is, with due respect, disregard such decretal aspect of the decision and instead
manifestly mistaken and legally absurd. implement an obiter dictum.

II III.

In failing to consider that the complaint recited six alternative That part of the decision of the decision of the Court of Appeals
causes of action, such that the insufficiency of one cause - resolving the issue of prescription attendant to the appeal of
assuming there is such insufficiency - does not render insufficient plaintiff against the Ayalas, has been appealed by plaintiff to the
the other causes and the complaint itself. The contrary ruling in Supreme Court by way of a petition for review on certiorari. Not
this regard by respondent CA is founded entirely on speculation yet being final and executory, the lower court erred in making
and conjecture and is constitutive of grave abuse of discretion. capital out of the same to dismiss the case against the other
defendants, who are the respondents herein.
In G.R. No. 128520, petitioner MWSS avers that:
IV.
I
The lower court erred in holding, per the questioned orders, that
The court of origin erred in belatedly granting respondent's plaintiff's cause of action is for annulment of contract which has
motions to dismiss which are but a rehash, a disqualification, of already prescribed in the face of the clear and unequivocal
their earlier motion for preliminary hearing of affirmative defense /
recitation of six causes of action in the complaint, none of which
motion to dismiss. These previous motions were denied by the is for annulment.This conclusion of public respondent is
lower court, which denial the respondents raised to the Court of manifestly mistaken and legally absurd.
Appeals by way of perfection for certiorari, which petitions in turn
were dismissed for lack of merit by the latter court. The
V.
correctness and validity of the lower court's previous orders
denying movant's motion for preliminary hearing of affirmative
defense/motion to dismiss has accordingly been settled already The court a quo erred in failing to consider the complaint recites
with finality and cannot be disturbed or challenged anew at this six alternative causes of action, such that the insufficiency of one
instance of defendant's new but similarly anchored motions to cause - assuming there is such insufficiency - does not render
dismiss, without committing procedural heresy causative of insufficient the other cause and the complaint itself. The contrary
miscarriage of justice. ruling in this regard by public respondent is founded entirely on
speculation and conjecture and is constitutive of grave abuse of
discretion.
II
In disposing of the instant petition, this Court shall dwell on the
The lower court erred in not implementing correctly the decision
more crucial upon which the trial court and respondent based their
of the Court of Appeal. After all, respondents' own petitions
respective rulings unfavorable to petitioner MWSS; i.e., prescription,
for certiorari questioning the earlier denial of their motion for
laches, estoppel/ratification and non-joinder of indispensable parties.
preliminary hearing of affirmative defense / motion to dismiss
were dismissed by the Court of Appeal, in the process of
affirming the validity and legality of such denial by the court a
quo. The dismissal of the respondents' petitions are embodied in RE: Prescription
the dispositive portion of the said decision of the Court of Appeals
 Petitioner MWSS claims as erroneous both the lower courts'
uniform finding that the action has prescribed, arguing that its
complaint is one to declare the MWSS-SILHOUETTE sale, and all
subsequent conveyances of the subject property, void which is
imprescriptible.
We disagree.
The very allegations in petitioner MWSS' complaint show that the
subject property was sold through contracts which, at most, can be
considered only as voidable, and not void. Paragraph 12 of the
complaint reads in part:
"12. xxx.
The plaintiff has been in continuous, peaceful and public possession
and ownership of the afore-described properties, the title (TCT No.
[36069] 199170) thereto, including its derivative titles TCT Nos.
213872 and 307655, having been duly issued in its name. However,
as a result of fraudulent and illegal acts of herein defendants, as
described in the paragraphs hereinafter following, the original of said
title/s were cancelled and in lieu thereof new titles were issued to
corporate defendant/s covering subject 127.9271 hectares. xxx."
Paragraph 34 alleges:
"34. Sometime thereafter, clearly influenced by the premature if not
questionable approval by Mr. Marcos of a non-existent agreement,
and despite full knowledge that both the assessed and market value
of subject property were much much higher, the MWSS Board of
Trusties illegally passed an undated resolution ( 'Resolution No. 36-
83' ), approving the 'sale' of the property to CHGCCI at P40/sq.m. and
illegally authorizing General Manager Ilustre to sign the covering
contract.
This 'resolution' was signed by Messrs. Jesus Hipolito as Chairman;
Oscar Ilustre, as Vice Chairman; Aflredo Junio, as Member; and
Silvestre Payoyo, as Member; xxx"
Paragraph 53 states:
" 53. Defendants Pablo Roman, Jr., Josefino Cenizal, and Jose Roxas
as well as defendant corporations (CHGCCI, STC and Ayala) who
acted through the former and their other principal officers, knowingly
induced and caused then President Marcos and the former officers of
plaintiff MWSS to enter into the aforesaid undated 'Agreement' which
are manifestly and grossly disadvantageous to the government and
which gave the same defendants unwarranted benefits, i.e., the
ownership and dominion of the afore-described property of plaintiff."
Paragraph 54 avers:
"54. Defendants Jesus Hipolito and Alfredo Junio, then public officers,
together with the other public officers who are now deceased
(Ferdinand Marcos, Oscar liustre, and Sivestre Payoyo) knowingly
allowed themselves to be persuaded, induced and influenced to
approve and/or enter into the aforementioned 'Agreements' which are
grossly and manifestly disadvantageous to the MWSS/government
and which bestowed upon the other defendants the unwarranted
benefit/ownership of subject property."
The three elements of a contract - consent, the object, and the
cause of obligation[1]1 are all present. It cannot be otherwise argued
that the contract had for its object the sale of the property and the
cause or consideration thereof was the price to be paid (on the part of
respondents CHGCCI/SILHOUETTE) and the land to be sold (on the
part of petitioner MWSS). Likewise, petitioner MWSS' consent to the
May 11, 1983 and August 11, 1983 Agreements is patent on the face
of these documents and on its own resolution No. 36-83.
As noted by both lower courts, petitioner MWSS admits that it
consented to the sale of the property, with the qualification that such
consent was allegedly unduly influenced by the President
Marcos. Taking such allegation to be hypothetically true, such would
have resulted in only voidable contracts because all three elements
of a contract, still obtained nonetheless. The alleged vitiation of
MWSS' consent did not make the sale null and void ab initio. Thus, "a
contract where consent is given through mistake, violence,
intimidation, undue influence or fraud, is voidable."[2] Contracts "where
consent is vitiated by mistake, violence, intimidation, undue influence
or fraud" are voidable or annullable.[3] These are not void as -
"Concepts of Voidable Contracts. - Voidable or anullable contracts are
existent, valid, and binding, although they can be annulled because of
want of capacity or vitiated consent of the one of the parties, but
before annulment, they are effective and obligatory between
parties.Hence, it is valid until it is set aside and its validity may be
assailed only in an action for that purpose. They can be confirmed or
ratified."[4]
As the contracts were voidable at the most, the four year
prescriptive period under Art. 1391 of the New Civil Code will
apply. This article provides that the prescriptive period shall begin in
the cases of intimidation, violence or undue influence, from the time
the defect of the consent ceases", and "in case of mistake or fraud,
from the time of the discovery of the same time".
Hypothetically admitting that President Marcos unduly influenced
the sale, the prescriptive period to annul the same would have begun
on February 26, 1986 which this Court takes judicial notice of as the
date President Marcos was deposed. Prescription would have set in
by February 26, 1990 or more than three years before petitioner
MWSS' complaint was filed.
However, if petitioner MWSS' consent was vitiated by fraud, then
the prescriptive period commenced upon discovery. Discovery
commenced from the date of the execution of the sale documents as
petitioner was party thereto. At the least, discovery is deemed to have
taken place on the date of registration of the deeds with the register of
Deeds as registration is constructive notice to the world.[5] Given these
two principles on discovery, the prescriptive period commenced in
1983 as petitioner MWSS actually knew of the sale, or, in 1984 when
the agreements were registered and titles thereafter were issued to
respondent SILHOUETTE. At the latest, the action would have
prescribed by 1988, or about five years before the complaint was
instituted. Thus, in Aznar vs. Bernard[6], this Court held that:
"Lastly, even assuming that the petitioners had indeed failed to raise
the affirmative defense of prescription in a motion to dismiss or in an
appropriate pleading (answer, or amended or supplemental answer)
and an amendment would no longer be feasible, still prescription, if
apparent on the face of the complaint, may be favorably
considered. In the case at bar, the private respondents admit in their
complaint that the contract or real estate mortgage which they alleged
to be fraudulent and which had been foreclosed, giving rise to this
controversy with the petitioners, was executed on July 17, 1978, or
more than eight long years before the commencement of the suit in
the court a quo, on September 15, 1986. And an action declare a
contract null and void on the ground of fraud must be instituted within
four years.Extinctive prescription is thus apparent on the face of the
complaint itself as resolved by the Court."
Petitioner MWSS further contends that prescription does not
apply as its complaint prayed not for the nullification of voidable
contracts but for the declaration of nullity of void ab initio contracts
which are imprescriptible. This is incorrect, as the prayers in a
complaint are not determinative of what legal principles will operate
based on the factual allegations of the complaint. And these factual
allegations, assuming their truth, show that MWSS consented to the
sale, only that such consent was purportedly vitiated by undue
influence or fraud.Therefore, the rules on prescription will
operate. Even if petitioner MWSS asked for the declaration of nullity of
these contracts, the prayers will not be controlling as only the factual
allegations in the complaint determine relief. "(I)t is the material
allegations of fact in the complaint, not the legal conclusion made
therein or the prayer that determines the relief to which the plaintiff is
entitled"[7]. Respondent court is thus correct in holding that:
"xxx xxx xxx
The totality then of those allegations in the complaint makes up a
case of a voidable contract of sale - not a void one. The determinative
allegations are those that point out that the consent of MWSS in the
Agreement of Sale was vitiated either by fraud or undue for the
declaration of nullity of the said contract because the Complaint says
no. Basic is the rule however that it is the body and not the caption
nor the prayer of the Complaint that determines the nature of the
action. True, the caption and prayer of the Complaint state that the
action is for a judicial declaration of nullity of a contract, but alas, as
already pointed out, its body unmistakably alleges only a voidable
contract. One cannot change the real nature of an action adopting a
different nomenclature any more than one can change gin into whisky
by just replacing the label on the bottle with that of the latter's and
calling it whisky. No matter what, the liquid inside remains gin.
xxx xxx xxx."
 Petitioner MWSS also theorizes that the May 11, 1983 MWSS-
SILHOUETTE Agreement and the August 11, 1983 Supplemental
Agreement were void ab initio because the "initial agreement" from
which these agreements emanated was executed "without the
knowledge, much less the approval" of petitioner MWSS through its
Board of Trustees. The "initial agreement" referred to in petitioner
MWSS' argument is the December 20, 1982 letter of respondents
Roxas and Roman, Jr. to President Marcos where the authors
mentioned that they had reached an agreement with petitioner's then
general manager, Mr. Oscar Ilustre. Petitioner MWSS maintains that
Mr. Ilustre was not authorized to enter into such "initial agreement",
contrary to Art. 1874 of the New Civil Code which provides that "when
a sale of a parcel of land or any interest therein is through an agent,
the authority of the latter shall be in writing otherwise the sale shall be
void." It then concludes that since its Res. No. 36-83 and the May 11,
1983 and August 11, 1983 Agreements are "fruits" of the "initial
agreement" (for which Mr. Ilustre was allegedly not authorized in
writing), all of these would have been also void under Art. 1422 of
NCC, which provides that a contract which is the direct result of a
pronounced illegal contract, is also void and inexistent."
The argument does not impress. The "initial agreement" reflected
in the December 20, 1982 letter of respondent Roman to
Pres. Marcos, is not a sale under Art. 1874. Since the nature of the
"initial agreement" is crucial, we quote[8] the letter in full:
"We respectfully approach Your Excellency in all humility and in the
spirit of the Yuletide Season. We have explained to Your Excellency
when you allowed us the honor to see you, that the negotiations with
MWSS which the late Pablo R. Roman initiated way back in 1975,
with your kind approval, will finally be concluded.
We have agreed in principle with Mr. Oscar llustre on the terms of the
sale as evidenced by the following:
1 . Our written agreement to hire Asian Appraisal Company
to appraise the entire leased area which would then
be the basis for the negotiations of the purchase price
of the property; and
2. Our exchange of communications wherein MWSS made a
counter-offer and our acceptance of the counter-offer.
However, we were informed by Mr. Ilustre that only written instruction
from Your Excellency will allow us to finally sign the Agreement.
In sum, our Agreement is for the purchase price of FIFTY-SEVEN
MILLION TWO-HUNDRED-FORTY THOUSAND PESOS
(P 57,240,000) for the entire leased area of 135 hectares; TWENTY-
SEVEN MILLION PESOS (P 27,000,000) payable upon approval of
the contract by Your Excellency and the balance of THIRTY MILLION
TWO HUNDRED FORTY THOUSAND PESOS (P 30,240,000) after
one (1) year inclusive of a 12% interest.
We believe that this arrangement is fair and equitable to both parties
considering that the value of the land was appraised by a reputable
company and independent appraisal company jointly commissioned
by both parties and considering further that Capitol Hills has still a 23-
year lien on the property by virtue of its existing lease contract with
MWSS.
We humbly seek your instruction, Your Excellency and please accept
our families' sincere wish for a Merry Christmas and a Happy New
Year to you and the First Family."
The foregoing does not document a sale, but at most, only the
conditions proposed by respondent Roman to enter into one. By the
terms thereof, it refers only to an "agreement in principle". Reflecting a
future consummation, the letter mentions "negotiations with MWSS
(which) with your (Marcos') kind approval, will finally be concluded". It
must likewise be noted that presidential approval had yet to be
obtained. Thus, the "initial agreement" was not a sale as it did not in
any way transfer ownership over the property. The proposed terms
had yet to be approval by the President and the agreement in
principle still had to be formalized in a deed of sale. Written authority
as is required under Art. 1834 of the New Civil Code, was not needed
at the point of the "initial agreement".
Verily, the principle on prescription of actions is designed to cover
situations such as the case at bar, where there have been a series of
transfers to innocent purchasers for value. To set aside these
transactions only to accommodate a party who has slept on his rights
is anathema to good order.[9]
 RE: Laches
Even assuming, for argument's sake, that the allegations in the
complaint establish the absolute nullity of the assailed contracts an
hence imprescriptible, the complaint can still be dismissed on the
ground of laches which is different from prescription. This Court, as
early as 1966, has distinguished these two concepts in this wise:
"x x x (T)he defense of laches applies independently of
prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay, whereas
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 inequity, whereas
prescription applies at law.Prescription is based on fixed-time; laches
is not."[10]
Thus, the prevailing doctrine is that the right to have a contract
declared void ab initio may be barred by laches although not barred
by prescription.[11]
It has, for all its elements are present, viz:
(1) conduct on the part of the defendant, or one under whom he
claims, giving rise to the situation that led to the
complaint and for which the complaint seeks a
remedy;
(2) delay in asserting the complainant's rights, having had
knowledge or notice of the defendant's conduct and
having been afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he
bases his suit; and
(4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held
barred.[12]
There is no question on the presence of the first element. The
main thrust of petitioner MWSS's complaint is to bring to the fore what
it claims as fraudulent and/or illegal acts of the respondents in the
acquisition of the subject property.
The second element of delay is evident from the fact that
petitions tarried for almost ten (10) years from the conclusion of the
sale sometime in 1983 before formally laying claim to the subject
property in 1993.
The third element is present as can be deduced from the
allegations in the complaint that petitioner MWSS (a) demanded for
downpayment for no less than three times; (b) accepted
downpayment for P25 Million; and (c) accepted a letter of credit for
the balance. The pertinent paragraphs in the complaint thus read:
"38. In a letter dated September 19, 1983, for failure of CHGCCI to
pay on time, Mr. Ilustre demanded payment of the downpayment
of P25 Million which was due as of 18 April 1983. A copy of this letter
is hereto attached as Annex 'X';
"39. Again, in a letter dated February 7, 1984, then MWSS Acting
General Manager Aber Canlas demanded payment from CHGCCI of
the purchase price long overdue. A copy of this letter is hereto
attached as Annex 'Y';
"40. Likewise, in a letter dated March 14, 1984, Mr. Canlas again
demanded from CHGCCI payment of the price. A copy of this demand
letter is hereto attached as Annex 'Z';
"41. Thereafter, in a letter dated July 27, 1984, another entity,
defendant Ayala Corporation, through SVP Renato de la Fuente, paid
with a check the long overdue downpayment of P25,000,000.00 of
STC/CHGCCI. Likewise a domestic stand-by letter of credit for the
balance was issued in favor of MWSS; Copies of the said letter, check
and letter of credit are hereto attached as Annexes 'AA', 'BB', and
'CC', respectively."
Under these facts supplied by petitioner MWSS itself,
respondents have every good reason to believe that petitioner was
honoring the validity of the conveyances of the subject property, and
that the sudden institution of the complaint in 1993 alleging the nullity
of such conveyances was surely an unexpected turn of events for
respondents. Hence, petitioner MWSS cannot escape the effect of proprietary rights of the many lot owners to whom the land has
laches. already been parceled out. They should have been included in the suit
as parties-defendants, for. "it is well established that owners of
property over which reconveyance is asserted are indispensable
RE: Ratification parties without whom no relief is available and without whom the court
can render no valid judgment."[14] Being indispensable parties, the
absence of these lot-owners in the suit renders all subsequent actions
Pertinent to this issue is the claim of petitioner MWSS that Mr. of the trial court null and void for want of authority to act, not only as to
Ilustre was never given the authority by its Board of Trustees to enter the absent parties but even as to those present.[15] Thus, when
into the "initial agreement" of December 20, 1982 and therefore, the indispensable parties are not before the court, the action should be
sale of the subject property is invalid. dismissed.[16]
Petitioner MWSS misses the point. The perceived infirmity in the WHEREFORE, in view of the foregoing, the consolidated
"initial agreement" can be cured by ratification. So settled is the petitions are hereby DENIED.
precept that ratification can be made by the corporate board either
expressly or impliedly. Implied ratification may take various forms - SO ORDERED
like silence or acquiescence; by acts showing approval or adoption of Regalado, Acting C.J., (Chairman), and Mendoza, JJ., concur.
the contract; or by acceptance and retention of benefits flowing Melo, J., No part, member of club
therefrom.[13] Both modes of ratification have been made in this case. Puno, J., No part due to close association.
There was express ratification made by the Board of petitioner
MWSS when it passed Resolution No. 36-83 approving the sale of the
subject property to respondent SILHOUETTE and authorizing Mr.
Ilustre, as General Manager, "to sign for and in behalf of the MWSS
the contract papers and other pertinent documents relative
thereto." Implied ratification by "silence or acquiescence" is revealed
from the acts of petitioner MWSS in (a) sending three (3) demand
letters for the payment of the purchase price, (b) accepting P25 Million
as downpayment, and (c) accepting a letter of credit for the balance,
as hereinbefore mentioned. It may well be pointed out also that
nowhere in petitioner MWSS' complaint is it alleged that it returned
the amounts, or any part thereof, covering the purchase price to any
of the respondents-vendees at any point in time. This is only indicative
of petitioner MWSS' acceptance and retention of benefits flowing from
the sales transactions which is another form of implied ratification.

RE: Non-joinder of indispensable parties

There is no denying that petitioner MWSS' action against herein

respondents for the recovery of the subject property now converted
into a prime residential subdivision would ultimately affect the