Professional Documents
Culture Documents
169211
March 6, 2013
STAR TWO (SPV-AMC), INC.,1 Petitioner,
vs.
PAPER CITY CORPORATION OF THE PHILIPPINES, Respondent.
DECISION
PEREZ, J.:
For review before this Court is a Petition for Review on Certiorari filed by
Rizal Commercial Banking Corporation now substituted by Star Two (SPVAMC), Inc. by virtue of Republic Act No. 9182 2 otherwise known as the
"Special Purpose Vehicle Act of 2002," assailing the 8 March 2005 Decision
and 8 August 2005 Resolution of the Special Fourth Division of the Court of
Appeals (CA) in CA-G.R. SP No. 82022 upholding the 15 August 2003 and
1 December 2003 Orders of the Valenzuela Regional Trial Court (RTC)
ruling that the subject machineries and equipments of Paper City
Corporation (Paper City) are movable properties by agreement of the parties
and cannot be considered as included in the extrajudicial foreclosure sale of
the mortgaged land and building of Paper City.3
The facts as we gathered from the records are:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and
Trust Co. (Metrobank) and Union Bank of the Philippines (Union Bank) are
banking corporations duly organized and existing under the laws of the
Philippines.
On the other hand, respondent Paper City is a domestic corporation engaged
in the manufacture of paper products particularly cartons, newsprint and
clay-coated paper.4
From 1990-1991, Paper City applied for and was granted the following
loans and credit accommodations in peso and dollar denominations by
RCBC: P10,000,000.00 on 8 January 1990,5 P14,000,000.00 on 19 July
1990,6P10,000,000.00 on 28 June 1991,7 and P16,615,000.00 on 28
November 1991.8 The loans were secured by four (4) Deeds of Continuing
Chattel Mortgages on its machineries and equipments found inside its paper
plants.
as fully paid and extinguished. Also prayed for was the return
of P5,000,000.00 as excessive penalty and the payment of damages and
attorneys fees.
In the meantime, Paper City and Union Bank entered into a Compromise
Agreement which was later approved by the trial court on 19 November
2001. It was agreed that the share of Union Bank in the proceeds of the
foreclosure shall be up to 34.23% of the price and the remaining possible
liabilities of Paper City shall be condoned by the bank. Paper City likewise
waived all its claim and counter charges against Union Bank and agreed to
turn-over its proportionate share over the property within 120 days from the
date of agreement.22
On the other hand, the negotiations between the other creditor banks and
Paper City remained pending. During the interim, Paper City filed with the
trial court a Manifestation with Motion to Remove and/or Dispose Machinery
on 18 December 2002 reasoning that the machineries located inside the
foreclosed land and building were deteriorating. It posited that since the
machineries were not included in the foreclosure of the real estate mortgage,
it is appropriate that it be removed from the building and sold to a third
party.23
Acting on the said motion, the trial court, on 28 February 2003 issued an
Order denying the prayer and ruled that the machineries and equipments were
included in the annexes and form part of the MTI dated 26 August 1992 as
well as its subsequent amendments. Further, the machineries and equipments
are covered by the Certificate of Sale issued as a consequence of foreclosure,
the certificate stating that the properties described therein with improvements
thereon were sold to creditor banks to the defendants at public auction.24
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was
favorably granted by the trial court in its Order dated 15 August 2003. The
court justified the reversal of its order on the finding that the disputed
machineries and equipments are chattels by agreement of the parties through
their inclusion in the four (4) Deeds of Chattel Mortgage dated 28 January
1990, 19 July 1990, 28 June 1991 and 28 November 1991. It further ruled
that the deed of cancellation executed by RCBC on 25 August 1992 was not
valid because it was done unilaterally and without the consent of Paper City
and the cancellation only refers to the merchandise/stocks-in-trade and not
to machineries and equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade the court to
reverse its 15 August 2003 Order. However, the same was denied by the trial
court through its 1 December 2003 Order reiterating the finding and
conclusion of the previous Order.27
Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65
to annul the Orders dated 15 August 2003 and 1 December 2003 of the trial
court,28 for the reasons that:
I. Paper City gave its conformity to consider the subject machineries and
equipment as real properties when the president and Executive Vice
President of Paper City signed the Mortgage Trust Indenture as well as its
subsequent amendments and all pages of the annexes thereto which itemized
all properties that were mortgaged.29
II. Under Section 8 of Act No. 1508, otherwise known as "The Chattel
Mortgage Law" the consent of the mortgagor (Paper City) is not required in
order to cancel a chattel mortgage. Thus the "Cancellation of Deed of
Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-inTrade" dated August 25, 1992 is valid and binding on the Paper City even
assuming that it was executed unilaterally by petitioner RCBC.30
III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes
"A" to "D" to the December 18, 2003 "Manifestation with Motion to
Remove and/or Dispose of Machinery" were executed from January 8, 1990
until November 28, 1991. On the other hand, the "Cancellation of Deed of
Continuing Chattel Mortgage" was executed on August 25, 1992 while the
MTI and the subsequent supplemental amendments thereto were executed
from August 26, 1992 until January 24, 1995. It is of the contention of
RCBC that Paper Citys unreasonable delay of ten
(10) years in assailing that the disputed machineries and equipments were
personal amounted to estoppel and ratification of the characterization that
the same were real properties.31
IV. The removal of the subject machineries or equipment is not among the
reliefs prayed for by the Paper City in its June 11, 1999 Complaint. The
Paper City sought the removal of the subject machineries and equipment only
when it filed its December 18, 2002 Manifestation with Motion to Remove
and/or Dispose of Machinery.32
V. Paper City did not specify in its various motions filed with the respondent
judge the subject machineries and equipment that are allegedly excluded
from the extrajudicial foreclosure sale.33
VI. The machineries and equipments mentioned in the four (4) Deeds of
Chattel Mortgage that were attached on the Manifestation with Motion to
Remove and/or Dispose of Machinery are the same machineries and
equipments included in the MTI and supplemental amendments, hence, are
treated by agreement of the parties as real properties.34
In its Comment,35 Paper City refuted the claim of RCBC that it gave its
consent to consider the machineries and equipments as real properties. It
alleged that the disputed properties remained within the purview of the
existing chattel mortgages which in fact were acknowledged by RCBC in the
MTI particularly in Section 11.07 which reads:
Section 11.07. This INDENTURE in respect of the MORTGAGE
OBLIGATIONS in the additional amount not exceeding TWO HUNDRED
TWENTY MILLION SIX HUNDRED FIFTEEN THOUSAND PESOS
(P220,615,000.00) shall be registered with the Register of Deeds of
Valenzuela, Metro Manila, apportioned based on the corresponding loanable
value of the MORTGAGED PROPERTIES, viz:
a. Real Estate Mortgage P206,815,000.00
b. Chattel Mortgage P13,800,000.0036
Paper City argued further that the subject machineries and equipments were
not included in the foreclosure of the mortgage on real properties particularly
the eight (8) parcels of land. Further, the Certificate of Sale of the Foreclosed
Property referred only to "lands and improvements" without any specification
and made no mention of the inclusion of the subject properties.37
In its Reply,38 RCBC admitted that there was indeed a provision in the MTI
mentioning a chattel mortgage in the amount of P13,800,000.00. However, it
justified that its inclusion in the MTI was merely for the purpose of
ascertaining the amount of the loan to be extended to Paper City.39 It
reiterated its position that the machineries and equipments were no longer
treated as chattels but already as real properties following the MTI.40
On 8 March 2005, the CA affirmed41 the challenged orders of the trial court.
The dispositive portion reads:
WHEREFORE, finding no grave abuse of discretion committed by public
respondent, the instant petition is hereby DISMISSED for lack of merit. The
assailed Orders dated 15 August and 2 December 2003, issued by Hon.
Judge Floro P. Alejo are hereby AFFIRMED. No costs at this instance.42
The CA relied on the "plain language of the MTIs:
Undoubtedly, nowhere from any of the MTIs executed by the parties can we
find the alleged "express" agreement adverted to by petitioner. There is no
provision in any of the parties MTI, which expressly states to the effect
that the parties shall treat the equipments and machineries as real property.
On the contrary, the plain and unambiguous language of the aforecited
MTIs, which described the same as personal properties, contradicts
petitioners claims.43
It was also ruled that the subject machineries and equipments were not
included in the extrajudicial foreclosure sale. The claim of inclusion was
contradicted by the very caption of the petition itself, "Petition for ExtraJudicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As
Amended." It opined further that this inclusion was further stressed in the
Certificate of Sale which enumerated only the mortgaged real properties
bought by RCBC without the subject properties.44
RCBC sought reconsideration but its motion was denied in the CAs
Resolution dated 8 August 2005.
RCBC before this Court reiterated all the issues presented before the
appellate court:
1. Whether the unreasonable delay of ten (10) years in assailing that the
disputed machineries and equipments were personal properties amounted to
estoppel on the part of Paper City;
The real estate mortgage over the machineries and equipments is even in
full accord with the classification of such properties by the Civil Code of the
Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in
a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works;
WHEREFORE, the petition is GRANTED. Accordingly, the Decision and
Resolution of the Court of Appeals dated 8 March 2005 and 8 August 2005
upholding the 15 August 2003 and 1 December 2003 Orders of the
Valenzuela Regional Trial Court are hereby REVERSED and SET ASIDE
and the original Order of the trial court dated 28 February 2003 denying the
motion of respondent to remove or dispose of machinery is hereby
REINSTATED.
SO ORDERED.
Case
No.
99-2425,
filed
with
Branch
150. The
Amended
Information charged the accused with theft under Article 308 of the
Revised Penal Code, committed as follows:
On or about September 10-19, 1999, or prior thereto in
Makati City, and within the jurisdiction of this Honorable
Court, the accused, conspiring and confederating together
and all of them mutually helping and aiding one another,
TELEPHONE COMPANY,
Respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
CONTRARY TO LAW.[2]
Amended Information do not constitute the felony of theft. The trial the Civil Code is exclusive such that all those not included therein are
court denied the Motion to Quash the Amended Information, as well
personal properties. Since Article 308 of the Revised Penal Code used
Petitioners special civil action for certiorari was dismissed by may be the subject of theft under Article 308 of the Revised Penal
the Court of Appeals. Thus, petitioner filed the instant petition for Code. PLDT alleges that the international calls and business of
review with this Court.
Revised Penal Code does not require asportation, the sole requisite
distance calls and the business of providing telecommunication or being that the object should be capable of appropriation. The element
telephone services are not personal properties under Article 308 of
Respondent Philippine Long Distance Telephone Company withholding it with the character of permanency. There must be intent
(PLDT) filed a Motion for Reconsideration with Motion to Refer the to appropriate, which means to deprive the lawful owner of the
Case to the Supreme Court En Banc. It maintains that the Amended thing. Thus, the term personal properties under Article 308 of the
Information charging petitioner with theft is valid and sufficient; that Revised Penal Code is not limited to only personal properties which
it states the names of all the accused who were specifically charged
and business of providing telecommunication or telephone service of Courts finding that the Legislature could not have contemplated the
PLDT as the personal properties which were unlawfully taken by the theft of international telephone calls and the unlawful transmission
accused; and that it satisfies the test of sufficiency as it enabled a
encompassing and embracing even such scenario that could not have
been easily anticipated.
are
personal
properties
which
may
be
subject
of
theft. Article 416(3) of the Civil Code deems forces of nature (which 8484 or the Access Device Regulations Act of 1998 and RA 8792 or
includes electricity) which are brought under the control by science,
under the Revised Penal Code for the crime of theft. The latter
embraces unauthorized appropriation or use of PLDTs international
calls, service and business, for personal profit or gain, to the prejudice
Laurel claims that a telephone call is a conversation on the phone or of PLDT as owner thereof. On the other hand, the special laws punish
a
communication
carried
out
using
the
telephone. It
is
synonymous to electric current or impulses. Hence, it may not be obtain the subject service and business. Even assuming that the
considered
as
personal
property
susceptible
electricity and telephone calls is misplaced. PLDT does not produce alleged in the Information should be taken in relation to RA 8484
or generate telephone calls. It only provides the facilities or services because it is the elements, and not the designation of the crime, that
for the transmission and switching of the calls. He also insists that control.
business is not personal property. It is not the business that is
protected but the right to carry on a business. This right is what is Considering the gravity and complexity of the novel questions of law
considered as property. Since the services of PLDT cannot be involved in this case, the Special First Division resolved to refer the
considered as property, the same may not be subject of theft.
the case to the trial court for proper clarification of the Amended
Information.
States v. Tambunting,
in our penal laws. Moreover, the theft provision in the Revised Penal
latters consent.
The elements of theft under Article 308 of the Revised Penal Cognizant of the definition given by jurisprudence and the Civil Code
Code are as follows: (1) that there be taking of personal property; (2)
of Spain to the term personal property at the time the old Penal Code
that said property belongs to another; (3) that the taking be done was being revised, still the legislature did not limit or qualify the
with intent to gain; (4) that the taking be done without the consent of
the owner; and (5) that the taking be accomplished without the use
to
retain
for
the
term
an
extensive
and
unqualified
the definition of the term personal property in the penal code enumeration of real properties under the Civil Code and capable of
provision
on
theft
had
been
established
in
Philippine appropriation can be the subject of theft under the Revised Penal
Code.
property,
tangible
or
intangible,
corporeal
or
[7]
To appropriate means to deprive the lawful owner of the thing. [9] The
and not included in the foregoing chapter (not real property). Thus, word take in the Revised Penal Code includes any act intended to
the term personal property in the Revised Penal Code should be transfer possession which, as held in the assailed Decision, may be
interpreted in the context of the Civil Code provisions in accordance
committed through the use of the offenders own hands, as well as any
with the rule on statutory construction that where words have been
[6]
fact, this Court used the Civil Code definition of personal property in States v. Genato, United States v. Carlos, and United States v.
interpreting the theft provision of the penal code in United States v.
Menagas.[11]
Carlos.
As illustrated in the above cases, appropriation of forces of nature
which are brought under control by science such as electrical energy
It was further ruled that even without the above ordinance the acts of
fraudulently obtain such forces of nature. In the instant case, the Penal Code then in force, thus:
petitioner was charged with engaging in International Simple Resale
(ISR) or the unauthorized routing and completing of international
long distance calls using lines, cables, antennae, and/or air wave
that country, articles 517 and 518 of the code in force in these
the City of Manila, which was involved in the said case, reads as
islands.
follows:
The acts of subtraction include: (a) tampering with any wire, meter, or
Injury to electric apparatus; Tapping current; Evidence. No
other
apparatus
installed
or
used
for
generating,
containing,
current from such wire, meter, or other apparatus; and (c) using or
telephone service.
under Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be
Code. Just
object of theft:
like
interest
in
business,
however,
it
may
be
facilities. In
this
regard,
the
Amended
Information
inaccurately
A perusal of the records of this case readily reveals that petitioner and
respondent PLDT extensively discussed the issue of ownership of
In Strochecker v. Ramirez,
[12]
telephone calls. The prosecution has taken the position that said
telephone calls belong to respondent PLDT. This is evident from its
Comment where it defined the issue of this case as whether or not the
constitutes theft.[14]
subject of mortgage.
In discussing the issue of ownership, petitioner and respondent PLDT
Interest in business was not specifically enumerated as personal gave their respective explanations on how a telephone call is
property in the Civil Code in force at the time the above decision was
that all things which are or may be the object of appropriation are
converts/reconverts
the
human
voice/voice
signal
and
the Civil Code, which enumerates forces of nature which are brought
under control by science.[17]
calls, the matter alleged to be stolen in the instant case, take the form
latter could not have acquired ownership over such calls. PLDT merely
being the owner of said telephone calls, then it could not validly claim
that such telephone calls were taken without its consent. It is the use
signal.
the telephone service are personal property under Article 308 of the
calls, and only later mentions stealing the business from PLDT as the APPEALS,Respondents.
manner by which the gain was derived by the accused. In order to
correct this inaccuracy of description, this case must be remanded to
DECISION
the trial court and the prosecution directed to amend the Amended
Information, to clearly state that the property subject of the theft are
NACHURA, J.:
offense, which would have called for the dismissal of the information
under Rule 110, Section 14 and Rule 119, Section 19 of the Revised
the Court of Appeals (CA) Decision [1] in CA-G.R. CV No. 43424 which
nature and cause of the charge against him, and thus guaranteed of
affirmed with modification the judgment [2] of the Regional Trial Court,
ACCORDINGLY,
is GRANTED. The
the
assailed
motion
Decision
dated
for
reconsideration This case has its genesis in an ostensible fraud perpetrated on the
February
27,
is RECONSIDERED and SET ASIDE. The Decision of the Court of Franco (Franco) in conspiracy with other individuals,[3] some of whom
Appeals in CA-G.R. SP No. 68841 affirming the Order issued by Judge opened and maintained separate accounts with BPI-FB, San Francisco
Zeus C. Abrogar of the Regional Trial Court of Makati City, Branch
in
Criminal
Case
No.
99-2425
for
theft, On August
is AFFIRMED. The case is remanded to the trial court and the Public
15,
1989,
Tevesteco
Arrastre-Stevedoring
Co.,
Inc.
Prosecutor of Makati City is hereby DIRECTED to amend the thereafter, or on August 25, 1989, First Metro Investment Corporation
Amended Information to show that the property subject of the theft (FMIC) also opened a time deposit account with the same branch of
were services and business of the private offended party.
SO ORDERED.
deposit of P500,000.00 each, while the time deposit account Case), which had been filed by BPI-FB against Franco et al.,[14] to recover
had P1,000,000.00 with a maturity date of August 31, 1990. The total the P37,455,410.54 representing Tevestecos total withdrawals from its
amount ofP2,000,000.00 used to open these accounts is traceable to
account.
to
Debit)
amounting
to P37,455,410.54,
including
It was only on May 15, 1990, through the service of a copy of the Second
Amended Complaint in Civil Case No. 89-4996, that Franco was impleaded
in the Makati case.[16]Immediately, upon receipt of such copy, Franco filed a
Motion to Discharge Attachment which the Makati RTC granted on May 16,
1990. The Order Lifting the Order of Attachment was served on BPI-FB on
even date, with Franco demanding the release to him of the funds in his
savings and current accounts. Jesus Arangorin, BPI-FBs new manager, could
not forthwith comply with the demand as the funds, as previously stated, had
already been debited because of FMICs forgery claim. As such, BPI-FBs
computer at the SFDM Branch indicated that the current account record was
not on file.
[10]
to debit
In the meantime, two checks[13] drawn by Franco against his BPI-FB current
account were dishonored upon presentment for payment, and stamped with
a notation account under garnishment. Apparently, Francos current account
was garnished by virtue of an Order of Attachment issued by the Regional
Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.
deducted the amount of P63,189.00 from the remaining balance of the time [23] However, the civil case[24] remains under litigation and the respective
deposit account representing advance interest paid to him.
rights and liabilities of the parties have yet to be adjudicated.
These transactions spawned a number of cases, some of which we had Consequently, in light of BPI-FBs refusal to heed Francos demands to
already resolved.
unfreeze his accounts and release his deposits therein, the latter filed on June
4, 1990 with the Manila RTC the subject suit. In his complaint, Franco
FMIC filed a complaint against BPI-FB for the recovery of the amount prayed for the following reliefs: (1) the interest on the remaining
of P80,000,000.00 debited from its account.[17] The case eventually reached balance[25] of his current account which was eventually released to him on
this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment October 31, 1991; (2) the balance[26] on his savings account, plus interest
Corporation,[18] we upheld the finding of the courts below that BPI-FB thereon; (3) the advance interest[27] paid to him which had been deducted
failed to exercise the degree of diligence required by the nature of its when he pre-terminated his time deposit account; and (4) the payment of
obligation to treat the accounts of its depositors with meticulous care. Thus, actual, moral and exemplary damages, as well as attorneys fees.
BPI-FB was found liable to FMIC for the debited amount in its time
deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per BPI-FB traversed this complaint, insisting that it was correct in freezing the
annum from August 29, 1989 until fully restored. In turn, the 17% shall accounts of Franco and refusing to release his deposits, claiming that it had a
itself earn interest at 12% from October 4, 1989 until fully paid.
better right to the amounts which consisted of part of the money allegedly
fraudulently withdrawn from it by Tevesteco and ending up in Francos
In a related case, Edgardo Buenaventura, Myrna Lizardo and accounts. BPI-FB asseverated that the claimed consideration
Yolanda Tica (Buenaventura, et al.),[19] recipients of a P500,000.00 check of P2,000,000.00 for the introduction facilitated by Franco between George
proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the
likewise filed suit. Buenaventura et al., as in the case of Franco, were also other, spoke volumes of Francos participation in the fraudulent transaction.
prevented from effecting withdrawals[20] from their current account with
BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when On August 4, 1993, the Manila RTC rendered judgment, the dispositive
the case was elevated to this Court docketed as BPI Family Bank v. portion of which reads as follows:
Buenaventura,[21] we ruled that BPI-FB had no right to freeze
Buenaventura, et al.s accounts and adjudged BPI-FB liable therefor, in
WHEREFORE, in view of all the foregoing, judgment is hereby
addition to damages.
rendered in favor of [Franco] and against [BPI-FB], ordering the
latter to pay to the former the following sums:
Meanwhile, BPI-FB filed separate civil and criminal cases against those
believed to be the perpetrators of the multi-million peso scam. [22] In the
1. P76,500.00 representing the legal rate of interest on the amount
criminal case, Franco, along with the other accused, except for Manuel
of P450,000.00 from May 18, 1990 to October 31, 1991;
Bienvenida who was still at large, were acquitted of the crime of Estafa as
SO ORDERED.[29]
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1)
Franco had a better right to the deposits in the subject accounts which are part
of the proceeds of a forged Authority to Debit; (2) Franco is entitled to
interest on his current account; (3) Franco can recover the P400,000.00
deposit in Quiaoits savings account; (4) the dishonor of Francos checks was
not legally in order; (5) BPI-FB is liable for interest on Francos time deposit,
and for moral and exemplary damages; and (6) BPI-FBs counter-claim has no
factual and legal anchor.
SO ORDERED.[28]
We are in full accord with the common ruling of the lower courts that
Unsatisfied with the decision, both parties filed their respective appeals
before the CA. Franco confined his appeal to the Manila RTCs denial of his
claim for moral and exemplary damages, and the diminutive award of
attorneys fees. In affirming with modification the lower courts decision, the
appellate court decreed, to wit:
have the right to keep possession of the property and preclude Z from
is what BPI-FB did in filing the Makati Case against Franco, et al. It
staked its claim on the money itself which passed from one account to
another, commencing with the forged Authority to Debit.
exchange, without other evidence of its title. [35] Money, which had
personal
property,
BPI-FBs
illustrative
example,
BPI-FBs argument is unsound. To begin with, the movable property ostensibly based on Article 559, is inapplicable to the instant case.
mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.[30] A determinate or specific thing is one that is
[31]
In this case, the deposit in Francos accounts consists of money Code provisions on simple loan or mutuum. [36] As there is a debtorwhich, albeit characterized as a movable, is generic and fungible.
[32]
The quality of being fungible depends upon the possibility of the ultimately acquired ownership of Francos deposits, but such ownership
substituted by others of the same kind, not having a distinct amount on demand.[37] Although BPI-FB owns the deposits in Francos
individuality.[33]
Significantly, while Article 559 permits an owner who has lost the release of the funds in his savings account. Thus, when Franco
or has been unlawfully deprived of a movable to recover the exact
issued checks drawn against his current account, he had every right
same thing from the current possessor, BPI-FB simply claims as creditor to expect that those checks would be honored by BPI-FB as
ownership of the equivalent amount of money, i.e., the value thereof, debtor.
which it had mistakenly debited from FMICs account and credited to
Tevestecos, and subsequently traced to Francos account. In fact, this
freeze the accounts of Franco based on its mere suspicion that the
was allegedly involved in. To grant BPI-FB, or any bank for that
[38]
the
active
regard them with respect and even gratitude and, most of all,
safekeeping
and
saving
of
money
or
as
choice, knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person, with
account, when FMICs account was a time deposit and it had already
paid advance interest to FMIC. Considering that there is as yet no
which made possible the present predicament, must bear the resulting
loss or inconvenience.
Makati RTCs Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that
court.
The argument is tenuous. We agree with the succinct holding RTC. However, it appears that BPI-FB had impliedly consented to the
of the appellate court in this respect. The Manila RTCs order to pay trial of this issue given its extensive cross-examination of Quiaoit.
interests on Francos current account arose from BPI-FBs unjustified
refusal to comply with its obligation to pay Franco pursuant to their
[39]
Section
5. Amendment
to
conform
to
or
authorize
does not preclude the Manila RTC from ruling on BPI-FBs liability to
this was the core issue raised by Franco in his complaint before the
trial on the ground that it is now within the issues made by the
Manila RTC.
Noteworthy is the fact that Quiaoit himself testified that the In all, BPI-FBs argument that this case is not the right forum for Franco
deposits in his account are actually owned by Franco who simply
accommodated
Jaime
Sebastians
request
to
transfer P400,000.00 from Francos savings account to Quiaoits funds in his account, and pointed to Franco as the actual owner
account.[40] His testimony cannot be characterized as hearsay as the
records reveal that he had personal knowledge of the arrangement appropriately covers the deposits in Quiaoits account.
made between Franco, Sebastian and himself.[41]
Makati RTC had no authority yet to bind the deposits of Franco through
the writ of attachment, and consequently, there was no legal basis for
and 18, 1989 was legally in order in view of the Makati RTCs BPI-FB to dishonor the checks issued by Franco.
supplemental writ of attachment issued on September 14, 1989. It
posits that as the party that applied for the writ of attachment before
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such
the Makati RTC, it need not be served with the Notice of Garnishment
liable for the advance interest it deducted from Francos time deposit
[42]
Rules of Court. It should be noted that the strict requirement on In granting Francos prayer for interest on his time deposit account and
service of court papers upon the parties affected is designed to for moral and exemplary damages, the CA attributed bad faith to BPIcomply with the elementary requisites of due process. Franco was FB because it (1) completely disregarded its obligation to Franco; (2)
entitled, as a matter of right, to notice, if the requirements of due
process are to be observed. Yet, he received a copy of the Notice of (3) misrepresented that Francos current account was not on file; and
Garnishment only on September 27, 1989, several days after the two (4) refused to return the P400,000.00 despite the fact that the
checks he issued were dishonored by BPI-FB on September 20 and
In this regard, we are guided by Article 2201 of the Civil Code which
Garnishment on Franco.
provides:
preceded,
was constituted.
or
contemporaneously
accompanied,
by
service
of
Makati RTC had yet to acquire jurisdiction over the person of Franco
[43]
We find, as the trial court did, that BPI-FB acted out of the impetus of
self-protection and not out of malevolence or ill will. BPI-FB was not in Code.[49]
the corrupt state of mind contemplated in Article 2201 and should
not be held liable for all damages now being imputed to it for its
breach of obligation. For the same reason, it is not liable for the Article 2219 of the Civil Code,[50] upon which to base his claim for
unearned interest on the time deposit.
moral damages.
Thus, not having acted in bad faith, BPI-FB cannot be held liable for
imports a dishonest purpose or some moral obliquity and conscious moral damages under Article 2220 of the Civil Code for breach of
doing of wrong; it partakes of the nature of fraud. [44] We have held contract.[51]
that it is a breach of a known duty through some motive of interest
or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud or
We also deny the claim for exemplary damages. Franco should show
computer-generated document which indicated that the current exemplary damages should be awarded to him. [52] As there is no basis
account was not on file resulted from the prior debit by BPI-FB of the
[53]
the deposits of Franco despite the Makati RTCs Order Lifting the Order
Attachment
and
Quiaoits
unwavering
assertion
that
constrained Franco to incur expenses and litigate for almost two (2)
must be a culpable act or omission factually established; (3) the decades in order to protect his interests and recover his deposits.
wrongful act or omission of the defendant is the proximate cause of Therefore,
the injury sustained by the claimant; and (4) the award for damages
this
Court
deems
it
just
and
equitable
to
grant
of the complexity of the issues and the time it has taken for this case
to be resolved.[56]
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the
Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled
to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of
profit as a result of Francos suit is, as already pointed out, of its own
making. Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of
Appeals
Decision
dated November
29,
the machinery company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in satisfaction
of the mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia
Agricola Filipina" executed a deed of sale of the land upon which the
building stood to the machinery company, but this deed of sale, although
executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been
executed for the purpose of curing any defects which might be found to exist
in the machinery company's title to the building under the sheriff's certificate
of sale. The machinery company went into possession of the building at or
about the time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the
machinery company, the mortgagor, the "Compaia Agricola Filipina"
executed another mortgage to the plaintiff upon the building, separate and
apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for that
amount, levied execution upon the building, bought it in at the sheriff's sale
on or about the 18th of December, 1914, and had the sheriff's certificate of
the sale duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding the release of the
property from the levy. Thereafter, upon demand of the sheriff, the plaintiff
executed an indemnity bond in favor of the sheriff in the sum of P12,000, in
reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that the
company had its title to the building registered prior to the date of registry
of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership
shall be transfer to the person who may have the first taken possession
thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first
recorded it in the registry.
Should there be no entry, the property shall belong to the person who first
took possession of it in good faith, and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it
must be apparent that the annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be given the legal effect of an
inscription in the registry of real property. By its express terms, the Chattel
Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is
to provide for the registry of "Chattel mortgages," that is to say, mortgages
of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning
machinery was installed by the "Compaia Agricola Filipina" was real
property, and the mere fact that the parties seem to have dealt with it
separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any
effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be
sustained on the ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the ground that the agreed
statement of facts in the court below discloses that neither the purchase of
the building by the plaintiff nor his inscription of the sheriff's certificate of
sale in his favor was made in good faith, and that the machinery company
must be held to be the owner of the property under the third paragraph of the
above cited article of the code, it appearing that the company first took
possession of the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the sheriff's sale to
the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil
Code require "good faith," in express terms, in relation to "possession" and
"title," but contain no express requirement as to "good faith" in relation to the
"inscription" of the property on the registry, it must be presumed that good
faith is not an essential requisite of registration in order that it may have the
effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential
right secured under this article of the code upon an inscription of title in bad
faith. Such an interpretation placed upon the language of this section would
open wide the door to fraud and collusion. The public records cannot be
converted into instruments of fraud and oppression by one who secures an
inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters
such inscription; and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an inscription
"in bad faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court
of Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned
in the first paragraph; therefore, it having been found that the second
purchasers who record their purchase had knowledge of the previous sale, the
question is to be decided in accordance with the following paragraph. (Note
2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the
registry shall have preference, this provision must always be understood on
the basis of the good faith mentioned in the first paragraph; the legislator
could not have wished to strike it out and to sanction bad faith, just to
comply with a mere formality which, in given cases, does not obtain even in
real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by
the publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he
bought the building at the sheriff's sale and inscribed his title in the land
registry, was duly notified that the machinery company had bought the
building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time when
the sheriff executed his levy. The execution of an indemnity bond by the
plaintiff in favor of the sheriff, after the machinery company had filed its
sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the
time of the levy and sale the building had already been sold to the
machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent
inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the
sheriff's certificate of sale to the plaintiff was not made in good faith, we
should not be understood as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common debtor.
No criticism can properly be made of the exercise of the utmost diligence by
the plaintiff in asserting and exercising his right to recover the amount of his
claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and
in buying it at the sheriff's sale, he considered that he was doing no more
than he had a right to do under all the circumstances, and it is highly
possible and even probable that he thought at that time that he would be able
to maintain his position in a contest with the machinery company. There was
no collusion on his part with the common debtor, and no thought of the
perpetration of a fraud upon the rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he did hope, that the title of the
machinery company would not stand the test of an action in a court of law;
and if later developments had confirmed his unfounded hopes, no one could
question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's
claim of ownership when he executed the indemnity bond and bought in the
property at the sheriff's sale, and it appearing further that the machinery
company's claim of ownership was well founded, he cannot be said to have
been an innocent purchaser for value. He took the risk and must stand by the
consequences; and it is in this sense that we find that he was not a purchaser
in good faith.
One who purchases real estate with knowledge of a defect or lack of title in
his vendor cannot claim that he has acquired title thereto in good faith as
against the true owner of the land or of an interest therein; and the same rule
must be applied to one who has knowledge of facts which should have put
him upon such inquiry and investigation as might be necessary to acquaint
him with the defects in the title of his vendor. A purchaser cannot close his
eyes to facts which should put a reasonable man upon his guard, and then
claim that he acted in good faith under the belief that there was no defect in
the title of the vendor. His mere refusal to believe that such defect exists, or
his willful closing of his eyes to the possibility of the existence of a defect in
his vendor's title, will not make him an innocent purchaser for value, if
afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defects as would have led to its discovery had he acted
with that measure of precaution which may reasonably be acquired of a
prudent man in a like situation. Good faith, or lack of it, is in its analysis a
question of intention; but in ascertaining the intention by which one is
actuated on a given occasion, we are necessarily controlled by the evidence
as to the conduct and outward acts by which alone the inward motive may,
with safety, be determined. So it is that "the honesty of intention," "the honest
lawful intent," which constitutes good faith implies a "freedom from
Act, refer to land already acquired under the Public Land Act, or any
improvement thereon and therefore have no application to the assailed
mortgage in the case at bar which was executed before such eventuality.
Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on
the face of private respondent's title has likewise no application in the instant
case, despite its reference to encumbrance or alienation before the patent is
issued because it refers specifically to encumbrance or alienation on the land
itself and does not mention anything regarding the improvements existing
thereon.
But it is a different matter, as regards the second mortgage executed over the
same properties on May 2, 1973 for an additional loan of P20,000.00 which
was registered with the Registry of Deeds of Olongapo City on the same date.
Relative thereto, it is evident that such mortgage executed after the issuance
of the sales patent and of the Original Certificate of Title, falls squarely under
the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act
and Section 2 of Republic Act 730, and is therefore null and void.
Petitioner points out that private respondents, after physically possessing the
title for five years, voluntarily surrendered the same to the bank in 1977 in
order that the mortgaged may be annotated, without requiring the bank to get
the prior approval of the Ministry of Natural Resources beforehand, thereby
implicitly authorizing Prudential Bank to cause the annotation of said
mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which
refers to Sections 118, 120, 122 and 123 of Commonwealth Act 141, has
held:
... Nonetheless, we apply our earlier rulings because we believe that as
in pari delicto may not be invoked to defeat the policy of the State neither
may the doctrine of estoppel give a validating effect to a void contract.
Indeed, it is generally considered that as between parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy (19 Am. Jur. 802). It is not within the competence of
any citizen to barter away what public policy by law was to preserve
(Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal
vs. IAC, 143 SCRA 54 [1986]).
This pronouncement covers only the previous transaction already alluded to
and does not pass upon any new contract between the parties (Ibid), as in
the case at bar. It should not preclude new contracts that may be entered into
between petitioner bank and private respondents that are in accordance with
the requirements of the law. After all, private respondents themselves
declare that they are not denying the legitimacy of their debts and appear to
be open to new negotiations under the law (Comment; Rollo, pp. 95-96).
Any new transaction, however, would be subject to whatever steps the
Government may take for the reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of
Zambales & Olongapo City is hereby MODIFIED, declaring that the Deed
of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of
Real Estate Mortgage for an additional loan of P20,000.00 is null and void,
without prejudice to any appropriate action the Government may take
against private respondents.
SO ORDERED.
6.
SERGS
PRODUCTS,
INC.,
and
SERGIO
T.
GOQUIOLAY, petitioners, vs. PCI
LEASING
AND
FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or
immovable property be considered as personal or movable, a party
is estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the
other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the
January 6, 1999 Decision[1] of the Court of Appeals (CA)[2] in CAGR SP No. 47332 and its February 26, 1999 Resolution [3] denying
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a
writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized
[were] immovable as defined in Article 415 of the Civil Code, the parties
agreement to the contrary notwithstanding.They argued that to give effect to
the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and
take possession of the remaining properties. He was able to take two more,
but was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held
that the subject machines were personal property, and that they had
only been leased, not owned, by petitioners. It also ruled that the
words of the contract are clear and leave no doubt upon the true
intention of the contracting parties. Observing that Petitioner
Goquiolay was an experienced businessman who was not
unfamiliar with the ways of the trade, it ruled that he should have
realized the import of the document he signed. The CA further
held:
Furthermore, to accord merit to this petition would be to preempt the trial
court in ruling upon the case below, since the merits of the whole matter are
laid down before us via a petition whose sole purpose is to inquire upon the
existence of a grave abuse of discretion on the part of the [RTC] in issuing
the assailed Order and Resolution. The issues raised herein are proper
subjects of a full-blown trial, necessitating presentation of evidence by both
parties. The contract is being enforced by one, and [its] validity is attacked
by the other a matter x x x which respondent court is in the best position to
determine.
that the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries
to be seized, then its workers would be out of work and thrown into
the streets.[31] They also allege that the seizure would nullify all
efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of
the Writ. As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come
true, should not be blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under Section 5 of Rule
60, which allows the filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to the sufficiency
of the applicants bond, or of the surety or sureties thereon, he cannot
immediately require the return of the property, but if he does not so object,
he may, at any time before the delivery of the property to the applicant,
require the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value of the
property as stated in the applicants affidavit for the delivery thereof to the
applicant, if such delivery be adjudged, and for the payment of such sum to
him as may be recovered against the adverse party, and by serving a copy
bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed
Decision of the Court of Appeals AFFIRMED. Costs against
petitioners.
SO ORDERED.
respondent preceded that made to Evangelists, the latter would have a better
right if the writ of attachment, issued in his favor before the sale to the
respondent, had been properly executed or enforced. This question, in turn,
depends upon whether the house of Ricardo Rivera is real property or not. In
the affirmative case, the applicable provision would be subsection (a) of
section 7, Rule 59 of the Rules of Court, pursuant to which the attachment
should be made "by filing with the registrar of deeds a copy of the order,
together with a description of the property attached, and a notice that it is
attached, and by leaving a copy of such order, description, and notice with
the occupant of the property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's
house is personal property, the levy upon which must be made in conformity
with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main
issue before us is whether a house, constructed the lessee of the land on
which it is built, should be dealt with, for purpose, of attachment, as
immovable property, or as personal property.
It is, our considered opinion that said house is not personal property, much
less a debt, credit or other personal property not capable of manual delivery,
but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off.
Gaz., 5374), "a true building (not merely superimposed on the soil) is
immovable or real property, whether it is erected by the owner of the land or
by usufructuary or lessee. This is the doctrine of our Supreme Court in Leung
Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply supported
by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a
house as personal property for purposes of said contract
(Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New
York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil.,
464). However, this view is good only insofar as thecontracting parties are
concerned. It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said contract. Much less
is it in point where there has been no contractwhatsoever, with respect to the
status of the house involved, as in the case at bar. Apart from this,
in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the parties
entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in
advertising the property's sale at public auction as personal property? It is to
be remembered that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be remembered that
in practice it is the judgment creditor who points out to the sheriff the
properties that the sheriff is to levy upon in execution, and the judgment
creditor in the case at bar is the party in whose favor the owner of the house
had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution
do not allow, and, we should notinterpret them in such a way as to allow, the
special consideration that parties to a contract may have desired to impart to
real estate, for example, as personal property, when they are, not ordinarily
so. Sales on execution affect the public and third persons. The regulation
governing sales on execution are for public officials to follow. The form of
proceedings prescribed for each kind of property is suited to its character,
not to the character, which the parties have given to it or desire to give it.
When the rules speak of personal property, property which is ordinarily so
considered is meant; and when real property is spoken of, it means property
which is generally known as real property. The regulations were never
intended to suit the consideration that parties may have privately given to
the property levied upon. Enforcement of regulations would be difficult
were the convenience or agreement of private parties to determine or govern
the nature of the proceedings. We therefore hold that the mere fact that a
house was the subject of the chattel mortgage and was considered as
personal property by the parties does not make said house personal
property for purposes of the notice to be given for its sale of public auction.
This ruling is demanded by the need for a definite, orderly and well defined
regulation for official and public guidance and would prevent confusion and
misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between the
owner and a third person, is real property within the purview of Rule 39,
section 16, of the Rules of Court as it has become a permanent fixture of the
land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong
Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544;
Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for
the levy of attachment, for it similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable
property, its attachment by Evangelista was void or ineffective, because, in
the language of the Court of Appeals, "after presenting a Copy of the order of
attachment in the Office of the Register of Deeds, the person who might then
be in possession of the house, the sheriff took no pains to serve Ricardo
Rivera, or other copies thereof." This finding of the Court of Appeals is
neither conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that
petitioner alleged, in paragraph 3 of the complaint, that he acquired the house
in question "as a consequence of the levy of an attachment and execution of
the judgment in Civil Case No. 8235" of the Court of First Instance of
Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment
execution of judgment. He alleged, however, by way a of special defense,
that the title of respondent "is superior to that of plaintiff because it is based
on a public instrument," whereas Evangelista relied upon a "promissory note"
which "is only a private instrument"; that said Public instrument in favor of
respondent "is superior also to the judgment in Civil Case No. 8235"; and
that plaintiff's claim against Rivera amounted only to P866, "which is much
below the real value" of said house, for which reason it would be "grossly
unjust to acquire the property for such an inadequate consideration."
Thus, Rivera impliedly admitted that his house had been attached, that the
house had been sold to Evangelista in accordance with the requisite
formalities, and that said attachment was valid, although allegedly inferior
to the rights of respondent, and the consideration for the sale to Evangelista
was claimed to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the
complaint, but only " for the reasons stated in its special defenses" namely:
(1) that by virtue of the sale at public auction, and the final deed executed
by the sheriff in favor of respondent, the same became the "legitimate owner
of the house" in question; (2) that respondent "is a buyer in good faith and
for value"; (3) that respondent "took possession and control of said house";
(4) that "there was no valid attachment by the plaintiff and/or the Sheriff of
Manila of the property in question as neither took actual or constructive
possession or control of the property at any time"; and (5) "that the alleged
registration of plaintiff's attachment, certificate of sale and final deed in the
Office of Register of Deeds, Manila, if there was any, is likewise, not
valid as there is no registry of transactions covering houses erected on land
belonging to or leased from another." In this manner, respondent claimed a
better right, merely under the theory that, in case of double sale of
immovable property, the purchaser who first obtains possession in good
faith, acquires title, if the sale has not been "recorded . . . in the Registry of
Property" (Art. 1544, Civil Code of the Philippines), and that the writ of
attachment and the notice of attachment in favor of Evangelista should be
considered unregistered, "as there is no registry of transactions covering
houses erected on land belonging to or leased from another." In fact, said
article 1544 of the Civil Code of the Philippines, governing double sales,
was quoted on page 15 of the brief for respondent in the Court of Appeals,
in support of its fourth assignment of error therein, to the effect that it "has
preference or priority over the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of
attachment had been served on Rivera. No evidence whatsoever, to the
effect that Rivera had not been served with copies of said writ and notice,
was introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies
were served by the sheriff upon Rivera. Service thereof on Rivera had been
August 7, 1935
and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in
that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out by
the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the
sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the
sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao
Saw Mill Co., Inc., has on a number of occasions treated the machinery as
personal property by executing chattel mortgages in favor of third persons.
One of such persons is the appellee by assignment from the original
mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to
the Code, real property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx
xxx
xxx
5. Machinery, liquid containers, instruments or implements intended by the
owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the
requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that the trial judge and appellees are right
in their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must
further be pointed out that while not conclusive, the characterization of the
property as chattels by the appellant is indicative of intention and impresses
upon the property the character determined by the parties. In this connection
the decision of this court in the case of Standard Oil Co. of New Yorkvs.
Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the
key to such a situation.
It is, however not necessary to spend overly must time in the resolution of
this appeal on side issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building or land for use in
connection therewith, but intended by a lessee for use in a building erected
on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the
United States Supreme Court, it was held that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant, but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted as the
agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the
property from the point of view of the rights of Valdes and its nature and
character from the point of view of Nevers & Callaghan as a judgment
creditor of the Altagracia Company and the rights derived by them from the
execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable
(real) property, not only land and buildings, but also attributes immovability
in some cases to property of a movable nature, that is, personal property,
because of the destination to which it is applied. "Things," says section 334
of the Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as
follows: "Machinery, vessels, instruments or implements intended by the
owner of the tenements for the industrial or works that they may carry on in
any building or upon any land and which tend directly to meet the needs of
the said industry or works." (See also Code Nap., articles 516, 518 et seq. to
right did not in a legal sense conflict with the claim of Valdes, since as to
him the property was a part of the realty which, as the result of his
obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225
U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will
be affirmed, the costs of this instance to be paid by the appellant.
9. G.R. No. 120098
October 2, 2001
RUBY L. TSAI, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and
MAMERTO R VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and
MAMERTO R VILLALUZ, respondents.
QUISUMBING, J.:
These consolidated cases assail the decision 1 of the Court of Appeals in CAG.R. CV No. 32986, affirming the decision2 of the Regional Trial Court of
Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent
court's resolution denying petitioners' motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)
obtained a three million peso (P3,000,000.00) loan from petitioner
Philippine Bank of Communications (PBCom). As security for the loan,
EVERTEX executed in favor of PBCom, a deed of Real and Chattel
Mortgage over the lot under TCT No. 372097, where its factory stands, and
the chattels located therein as enumerated in a schedule attached to the
mortgage contract. The pertinent portions of the Real and Chattel Mortgage
are quoted below:
MORTGAGE
Court is limited to reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts. 13 This rule is
applied more stringently when the findings of fact of the RTC is affirmed by
the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of
Appeals that are decisive of the issues: (1) the "controverted machineries" are
not covered by, or included in, either of the two mortgages, the Real Estate
and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties appended to the Notice
of Sale, and neither were they included in the Sheriff's Notice of Sale of the
foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under Article 415
(3) and (5) of the New Civil Code. This assertion, however, does not settle
the issue. Mere nuts and bolts do not foreclose the controversy. We have to
look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a
perusal of the contract of Real and Chattel Mortgage executed by the parties
herein gives us a contrary indication. In the case at bar, both the trial and the
appellate courts reached the same finding that the true intention of PBCOM
and the owner, EVERTEX, is to treat machinery and equipment as chattels.
The pertinent portion of respondent appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as
chattels; never as real properties. Indeed, the 1975 mortgage contract, which
was actually real and chattel mortgage, militates against appellants'
posture. It should be noted that the printed form used by appellant bank was
mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage, of the phrase "real
and chattel." So also, the "machineries and equipment" in the printed form of
the bank had to be inserted in the blank space of the printed contract and
connected with the word "building" by typewritten slash marks. Now, then,
if the machineries in question were contemplated to be included in the real
estate mortgage, there would have been no necessity to ink a chattel
mortgage specifically mentioning as part III of Schedule A a listing of the
machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and building
involved.
As regards the 1979 contract, the intention of the parties is clear and beyond
question. It refers solely tochattels. The inventory list of the mortgaged
properties is an itemization of sixty-three (63) individually described
machineries while the schedule listed only machines and 2,996,880.50
worth of finished cotton fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or
uncorroborated by the evidence on record, we find no compelling reason to
depart therefrom.
Too, assuming arguendo that the properties in question are immovable by
nature, nothing detracts the parties from treating it as chattels to secure an
obligation under the principle of estoppel. As far back as Navarro v. Pineda,
9 SCRA 631 (1963), an immovable may be considered a personal property
if there is a stipulation as when it is used as security in the payment of an
obligation where a chattel mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real
Estate Mortgage and Chattel Mortgage," instead of just "Real Estate
Mortgage" if indeed their intention is to treat all properties included therein
as immovable, and (2) attached to the said contract a separate "LIST OF
MACHINERIES & EQUIPMENT". These facts, taken together, evince the
conclusion that the parties' intention is to treat these units of machinery as
chattels. A fortiori, the contested after-acquired properties, which are of the
same description as the units enumerated under the title "LIST OF
MACHINERIES & EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's
ruling that inasmuch as the subject mortgages were intended by the parties
to involve chattels, insofar as equipment and machinery were concerned, the
Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a
chattel mortgage shall be deemed to cover only the property described
therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not
have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject machineries
with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title
passed in its favor. Consequently, the sale thereof to Tsai is also a nullity
under the elementary principle of nemo dat quod non habet, one cannot give
what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the
contested properties is a nullity, she is nevertheless a purchaser in good faith
and for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial
court that she is not a purchaser in good faith. Well-settled is the rule that the
person who asserts the status of a purchaser in good faith and for value has
the burden of proving such assertion.18 Petitioner Tsai failed to discharge this
burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to or
interest in such property and pays a full and fair price for the same, at the
time of purchase, or before he has notice of the claims or interest of some
other person in the property.19Records reveal, however, that when Tsai
purchased the controverted properties, she knew of respondent's claim
thereon. As borne out by the records, she received the letter of respondent's
counsel, apprising her of respondent's claim, dated February 27, 1987. 20 She
replied thereto on March 9, 1987.21 Despite her knowledge of respondent's
claim, she proceeded to buy the contested units of machinery on May 3,
1988. Thus, the RTC did not err in finding that she was not a purchaser in
good faith.
6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries,
parts and the like offered to the general public indiscriminately for business
or commercial purposes for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's
ruling, and having denied a motion for reconsideration, petitioner brought the
case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of
the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or destined
for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
machineries is further restricted by section 31, paragraph (c) of Republic Act
No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil
Code which provides:
Art. 415. The following are immovable properties:
xxx
xxx
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner
of the tenement for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly to meet the needs of
the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on
wooden or cement platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61
Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments or
implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which
are expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central
of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar and industry, converted them into real property
by reason of their purpose, it cannot be said that their incorporation
therewith was not permanent in character because, as essential and
principle elements of a sugar central, without them the sugar central would
be unable to function or carry on the industrial purpose for which it was
established. Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized in contemplation of the law
must first be "essential and principal elements" of an industry or works
without which such industry or works would be "unable to function or carry
on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by
destination because they are essential and principal elements in the industry
for those which may not be so considered immobilized because they
are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc.
are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on
their functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other
hand, machineries of breweries used in the manufacture of liquor and soft
drinks, though movable in nature, are immobilized because they are
essential to said industries; but the delivery trucks and adding machines
which they usually own and use and are found within their industrial
compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by
their nature, not essential and principle municipal elements of petitioner's
business of transporting passengers and cargoes by motor trucks. They are
merely incidentals acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments,
its business may be carried on, as petitioner has carried on, without such
equipments, before the war. The transportation business could be carried on
without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx
xxx
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner
of the tenement for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly to meet the needs of
the said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a piece
of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a
building on land more or less permanently, and the sawing is conducted in the
land or building.
But in the case at bar the equipments in question are destined only to repair
or service the transportation business, which is not carried on in a building
or permanently on a piece of land, as demanded by the law. Said equipments
may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in
question are not absolutely essential to the petitioner's transportation
business, and petitioner's business is not carried on in a building, tenement or
without jurisdiction and committed a grave error of law in holding that its
storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the
kinds of real property enumerated in article 415 of the Civil Code and,
therefore, they cannot be categorized as realty by nature, by incorporation,
by destination nor by analogy. Stress is laid on the fact that the tanks are not
attached to the land and that they were placed on leased land, not on the
land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on
the classification of property where strong divergent opinions are inevitable.
The issue raised by Meralco has to be resolved in the light of the provisions
of the Assessment Law, Commonwealth Act No. 470, and the Real Property
Tax Code, Presidential Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with
some modification in the Real Property Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed
and collected in all provinces, cities and municipalities an annual ad
valorem tax on real property, such as land, buildings, machinery and
other improvements affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
We hold that while the two storage tanks are not embedded in the land, they
may, nevertheless, be considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry. It is undeniable that the
two tanks have been installed with some degree of permanence as
receptacles for the considerable quantities of oil needed by Meralco for its
operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New
Jersey vs. Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which
should generally be regarded as personal property(84 C.J.S. 171, Note 8). It
is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property
(Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119
Phil. 328, wherein Meralco's steel towers were held not to be subject to realty
tax, is not in point because in that case the steel towers were regarded as
poles and under its franchise Meralco's poles are exempt from taxation.
Moreover, the steel towers were not attached to any land or building. They
were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs.
City Assessor, 116 Phil. 501, where the tools and equipment in the repair,
carpentry and blacksmith shops of a transportation company were held not
subject to realty tax because they were personal property.
WHEREFORE, the petition is dismissed. The Board's questioned decision
and resolution are affirmed. No costs.
SO ORDERED.
12. SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM
PHIL., INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation
engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing
business under the name and style Sans Enterprises, is a building
contractor. On February 22, 1990, petitioner ordered scaffolding equipments
from respondent worth P540,425.80.[1] He paid a downpayment in the amount
of P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner.[2] Petitioner was able
to pay the first two monthly installments. His business, however, encountered
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at
times hereafter, at the request of said ASSIGNEE, its successors or assigns, at
his cost and expense, execute and do all such further acts and deeds as shall
be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent
and meaning of these presents. xxx[5] (Italics supplied)
However, when respondent tried to collect the said credit from Jomero
Realty Corporation, the latter refused to honor the Deed of Assignment
because it claimed that petitioner was also indebted to it. [6] On November 26,
1990, respondent sent a letter[7] to petitioner demanding payment of his
obligation, but petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for
recovery of a sum of money against the petitioner before the Regional Trial
Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.
[8]
During the trial, petitioner argued that his obligation was extinguished
with the execution of the Deed of Assignment of credit. Respondent, for its
part, presented the testimony of its employee, Almeda Baaga, who testified
that Jomero Realty refused to honor the assignment of credit because it
claimed that petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision [9] dismissing the
complaint on the ground that the assignment of credit extinguished the
obligation. The decretal portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment
in favor of the defendant and against the plaintiff, dismissing the complaint
and ordering the plaintiff to pay the defendant attorneys fees in the amount of
P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19,
2001, the appellate court rendered a decision,[10] the dispositive portion of
which reads:
stipulated or unless the insolvency was prior to the sale and of common
knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to
warrant the existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to
petitioner since the latter also had an unpaid obligation to it, it essentially
meant that its obligation to petitioner has been extinguished by
compensation.[21] In other words, respondent alleged the non-existence of
the credit and asserted its claim to petitioners warranty under the
assignment. Therefore, it behooved on petitioner to make good its warranty
and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the
Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will
at times hereafter, at the request of said ASSIGNEE, its successors or
assigns, at his cost and expense, execute and do all such further acts and
deeds as shall be reasonably necessary to effectually enable said
ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these presents.
[22] (underscoring ours)
Indeed, by warranting the existence of the credit, petitioner should be
deemed to have ensured the performance thereof in case the same is later
found to be inexistent. He should be held liable to pay to respondent the
amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering
petitioner to pay respondent the sum of P335,462.14 with legal interest
thereon. However, we find that the award by the Court of Appeals of
attorneys fees is without factual basis. No evidence or testimony was
presented to substantiate this claim. Attorneys fees, being in the nature of
actual damages, must be duly substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of
Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering
Woodridge
School,
Inc.
(Woodridge)
of
the
Regional
Trial
Court
(RTC)
government
without
need
of
any
compensation,
in the north, a creek in the east and Green Valley Subdivision the
farther east, a road within Soldiers Hills Subdivision IV which leads to
Differently
stated,
the
government
automatically
the Marcos Alvarez Avenue in the west and Phase III of Soldiers Hills
men even [if] the titles are still registered in the name
for the use of the road. Adamant, ARB refused the offer and fenced
doing so, ARB effectively cut off petitioners access to and from the
public highway.
[4]
On November 24, 1995, the trial court rendered its decision in favor
of petitioners:
xxx xxx xxx
[6]
Finding merit in the Avenue other than the subject existing road lot designated as Lot No.
appeal, the appellate court reversed the decision of the lower court.
It explained that the 1991 case of White Plains Subdivision[7] did not ARB as reasonable indemnity for the use of the road lot.
apply to the present case which was decided under a different factual
milieu:
In
was
developer
Subdivision
its alienation.
specifically
of
set
the
aside
White
by
Plains
[o]ur Decision,
[w]e
awarded
the
amount
that
reasonable
ownership
was
automatically
vested
in
indemnity,
there
being
knotty
legal
Likewise, we hold the trial court in error when it ruled that the
[10]
filed this petition for review on certiorari insisting that ARB is not
entitled to be paid any indemnity.
Petitioners argue that the contested road lot is a property of
public dominion pursuant to Article 420 [11] of the Civil Code.
Specifically, petitioners point out that the disputed road lot falls
under the category others of similar character which is the last
clause of Article 420 (1).[12] Hence, it is a property of public dominion
We disagree.
that
the
road
lots
in
private
[13]
the Court unless the roads are donated,[17] ownership remains with the owner-
subdivision
are
developer.[18]
[14]
Otherwise, they remain to be private government and the title to the road lot is still registered in the name
This is not to say that ARB may readily exclude petitioners from
subdivision roads by the general public does not strip it of its private
tolerance of the subdivision owner of the publics passage through it. of right of way. It is an easement which has been imposed by law and
To repeat, the local government should first acquire them by not by the parties and it has for (its) object either public use or the
donation, purchase, or expropriation, if they are to be utilized as a interest of private persons.[19]
public road.[15]
was not due to acts of the proprietor of the dominant estate and (4)
the right of way claimed is at the point least prejudicial to
the servient estate.
[20]
access to a public highway except the subject road lot which leads to
[21]
distance from the properties to the highway is toward the east across
a creek, this alternative route does not provide an adequate outlet
for the students of the proposed school. This route becomes marshy
as the creek overflows during the rainy season and will endanger the
students attending the school.
All told, the only requisite left unsatisfied is the payment of is the rule in statutory construction that when the law is clear, the
proper indemnity.
Petitioners assert that their initial offer of P50,000 should be complete disregard of these clear statutory provisions and is evidently
sufficient compensation for the right of way. Further, they should not
arbitrary. This the Court cannot countenance. The Civil Code has
since the delay was attributable to the stubborn refusal of ARB to them. Verba legis non est recedendum.
accept their offer.[22]
Having settled the legal issues, we order the remand of this
Again, we are not persuaded.
For the guidance of the trial court, the fact that the disputed
road lot is used by the general public may be taken in consideration to
mitigate the amount of damage that theservient estate is entitled to, patent therefor, then the court shall register title in favor of the applicant to all
in the sense that the wear and tear of the subject road is not entirely lands describe in the application.
attributable to petitioners.
WHEREFORE,
this
petition
is
partially GRANTED.
The
Court
of
Appeals
in
CAG.R.
CV
No.
515333
On the return of the record to the Court of First Instance of Nueva Ecija,
which court after the dissolution of the Court of Land Registration had
jurisdiction, an order was issued by the judge, finding that a homestead patent
had been issued to Apolonio Gamido and consequently directing the
exclusion of this portion of the land described in the main decision in
Zarate vs. Director of Lands [supra]. The applicant appeals from this order,
although his contention is not well grounded, resulting principally through an
erroneous conception of the original decision of this court as written in
English. In other words, Gamido having compiled with the express mandate
of the appellate court, his homestead should remain his property. As was said
by the United States Supreme Court in the case of St. Louis Smelting and
Refining Co. vs. Kemp ([1881]), 104 U.S., 636), "The patent of the United
States is the conveyance by which the nation passes the title to portions of the
public domain."
We are not insensible to the fact that the decision in Zarate vs. Director of
Lands [supra] announced the doctrine that "Under Act No. 926, a patent
issued under the homestead Law has all the force and effect of a Torrens title
acquired under Act No. 496; and that being the case . . . we must respect the
title so secured, provided it be a fact that the patent has been secured in any
of said homestead proceedings," and that this doctrine has been modified (or
reversed) by the later decisions of this court. (See for instance De los
Reyes vs. Razon [1918], 38 Phil., 480.) Recognition of the expression 'Law
of the Case" saves the situation.
A well-known legal principle is that when an appellate court has once
declared the law in a case, such declaration continues to be the law of that cae
even on the subsequent appeal. The rule made by an appellate court, while it
may be reversed in other cases, cannot be departed from in subsequent
proceedings in the same case. The "Law of the Case," as applied to a former
decision of an appellate court, merely expresses the practice of the courts in
refusing to reopen what has been decided. Such a rule is "necessary to en bale
an appellate court to perform its duties satisfactorily and efficiently, which
MANAGEMENT BUREAU,
REGION VI, PROVINCIAL
ENVIRONMENT AND NATURAL
RESOURCES OFFICER, KALIBO,
AKLAN,
Respondents.
Reservation Survey
of
Boracay
DECISION
Proclamation
among
occupants of Boracay Island to secure titles over their occupied Philippine Tourism Authority (PTA). President Marcos later approved
the issuance of PTACircular 3-82[9] dated September 3, 1982, to
lands.
[2]
of the Regional Trial Court precluded them from filing an application for judicial confirmation of
(RTC) in Kalibo, Aklan, which granted the petition for declaratory imperfect title or survey of land for titling purposes, respondentsrelief filed by respondents-claimants Mayor Jose Yap, et al. and claimants
ordered the survey of Boracay for titling purposes. The second is G.R. Mayor Jose S. Yap, Jr., Libertad Talapian, Mila Y. Sumndad, and Aniceto
No. 173775, a petition for prohibition, mandamus, and nullification of Yap filed a petition for declaratory relief with the RTC in Kalibo, Aklan.
Proclamation No. 1064[3] issued by President Gloria Macapagal-Arroyo
classifying Boracay into reserved forest and agricultural land.
In
their
petition,
respondents-claimants
alleged
that
Proclamation No. 1801 and PTA Circular No. 3-82 raised doubts on
The Antecedents
their right to secure titles over their occupied lands.They declared that
they themselves, or through their predecessors-in-interest, had been
in
open,
continuous,
exclusive,
and
notorious
possession
and
The parties also agreed that the principal issue for resolution
Respondents-claimants posited that Proclamation No. 1801 was purely legal: whether Proclamation No. 1801 posed any legal
and its implementing Circular did not place Boracay beyond the hindrance or impediment to the titling of the lands in Boracay. They
commerce of man. Since the Island was classified as a tourist zone, it decided to forego with the trial and to submit the case for resolution
was susceptible of private ownership. Under Section 48(b) of upon submission of their respective memoranda.[13]
Commonwealth Act (CA) No. 141, otherwise known as the Public Land
The RTC took judicial notice[14] that certain parcels of land
Act, they had the right to have the lots registered in their names
through judicial confirmation of imperfect titles.
The Republic, through the Office of the Solicitor General the name of the Heirs of Ciriaco S. Tirol. These lots were involved in
(OSG), opposed the petition for declaratory relief. The OSG countered Civil Case Nos. 5222 and 5262 filed before the RTC of Kalibo, Aklan.
that Boracay Island was
an unclassified
land of
the
public
[15]
August 7, 1933.[16]
[11]
as amended.
On July 14, 1999, the RTC rendered a decision in favor of
The OSG maintained that respondents-claimants reliance on respondents-claimants, with a fallo reading:
PD No. 1801 and PTA Circular No. 3-82 was misplaced. Their right to
judicial confirmation of title was governed by CA No. 141 and PD No.
705. Since Boracay Island had not been classified as alienable and
disposable,
whatever
possession
they
had
cannot
ripen
into
ownership.
During
pre-trial,
respondents-claimants
and
surveyed
and
approved
by
respondent
Regional
these parcels of land were planted with coconut trees and other
natural growing trees; (3) the coconut trees had heights of more or
less twenty (20) meters and were planted more or less fifty (50)
SO ORDERED.[17]
No. 1801 nor PTA Circular No. 3-82 mentioned that lands in Boracay (628.96) hectares of agricultural land (alienable and disposable). The
were inalienable or could not be the subject of disposition. [18] The Proclamation likewise provided for a fifteen-meter buffer zone on each
Circular itself recognized private ownership of lands. [19] The trial court side of the centerline of roads and trails, reserved for right-of-way and
cited Sections 87[20] and 53[21] of the Public Land Act as basis for which shall form part of the area reserved for forest land protection
acknowledging private ownership of lands in Boracay and that only
purposes.
The OSG moved for reconsideration but its motion was denied. Court an original petition for prohibition, mandamus, and nullification
[23]
of
Proclamation
No.
1064.[30] They
allege that
the
Proclamation
9,
2004,
the
appellate
court
affirmed in
The
CA
held
that
respondents-claimants
could
not
reclassifying
as
neither
Boracay
mineral
nor
into
agricultural
timber
land,
land. Being
the
island
No. 926, known as the first Public Land Act. [32] Thus, their possession
Opposing
the
petition,
that
petitioners-
On May 22, 2006, during the pendency of G.R. No. 167707, President the island are inalienable and cannot be the subject of judicial
Gloria Macapagal-Arroyo issued Proclamation No. 1064 [26] classifying confirmation of imperfect title. It is only the executive department, not
Boracay Island into four hundred (400) hectares of reserved forest
land (protection purposes) and six hundred twenty-eight and 96/100
the courts, which has authority to reclassify lands of the public domain
OCCUPIED
PORTIONS
OF BORACAY LAND,
DESPITE
III.
[33]
Issues
No.
3-82
for
pose
any
legal
obstacle
IV.
[34]
PRIVATE
OWNERSHIP
OF
PETITIONERS OVER
THEIR
I.
AT THE TIME OF THE ESTABLISHED POSSESSION OF
V.
RESPECTIVE
TIME
OF
[35]
AREAS
IN
BORACAY,
SINCE
THE
LANDS
OF
PETITIONERS
IN
BORACAY?
(Underscoring supplied)
JUDICIAL
CONFIRMATION
OF
in G.R. No. 173775) have a right to secure titles over their occupied
portions in Boracay. The twin petitions pertain to their right, if any, to
II.
HAVE
PETITIONERS
OCCUPANTS
PRIOR
They do not involve their right to secure title under other pertinent
laws.
Our Ruling
their bid for judicial confirmation of imperfect title, namely: (a) by grant, belong to the State as part of the inalienable public domain.
Philippine Bill of 1902[36] in relation to Act No. 926, later amended
and/or superseded by Act No. 2874 and CA No. 141;
Proclamation No. 1801
[38]
[37]
[48]
issued by then President Marcos; and (c) the agent of the state, is possessed of the plenary power as the
[39]
issued by President Gloria Macapagal- persona in law to determine who shall be the favored recipients of
Arroyo. We shall proceed to determine their rights to apply for judicial public lands, as well as under what terms they may be granted such
confirmation of imperfect title under these laws and executive acts.
But first, a peek at the Regalian principle and the power of the
executive to reclassify lands of the public domain.
The 1935 Constitution classified lands of the public domain all lands, territories and possessions in thePhilippines passed to the
into
agricultural,
forest
or
the
Constitution provided the following divisions: agricultural, industrial the Philippines through the Laws of the Indies and the Royal Cedulas,
or commercial, residential, resettlement, mineral, timber or forest which laid the foundation that all lands that were not acquired from
and grazing lands, and such other classes as may be provided by the Government, either by purchase or by grant, belong to the public
law,[41] giving the government great leeway for classification. [42] Then domain.[51]
the 1987 Constitution reverted to the 1935 Constitution classification
with one addition: national parks.[43] Of these, onlyagricultural lands
may be alienated.
[44]
Prior to Proclamation No. 1064 of May 22, the Mortgage Law of 1893. The Spanish Mortgage Law provided for
2006, Boracay Island had never been expressly and administratively the systematic registration of titles and deeds as well as possessory
classified under any of these grand divisions. Boracay was an claims.[52]
unclassified land of the public domain.
The Royal Decree of 1894 or the Maura Law[53] partly amended
The Regalian Doctrine dictates that all lands of the public the Spanish Mortgage Law and the Laws of the Indies. It established
domain belong to the State, that the State is the source of any
vacant Crown land, under certain conditions which were set forth in
said decree.
[54]
[55]
are
not
timber
or
mineral
[65]
(Emphasis Ours)
No. 496, otherwise known as the Land Registration Act. The act
[57]
[56]
from the date of its established a system of registration by which recorded title becomes
indefeasible,
perfected one year after the promulgation of the Maura Law, or the Torrens system.
and
imprescriptible. This
is
known
as
[66]
until April 17, 1895. Otherwise, the lands would revert to the State.[58]
Concurrently, on October 7, 1903, the Philippine Commission
In sum, private ownership of land under the Spanish regime
passed Act No. 926, which was the first Public Land Act. The Act
could only be founded on royal concessions which took various introduced the homestead system and made provisions for judicial
forms, namely: (1) titulo real or royal grant; (2)concesion especial or and administrative confirmation of imperfect titles and for the sale or
special grant; (3) composicion con el estado or adjustment title; lease of public lands. It permitted corporations regardless of the
(4) titulo de compra or title by purchase; and (5) informacion
posesoria or possessory information title.
[59]
The first law governing the disposition of public lands in agricultural lands for the next ten (10) years preceding July 26,
the Philippines under American rule was embodied in the Philippine
[61]
The act provided No. 2874, otherwise known as the second Public Land Act. This new,
for, among others, the disposal of mineral lands by means of more comprehensive law limited the exploitation of agricultural lands
absolute grant (freehold system) and by lease (leasehold system).
[62]
the
same
privileges. For
judicial
confirmation
of
title,
lands.[63] Interpreting the meaning of agricultural lands under the possession and occupation en concepto dueo since time immemorial,
Philippine Bill of 1902, the Court declared in Mapa v. Insular
Government:[64]
After
the
passage
of
the
1935
Constitution, CA
No.
the
means those
x In
other
public
words,
lands
that
acquired
than timber and mineral lands,[70] and privately owned lands which land for agricultural or other purposes. [81] In fact, Section 8 of CA No.
reverted to the State.[71]
domain since time immemorial or since July 26, 1894. However, this ownership of the lands of the public domain is on the person applying
provision was superseded by Republic Act (RA) No. 1942, [72] which for registration (or claiming ownership), who must prove that the land
provided for a simple thirty-year prescriptive period for judicial subject of the application is alienable or disposable. [83] To overcome
confirmation of imperfect title. The provision was last amended this presumption, incontrovertible evidence must be established that
by PD
No.
1073,[73] which
now
provides
for
possession
and the land subject of the application (or claim) is alienable or disposable.
occupation of the land applied for since June 12, 1945, or earlier.
[84]
[74]
issuance
of
PD
No. 892
[75]
on February
[76]
Under the decree, all holders of Spanish action; investigation reports of Bureau of Lands investigators; and a
titles or grants should apply for registration of their lands under Act
No. 496 within six (6) months from the effectivity of the decree
certification from the government that the land claimed to have been
lands
[77]
shall
be
governed
by
Section
194
of
the
Revised
disposable.[86]
It governs registration of lands under the Torrens system as well subject of a government proclamation that the land is alienable and
positive
act
declaring
land
as
alienable
and
disposable is required. In keeping with the presumption of State land classification or reclassification cannot be assumed. They call for
ownership, the Court has time and again emphasized that there must
be a positive
proclamation,
[80]
act
of
the
government, such
as an
official
proof.[87]
of
Philippine Islands.
pursuant
to
the
old
(1909).
[89]
cases Ankron
[88]
and De
These
v.
Aldecoa
cases
were
Government
v.
of
The
decided
Government
of
the
the
Insular
under
v.
xxxx
the
provisions of the Philippine Bill of 1902 and Act No. 926. There is a
contrary, that in each case the lands are agricultural lands until the
contrary is shown.
[90]
Private
claimants
reliance
on Ankron and De
Aldecoa is
misplaced. These cases did not have the effect of converting the
should be stressed that the Philippine Bill of 1902 and Act No. 926
would classify lands of the public domain. Whether the land would be
classification. Thus evolved the dictum inAnkron that the courts have
public domain into mineral, timber, and agricultural. At that time, the a right to presume, in the absence of evidence to the contrary, that in
courts were free to make corresponding classifications in justiciable each case the lands are agricultural lands until the contrary is shown.
cases, or were vested with implicit power to do so, depending upon
the preponderance of the evidence.
[91]
[94]
But
We
cannot
unduly
expand
the
presumption
in which it stated, through Justice in Ankron and De Aldecoa to an argument that all lands of the public
x Petitioners
furthermore
insist
that
Bill of 1902 and Act No. 926 would have automatically made all lands
mineral land, alienable and disposable lands. That would take these
lands
utterly
Regalian doctrine.
out
of
State
ownership
and
worse,
would
be
land registration cases brought under the provisions of Act No. 926,
or
and
more
specifically
those
cases
dealing
with
judicial
proof. If there was proof that the land was better suited for non-
In
the
Director
of
admitted
in
fact. The mere fact that a tract of land has trees upon it
Forestry (supra),
case
the
of Jocson
vs.
Attorney-General
interests
have
intervened
before
such
We
note
that
G.R.
No.
[100]
167707
which was
decided in 1947 when CA No. 141, vesting the Executive with the sole
[101]
De
Aldecoa
v.
The
Insular
v.
[103]
[95]
(Emphasis
ours)
lots
were
included
in
the
general
classification
of
classification of lands from the facts of each case, except those that
have already became private lands.[96] Act No.2874, promulgated in land, which included residential lots. Here, the issue is whether
1919 and reproduced in Section 6 of CA No. 141, gave the Executive
[97]
Here, private claimants, unlike the Heirs of Ciriaco Tirol who already stated, those cases cannot apply here, since they were
were issued their title in 1933, [98] did not present a justiciable case decided when the Executive did not have the authority to classify
for determination by the land registration court of the propertys land
were agricultural lands. When Act No. 926 was supplanted by Act No. 926
does
not
create
presumption
claimants
also contend
that
that
the
their
land
is
alienable. Private
continued
(10) years under Act No. 926 [106] ipso facto converted the island into
private ownership. Hence, they may apply for a title in their name.
[107]
107-a
ruled:
Thus, it is plain error for petitioners to argue that
under
the
Philippine
Bill
of
1902
Proclamation
lands
in
the Islands.
It
also
No.
1064. Such
unclassified
lands
Mapping
and
Resource
Information
[109]
Authority
are
and the
[110]
certify
domain which has not been the subject of the present system of
Public
the
forest purpose and which are not. Applying PD No. 705, all unclassified
Land
Act
operated
on
land under PD No. 705 may seem to be out of touch with the present
land.
[115]
(Emphasis supplied)
Nevertheless, that the occupants of Boracay have built multi- There is a big difference between forest as defined in a dictionary and
million peso beach resorts on the island;[111] that the island has forest or timber land as a classification of lands of the public domain
already been stripped of its forest cover; or that the implementation
of Proclamation No. 1064 will destroy the islands tourism industry, the land while the other is a legal status, a classification for legal
purposes.[116] At
any
rate,
the
Court
is
tasked
to
determine
the legal status ofBoracay Island, and not look into its physical
Forests, in the context of both the Public Land Act and the
Constitution
[112]
classifying
lands
of
the
public
layout. Hence, even if its forest cover has been replaced by beach
been
automatically
agricultural land.
converted
from
public
forest
to
alienable
particularly instructive:
Proclamation No. 1801 or PTA Circular No. 3-82 did not convert
may
land. The
reference in Circular No. 3-82 to private lands [117] and areas declared
also
be
classified
as
forest
only to private lands and areas but also to public forested lands. Rule proclamation is aimed at administering the islands for tourism and
ecological purposes. It does not address the areas alienability.[119]
Boracay Island, but sixty-four (64) other islands, coves, and peninsulas
in public
lands
are
declared
forest
Clearly,
the
reference
in
the
Circular
to
both
private and public lands merely recognizes that the island can be few. If the designation of Boracay Island as tourist zone makes it
classified by the Executive department pursuant to its powers under alienable and disposable by virtue of Proclamation No. 1801, all the
CA No. 141. In fact, Section 5 of the Circular recognizes the then
private disposition. That could not have been, and is clearly beyond,
Subsistence
farming,
in
areas
declared
as
Development.
department head, who has the authority to classify the lands of the
positive act needed to classify Boracay Island as alienable and public domain into alienable or disposable, timber and mineral lands.
disposable land. If President Marcos intended to classify the island as
[121]
In issuing Proclamation No. 1064, President Gloria MacapagalArroyo merely exercised the authority granted to her to classify lands
of
the
public
domain,
presumably
subject
to
existing
vested
The Whereas clauses of Proclamation No. 1801 also explain rights. Classification of public lands is the exclusive prerogative of the
the rationale behind the declaration of Boracay Island, together with
zone and marine reserve to be administered by the PTA to ensure the remains unclassified until released and rendered open to disposition.
concentrated efforts of the public and private sectors in the
development of the areas tourism potential with due regard for
ecological balance in the marine environment. Simply put, the
[123]
suitable
for
agriculture. No reclassification of
side of the center line of roads and trails, which are reserved for right
of way and which shall form part of the area reserved for forest land
protection purposes.
taking
or
classification
irregular,
much
less
unconstitutional,
by
the
about
President
into
account
developmental
ecological,
and
equity
the
through
domain.
No.
1064
does
not
violate
the
No. 705 did not bar the Executive from later converting it into
Comprehensive Agrarian Reform Law. Private claimants further agricultural land. Boracay Island still remained an unclassified land of
assert that Proclamation No. 1064 violates the provision of the the public domain despite PD No. 705.
Comprehensive Agrarian Reform Law (CARL) or RA No. 6657 barring
conversion of public forests into agricultural lands. They claim that
public forests.
4. Scope. The
Comprehensive
Agrarian
are
public
forests,
the
fact
that
they
were
reclassification under the agrarian law. We agree with the opinion of under a bona fide claim of ownership since time immemorial or
the Department of Justice[126] on this point:
from June 12, 1945; and (2) the classification of the land as alienable
and disposable land of the public domain.[128]
the
prohibition
in
Section
4(a)
is
the
word
Proclamation No. 1801 did not convert portions of Boracay Island into
the mass of the public domain which has not been the
property.
relying on the Philippine Bill of 1902, Act No. 926, and Proclamation
No. 1801, must fail because of the absence of the second element of
Section 4(a).
grant under our present Public Land Act presupposes that the land
possessed and applied for is already alienable and disposable. This is
clear from the wording of the law itself. [129] Where the land is not
[127]
they have vested rights over the occupied lands under the
period of possession.
continuous, exclusive, and notorious possession and occupation of insufficient to prove the first element of possession. We note that the
the subject land by himself or through his predecessors-in-interest
issued in 1993. Being of recent dates, the tax declarations are not under Section 48(b) of CA No. 141, as amended, this does not denote
sufficient to convince this Court that the period of possession and their automatic ouster from the residential, commercial, and other
occupation commenced on June 12, 1945.
alienable lands. Lack of title does not necessarily mean lack of right to
possess.
For one thing, those with lawful possession may claim good
protect their possession. For another, they may look into other modes
of
applying
[131]
for
original
registration
or sales patent,
[132]
of
title,
such
as
by
by law.
Boracay. Nor do these give them a right to apply for a title to the land
they are presently occupying. This Court is constitutionally bound to
decide cases based on the evidence presented and the laws claimants to acquire title to their occupied lots or to exempt them
applicable. As the law and jurisprudence stand, private claimants are
from certain requirements under the present land laws. There is one
that bill or a similar bill will become a law is for Congress to decide.
The Court is aware that millions of pesos have been invested classification
of
the
island
partially
into
forest
reserve
as
for the development of Boracay Island, making it a by-word in the absurd. That the island is no longer overrun by trees, however, does
local and international tourism industry. The Court also notes that for not becloud the vision to protect its remaining forest cover and to
a number of years, thousands of people have called the island their strike a healthy balance between progress and ecology. Ecological
home. While the Court commiserates with private claimants plight, conservation is as important as economic progress.
We are bound to apply the law strictly and judiciously. This is the law
and it should prevail. Ito ang batas at ito ang dapat umiral.
All is not lost, however, for private claimants. While they may politicians and activists. These are needs that become more urgent as
not be eligible to apply for judicial confirmation of imperfect title destruction of our environment gets prevalent and difficult to
[134]
2.
The
petition
for certiorari in
G.R.
No.
173775
operated by, the government with the object of maximizing their utilization
and hastening their development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued
by then President Ferdinand Marcos, PEA was designated as the agency
primarily responsible for integrating, directing and coordinating all
reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O.
No. 380 transforming PEA into PRA, which shall perform all the powers
and functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore
and offshore areas of Manila Bay, including those located in Paraaque City,
and was issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207,
289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628,
7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo
(Carabeo) issued Warrants of Levy on PRAs reclaimed properties
(Central Business Park and Barangay San Dionisio) located in Paraaque
City based on the assessment for delinquent real property taxes made by
then Paraaque City Assessor Soledad Medina Cue for tax years 2001 and
2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for
temporary restraining order (TRO) and/or writ of preliminary injunction
against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying
PRAs petition for the issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to
proceed with the public auction of the subject reclaimed properties on April
7, 2003. In response, Carabeo sent a letter stating that the public auction
could not be deferred because the RTC had already denied PRAs TRO
application.
On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ
of preliminary injunction for being moot and academic considering that the
auction sale of the subject properties on April 7, 2003 had already been
consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of
both parties to arrive at a compromise agreement, PRA filed a Motion for
Leave to File and Admit Attached Supplemental Petition which sought to
declare as null and void the assessment for real property taxes, the levy based
on the said assessment, the public auction sale conducted on April 7, 2003,
and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRAs
petition. In ruling that PRA was not exempt from payment of real property
taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No.
1084. It was organized as a stock corporation because it had an authorized
capital stock divided into no par value shares. In fact, PRA admitted its
corporate personality and that said properties were registered in its name as
shown by the certificates of title. Therefore, as a GOCC, local tax exemption
is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160 Local
Government Code (LGC) which was the prevailing law in 2001 and 2002
with respect to real property taxation. The RTC also ruled that the tax
exemption claimed by PRA under E.O. No. 654 had already been expressly
repealed by R.A. No. 7160 and that PRA failed to comply with the procedural
requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January
8, 2010 RTC Order based on the following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING
THAT PETITIONER IS LIABLE TO PAY REAL
PROPERTY TAX ON THE SUBJECT RECLAIMED
LANDS CONSIDERING
THAT
PETITIONER
IS
AN
INCORPORATED
INSTRUMENTALITY
OF
THE
NATIONAL
GOVERNMENT AND IS, THEREFORE, EXEMPT FROM
PAYMENT OF REAL PROPERTY TAX UNDER
SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160
was not organized for any of the purposes mentioned in Section 88 of the
Corporation Code. Specifically, it was created to manage all government
reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a
GOCC. Section 16, Article XII of the 1987 Constitution provides as
follows:
Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Governmentowned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability.
The fundamental provision above authorizes Congress to create GOCCs
through special charters on two conditions: 1) the GOCC must be
established for the common good; and 2) the GOCC must meet the test of
economic viability. In this case, PRA may have passed the first condition of
common good but failed the second one - economic viability. Undoubtedly,
the purpose behind the creation of PRA was not for economic or
commercial activities. Neither was it created to compete in the market place
considering that there were no other competing reclamation companies
being operated by the private sector. As mentioned earlier, PRA was created
essentially to perform a public service considering that it was primarily
responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the
object of maximizing their utilization and hastening their development
consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads,
as follows:
Section 2. Declaration of policy. It is the declared policy of the State to
provide for a coordinated, economical and efficient reclamation of lands,
and the administration and operation of lands belonging to, managed and/or
operated by the government, with the object of maximizing their utilization
and hastening their development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following
purposes:
essentially economic vehicles of the State for the common good meaning
for economic development purposes these government-owned or
controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public services
for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing
essential governmental or public functions. Congress has plenary authority
to create government instrumentalities vested with corporate powers
provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such
entities known as "government-owned or controlled corporations"
must meet the test of economic viability because they compete in the market
place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their incometo meet operating
expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,
explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is really that when
the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it
makes its claim upon the taxpayers' money through new equity infusions
from the government and what is always invoked is the common good. That
is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support
a few government financial institutions. And this is all taxpayers' money
which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together
with the "common good," this becomes a restraint on future enthusiasts for
state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate,
for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the
common good.1wphi1
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the Republic
of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The addition includes the
ideas that they must show capacity to function efficiently in business and that
they should not go into activities which the private sector can do better.
Moreover, economic viability is more than financial viability but also
includes capability to make profit and generate benefits not quantifiable in
financial terms.
Clearly, the test of economic viability does not apply to government entities
vested with corporate powers and performing essential public services. The
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. [Emphasis
supplied]
It is clear from Section 234 that real property owned by the Republic of the
Philippines (the Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person. In this case, there
is no proof that PRA granted the beneficial use of the subject reclaimed lands
to a taxable entity. There is no showing on record either that PRA leased the
subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same
Code, which prohibits local governments from imposing "taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x." The Administrative Code allows real property owned
by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an
agency or instrumentality of the national government. This happens when the
title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption, unless "the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained in the case of
the Manila International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may
only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the practical
effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must
be express language in the law empowering local governments to tax
Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60
per centum of whose capital is owned by such citizens. Such agreements
may be for a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and conditions as may
provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of waterpower,
beneficial use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to
the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the
foreshore and offshore areas of Manila Bay. As such, these lands remain
public lands and form part of the public domain. In the case of Chavez v.
Public Estates Authority and AMARI Coastal Development
Corporation,12 the Court held that foreshore and submerged areas irrefutably
belonged to the public domain and were inalienable unless reclaimed,
classified as alienable lands open to disposition and further declared no
longer needed for public service. The fact that alienable lands of the public
domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEAs name did not automatically make such lands
private. This Court also held therein that reclaimed lands retained their
inherent potential as areas for public use or public service.
As the central implementing agency tasked to undertake reclamation projects
nationwide, with authority to sell reclaimed lands, PEA took the place of
DENR as the government agency charged with leasing or selling reclaimed
lands of the public domain. The reclaimed lands being leased or sold by PEA
are not private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but alienable lands of
the public domain. Only when qualified private parties acquire these lands
will the lands become private lands. In the hands of the government agency
tasked and authorized to dispose of alienable of disposable lands of the public
domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the
public domain" as well as "any and all kinds of lands." PEA can hold both
lands of the public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom Islands are transferred
to PEA and issued land patents or certificates of title in PEA's name does not
automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of
the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the
Government.(1)The President shall have the power to reserve for settlement or public use,
and for specific public purposes, any of the lands of the public domain, the
use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for
public use. They are properties of public dominion. The ownership of such
lands remains with the State unless they are withdrawn by law or presidential
proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and Promulgated:April 29, 2009
submerged areas of Manila Bay are part of the "lands of the public domain,
DECISION
waters x x x and other natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The TINGA, J.:
mere reclamation of these areas by PEA does not convert these inalienable
One main reason why the informal sector has not become
natural resources of the State into alienable or disposable lands of the public
formal is that from Indonesia to Brazil, 90 percent of the
domain. There must be a law or presidential proclamation officially
informal lands are not titled and registered. This is a
classifying these reclaimed lands as alienable or disposable and open to
generalized phenomenon in the so-called Third World.
disposition or concession. Moreover, these reclaimed lands cannot be
And it has many consequences.
classified as alienable or disposable if the law has reserved them for some
xxx
public or quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not
subject to execution or foreclosure sale.14 Thus, the assessment, levy and
The question is: How is it that so many governments,
foreclosure made on the subject reclaimed lands by respondent, as well as
from Suharto's in Indonesia to Fujimori's in Peru, have wanted
the issuances of certificates of title in favor of respondent, are without basis.
to title these people and have not been able to do so
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of
effectively? One reason is that none of the state systems
the Regional Trial Court, Branch 195, Paraaque City, is REVERSED and
in Asia or Latin America can gather proof of informal titles.
SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
In Peru, the informals have means of proving property
Authority are hereby declared EXEMPT from real estate taxes. All real
ownership to each other which are not the same means
estate tax assessments, including the final notices of real estate tax
developed by the Spanish legal system. The informals have
delinquencies, issued by the City of Paraaque on the subject reclaimed
their own papers, their own forms of agreements, and their own
properties; the assailed auction sale, dated April 7, 2003; and the
systems of registration, all of which are very clearly stated in
Certificates of Sale subsequently issued by the Paraaque City Treasurer in
the maps which they use for their own informal business
favor of the City of Paraaque, are all declared VOID.
transactions.
SO ORDERED.
If you take a walk through the countryside,
from Indonesia to Peru, and you walk by field after field--in
17. G.R. No. 179987
each field a different dog is going to bark at you. Even dogs
know what private property is all about. The only one who does
HEIRS OF MARIO MALABANAN,
not know it is the government. The issue is that there exists a
- versus "common law" and an "informal law" which the Latin
REPUBLIC OF THE PHILIPPINES,
American formal legal system does not know how to recognize.
- Hernando De Soto[1]
Eduardo
and
Estebanthe
fourth
being
Aristedess
grandfather. Upon Linos death, his four sons inherited the property
and
doing so, the Court confronts not only the relevant provisions of the
Public Land Act and the Civil Code, but also the reality on the ground.
inherited by the Velazco sons from their father, Lino. After the death of
Esteban
divided
it
among
and Magdalena,
themselves.
their
son
But
Virgilio
by
1966,
succeeded
Estebans
them
in
problem of informal settlement it has spawned, has unfortunately administering the properties, including Lot 9864-A, which originally
been treated with benign neglect. Yet our current laws are hemmed
belonged to his uncle, Eduardo Velazco. It was this property that was
our public land law, though our social obligations dissuade us from
the property and I affirm the truth of the testimony given by Mr.
Velazco.[6] The Republic of the Philippines likewise did not present any
I.
[2]
dated
11
June
2001,
issued
by
the
Community
situated in Barangay Tibig, Silang Cavite, Environment & Natural Resources Office, Department of Environment
and consisting of 71,324 square meters. Malabanan claimed that he and Natural Resources (CENRO-DENR), which stated that the subject
had purchased the property from Eduardo Velazco, [3] and that he and property was verified to be within the Alienable or Disposable land per
his predecessors-in-interest had been in open, notorious, and Land Classification Map No. 3013 established under Project No. 20-A
continuous adverse and peaceful possession of the land for more and approved as such under FAO 4-1656 on March 15, 1982.[7]
than thirty (30) years.
On 3 December 2002, the RTC rendered judgment in favor of
The application was raffled to the Regional Trial Court of (RTC) Cavite- Malabanan, the dispositive portion of which reads:
Tagaytay City, Branch 18. The Office of the Solicitor General (OSG)
duly designated the Assistant Provincial Prosecutor of Cavite, Jose
Velazco, Jr., to appear on behalf of the State.
[4]
declared
Malabanan died while the case was pending with the Court of
Appeals;[10] hence, it was his heirs who appealed the decision of the
to Herbieto.
in Herbieto cited
by
Petitioners
the
Court
suggest
of
that
Appeals
the
is
discussion
actually obiter
dictum since the Metropolitan Trial Court therein which had directed
issue.
The Republic interposed an appeal to the Court of Appeals, possession prior to the declaration of the alienable property as
arguing that Malabanan had failed to prove that the property
perfect title under the Public Land Act and the Property Registration
and that the RTC had erred in finding that he had been in possession Decree.
of the property in the manner and for the length of time required by
law for confirmation of imperfect title.
On 23 February 2007, the Court of Appeals rendered a
Decision[8] reversing the RTC and dismissing the application of November 2008, the case was heard on oral arguments. The Court
Malabanan. The appellate court held that under Section 14(1) of the
of
the
lots
as
alienable
and
disposable
was
period of possession. Thus, the appellate court noted that since the
Property
Registration
Decree,
should
the
land
be
applied Naguit and adopted the same observation that the preferred
interpretation by the OSG of Section 14(1) was patently absurd. For its
part, the OSG remains insistent that for Section 14(1) to apply, the
the public domain for more than 30 yearsipso jure converts the land
14(2). According to them, it would not matter whether the land sought
public domain so long as, at the time of the application, the property
prescription?
had
already
been
converted
into
private
property
through
With respect to Section 14(1), petitioners reiterate that the presented Section 14(2) as a ground for application for registration,
analysis of the Court in Naguit is the correct interpretation of the and that the 30-year possession period refers to the period of
provision. The seemingly contradictory pronouncement in Herbieto, it possession under Section 48(b) of the Public Land Act, and not the
is submitted, should be considered obiter dictum, since the land concept of prescription under the Civil Code. The OSG further submits
that, assuming that the 30-year prescriptive period can run against 1073, supplies the details and unmistakably grants that right, subject
public lands, said period should be reckoned from the time the public
xxx
A.
from time to time, to classify the lands of the public domain into
[20]
Alienable and
1977 when the law was amended by P.D. No. 1073. Two significant
suitable for agricultural purposes may be disposed of by confirmation amendments were introduced by P.D. No. 1073. First, the term
of imperfect or incomplete titles through judicial legalization. agricultural lands was changed to alienable and disposable lands of
[22]
the public domain. The OSG submits that this amendment restricted
the scope of the lands that may be registered. [23] This is not actually
the case. Under Section 9 of the Public Land Act, agricultural lands
(1)
predecessors-in-interest
have
and
notorious
possession
and
Decree and the inclusion of Section 14(1) therein, the Public Land Act
since June 12, 1945, or earlier. That circumstance may have led to the
It bears further observation that Section 48(b) of Com. Act No, 141 is
virtually the same as Section 14(1) of the Property Registration
Decree. Said Decree codified the various laws relative to the Section 14 of the Property Registration Decree warrant comparison:
registration of property, including lands of the public domain. It is
Section 14(1) that operationalizes the registration of such lands of
the public domain. The provision reads:
provisions declare that it is indeed the Public Land Act that primarily
Act, to wit:
granted under Section 48(b) of the Public Land Act, as well provides
the corresponding original registration procedure for the judicial
xxx
right itself for the first time. It is proper to assert that it is the Public
apply only where the area applied for does not exceed
that has primarily established the right of a Filipino citizen who has
periods
1945 to perfect or complete his title by applying with the proper court
for the confirmation of his ownership claim and the issuance of the
President.[24]
of
time
designated
by
the
President
in
Accordingly under the current state of the law, the substantive right
Section 48 can be viewed in conjunction with the afore-quoted granted under Section 48(b) may be availed of only until 31 December
Section 11 of the Public Land Act, which provides that public lands 2020.
suitable for agricultural purposes may be disposed of by confirmation
of imperfect or incomplete titles, and given the notion that both
B.
the OSG has adopted the position that for one to acquire the right to
before June 12, 1945, the Philippines was not yet even
in Naguit.
bonafide
speaking,
claim
of
ownership.
Generally
[25]
Ad proximum
if we
adopt
petitioners
position.
Absent
14(1)
12,
1945 would
not
be
susceptible
to
original
is
that
which
was
adopted
in Naguit.
The
contrary
Thus,
its
principal
discipular
establish open, continuous, exclusive and notorious possession under ruling Buenaventura has any precedental value with respect to
a bona fide claim of ownership long before that date.
Moreover, the Naguit interpretation allows more possessors applicant had been in exclusive possession under a bona fide claim of
under a bona fide claim of ownership to avail of judicial confirmation
of their imperfect titles than what would be feasible under Herbieto. 14(1) therein was decisive to the resolution of the case. Any doubt as
This
balancing
fact
is
significant,
especially
considering
our
forthcoming discussion on the scope and reach of Section 14(2) of Court on Section 14(1) is now settled in favor of Naguit.
the Property Registration Decree.
We noted in Naguit that it should be distinguished from Bracewell v.
Petitioners make the salient observation that the contradictory
passages from Herbieto are obiter dicta since the land registration had been filed before the land was declared alienable or disposable.
proceedings therein is void ab initio in the first place due to lack of The dissent though pronounces Bracewell as the better rule between
the requisite publication of the notice of initial hearing. There is no
the
two.
Yet
two
need to explicitly overturn Herbieto, as it suffices that the Courts esteemed Justice
years
Consuelo
[28]
after Bracewell,
Ynares-Santiago,
its ponente,
penned
the
the
ruling
in Republic v. Ceniza,
extended back to 1927 over a public domain land that was declared
It may be noted that in the subsequent case of Buenaventura, the alienable and disposable only in 1980. Ceniza cited Bracewell, quoted
Court, citing Herbieto, again stated that [a]ny period of possession prior to extensively from it, and following the mindset of the dissent, the
the date when the [s]ubject [property was] classified as alienable and attempt at registration in Cenizashould have failed. Not so.
disposable is inconsequential and should be excluded from the computation
To prove that the land subject of an application for
of the period of possession That statement, in the context of Section 14(1),
registration is alienable, an applicant must establish the
is certainly erroneous. Nonetheless, the passage as cited
existence of a positive act of the government such as a
in Buenaventura should again be considered as obiter. The application
presidential proclamation or an executive order; an
therein was ultimately granted, citing Section 14(2). The evidence submitted
administrative action; investigation reports of Bureau of
by petitioners therein did not establish any mode of possession on their part
Lands investigators; and a legislative act or a statute.
prior to 1948, thereby precluding the application of Section 14(1). It is not
even apparent from the decision whether petitioners therein had claimed
In this case, private respondents presented a
entitlement to original registration following Section 14(1), their position
certification dated November 25, 1994, issued by
being that they had been in exclusive possession under a bona fide claim of
Eduardo M. Inting, the Community Environment and
ownership for over fifty (50) years, but not before 12 June 1945.
[26]
Natural
Resources
Officer
in
the
Department
of
the
alienable
and
disposable
(sic)
Block-I,
Land
Why did the Court in Ceniza, through the same eminent member who
respondents
certification
years and 180 days after 12 June 1945? The telling difference is that
in Ceniza, the application for registration was filed nearly six (6)
stating that:
years after the land had been declared alienable or disposable, while
application.
Further,
the
in Bracewell, the application was filed nine (9) years before the land
[n]o opposition was filed by the
III.
xxx
application.
As correctly found by the Court of Appeals,
(2)
over
private
lands
by
prescription
Naguit did not involve the application of Section 14(2), unlike in this
The Court in Naguit offered the following discussion concerning case where petitioners have based their registration bid primarily on
Section 14(2), which we did even then recognize, and still do, to that provision, and where the evidence definitively establishes their
be an obiter dictum, but we nonetheless refer to it as material for claim of possession only as far back as 1948. It is in this case that we
further discussion, thus:
A.
the possible basis for application for original registration under Section
under
the
Civil
Code.[[30]]
There
is
It is clear under the Civil Code that where lands of the public domain
[31]
] With such
prescription. On the other hand, among the public domain lands that
[32]
or
[33]
Decree.
[34]
through
extraordinary
prescription
of
thirty
(30)
years.
xxx
xxx
xxx
encompass
patrimonial
prescription.
original
registration
proceedings
over
[36]
The first source is Rep. Act No. 1942, enacted in 1957, which could have invoked the 30-year rule introduced by Rep. Act No. 1942.
amended Section 48(b) of the Public Land Act by granting the right to
seek original registration of alienable public lands through possession
in the concept of an owner for at least thirty years.
The
the
but
whose
following-described
titles
have
not
citizens
been
of
perfected
or
rule, Rep. Act No. 1942, became unavailable after 1977. At present, principles on prescription under existing laws. Accordingly, we are
the only legal basis for the thirty (30)-year period is the law on impelled to apply the civil law concept of prescription, as set forth in
prescription under the Civil Code, as mandated under Section 14(2). the Civil Code, in our interpretation of Section 14(2). There is no
However, there is a material difference between how the thirty (30)- similar demand on our part in the case of Section 14(1).
year rule operated under Rep. Act No. 1942 and how it did under the
Civil Code.
Section 48(b) of the Public Land Act, as amended by Rep. Act in character shall not be the object of prescription. The identification
No. 1942, did not refer to or call into application the Civil Code what consists of patrimonial property is provided by Articles 420 and
provisions on prescription. It merely set forth a requisite thirty-year 421, which we quote in full:
possession
period
immediately
preceding
the
application
for
dominion:
[38]
rivers,
torrents,
ports
and
bridges
Then, with the repeal of Rep. Act No. 1942, the thirty-year
wealth.
period
is
derived
from
the
rule
on
extraordinary
prescription under Article 1137 of the Civil Code. At the same time,
patrimonial property
under the Civil Code, a fact which does not hold true with respect to
Section 14(1).
or, indeed, be subject of the commerce of man. [39] Lands of the public
domain, whether declared alienable and disposable or not, are
prescription.
Let us now explore the effects under the Civil Code of a declaration
alienability and disposability of lands of the public domain. Would State to be no longer intended for public service or for the
such lands so declared alienable and disposable be converted, under
the Civil Code, from property of the public dominion into patrimonial acquisitive prescription can begin to run. Such declaration
property?
After
all,
by
connotative
definition,
alienable
1113 provides that all things within the commerce of man are authorized by law.
susceptible to prescription; and the same provision further provides
that patrimonial property of the State may be acquired by
prescription.
Nonetheless, Article 422 of the Civil Code states that disposable to the detriment of the bona fide possessors or occupants
[p]roperty of public dominion, when no longer intended for public use
claiming title to the lands. Yet this interpretation is in accord with the
or for public service, shall form part of the patrimonial property of the Regalian doctrine and its concomitant assumption that all lands
State. It is this provision that controls how public dominion property
may be converted into patrimonial property susceptible to acquisition as such and ought to be used only by the Government.
by prescription. After all, Article 420 (2) makes clear that those
property which belong to the State, without being for public use, and
Recourse does not lie with this Court in the matter. The duty of
are intended for some public service or for the development of the
the Court is to apply the Constitution and the laws in accordance with
national wealth are public dominion property. For as long as the their language and intent. The remedy is to change the law, which is
property belongs to the State, although already classified as
and
pertinent
provisions
of
the
Civil
Code
to
liberalize
the
titles.
Accordingly, there must be an express declaration by
the State that the public dominion property is no longer
intended for public service or the development of the by an actual example. Republic Act No. 7227, entitled An Act
national wealth or that the property has been converted into
law. Section 2 of the law authorizes the sale of certain military the possessors? We rule in the negative.
reservations and portions of military camps in Metro Manila,
including Fort Bonifacio and
Villamor
Air
Base. For
purposes
effecting the sale of the military camps, the law mandates the the period of possession before the public domain land becomes
President to transfer such military lands to the Bases Conversion patrimonial may be counted for the purpose of completing the
Development Authority (BCDA)[40] which in turn is authorized to own, prescriptive period. Possession of public dominion property before it
hold and/or administer them.[41] The President is authorized to sell becomes patrimonial cannot be the object of prescription according to
portions of the military camps, in whole or in part.[42] Accordingly, the the Civil Code. As the application for registration under Section 14(2)
BCDA law itself declares that the military lands subject thereof are falls wholly within the framework of prescription under the Civil Code,
alienable and disposable pursuant to the provisions of existing laws
and regulations governing sales of government properties.
[43]
there is no way that possession during the time that the land was still
classified as public dominion property can be counted to meet the
requisites of acquisitive prescription and justify registration.
From the moment the BCDA law was enacted the subject
military lands have become alienable and disposable. However, said
lands did not become patrimonial, as the BCDA law itself expressly
Section
[44]
14(2)
entitles
registration
on
the
basis
Such purpose can be tied to either public of prescription. Registration under Section 14(1) is extended
Civil Code.
C.
Act No. 1472, and the thirty-year period available through Section
14(2) of the Property Registration Decree in relation to Article 1137 of
Should public domain lands become patrimonial because they the Civil Code. The period under the former speaks of a thirtyare declared as such in a duly enacted law or duly promulgated
concerns
a thirty-year
period
of
extraordinary
for the development of the national wealth, would the period of prescription. Registration under Section 48(b) of the Public
possession prior to the conversion of such public dominion into Land Act as amended by Rep. Act No. 1472 is based on thirty
while the registration under Section 14(2) of the Property Code that bars a person from acquiring patrimonial property of the
Registration Decree is founded on extraordinary prescription State through ordinary acquisitive prescription, nor is there any
under the Civil Code.
apparent reason to impose such a rule. At the same time, there are
indispensable requisitesgood faith and just title. The ascertainment of
good faith involves the application of Articles 526, 527, and 528, as
well as Article 1127 of the Civil Code, [45] provisions that more or less
adhere to the framework set forth by the Civil Code when it enacts
clarification. Under Article 1129, there is just title for the purposes of
interrelate the registration allowed under that provision with the Civil
acquisition of ownership or other real rights, but the grantor was not
the owner or could not transmit any right. Dr. Tolentino explains:
IV.
Just title is an act which has for its purpose the
One of the keys to understanding the framework we set forth today is
transmission
of
ownership,
and
which
would
have
seeing how our land registration procedures correlate with our law on
prescription, which, under the Civil Code, is one of the modes for
The Civil Code makes it clear that patrimonial property of the State The OSG submits that the requirement of just title necessarily
may be acquired by private persons through prescription. This is precludes the applicability of ordinary acquisitive prescription to
brought about by Article 1113, which states that [a]ll things which
patrimonial property. The major premise for the argument is that the
are within the commerce of man are susceptible to prescription, and State, as the owner and grantor, could not transmit ownership to the
that [p]roperty of the State or any of its subdivisions not patrimonial possessor before the completion of the required period of possession.
in character shall not be the object of prescription.
[47]
It is evident that the OSG erred when it assumed that the grantor
referred to in Article 1129 is the State. The grantor is the one from
There are two modes of prescription through which immovables may
be acquired under the Civil Code. The first is ordinary acquisitive the title, whether by sale, exchange, donation, succession or any
prescription, which, under Article 1117, requires possession in good
faith and with just title; and, under Article 1134, is completed
Earlier, we made it clear that, whether under ordinary property of persons who have completed the prescriptive periods
prescription or extraordinary prescription, the period of possession ordained therein. The gap was finally closed with the adoption of the
preceding the classification of public dominion lands as patrimonial
cannot be counted for the purpose of computing prescription. But expressly authorizing original registration in favor of persons who
after the property has been become patrimonial, the period of
requisite period has been completed, two legal events ensue: (1) the
patrimonial property is ipso jure converted into private land; and (2)
V.
the person in possession for the periods prescribed under the Civil
Code acquires ownership of the property by operation of the Civil
Code.
(1) In connection with Section 14(1) of the Property Registration
It is evident that once the possessor automatically becomes
Decree, Section 48(b) of the Public Land Act recognizes and confirms
the owner of the converted patrimonial property, the ideal next step that those who by themselves or through their predecessors in
is the registration of the property under theTorrens system. It should interest have been in open, continuous, exclusive, and notorious
be remembered that registration of property is not a mode of
ownership.
[48]
since June 12, 1945 have acquired ownership of, and registrable title
to, such lands based on the length and quality of their possession.
12 June 1945 and does not require that the lands should have
possession,
under the Public Land Act (either 30 years following Rep. Act No.
the
possessor
is
entitled
to
secure
judicial
prescription under the Civil Code, though it arguably did not preclude
such registration.
[50]
(2) In complying with Section 14(2) of the Property Registration It is clear that the evidence of petitioners is insufficient to establish
Decree, consider that under the Civil Code, prescription is recognized that Malabanan has acquired ownership over the subject property
as a mode of acquiring ownership of patrimonial property. However, under Section 48(b) of the Public Land Act. There is no substantive
public domain lands become only patrimonial property not only with
evidence
to
establish
that
Malabanan
or
petitioners
as
his
a declaration that these are alienable or disposable. There must also predecessors-in-interest have been in possession of the property since
be an express government manifestation that the property is already
patrimonial
or
no
longer
retained
for
public
service
or
12 June 1945 or earlier. The earliest that petitioners can date back
And only when the property has become patrimonial can the
prescriptive period for the acquisition of property of the public Registration Decree.
dominion begin to run.
(a) Patrimonial property is private property of the Neither can petitioners properly invoke Section 14(2) as basis for
government. The person acquires ownership of patrimonial registration. While the subject property was declared as alienable or
property by prescription under the Civil Code is entitled to disposable in 1982, there is no competent evidence that is no longer
secure registration thereof under Section 14(2) of the Property
intended for public use service or for the development of the national
Registration Decree.
of the public domain does not change its status as property of the
patrimonial property may be acquired, one ordinary and other public dominion under Article 420(2) of the Civil Code. Thus, it is
extraordinary.
Under
ordinary
acquisitive
prescription,
VI.
the
legal
doctrines
established
in
this
decision.
Nonetheless,
B.
and
is
common
among
the
so-called Third aspect of well-being not only of that individual, but also to the persons
World countries. This paradigm powerfully evokes the disconnect family. Once that sense of security is deprived, life and livelihood are
between a legal system and the reality on the ground. The law so far put on stasis. It is for the political branches to bring welcome closure
has been unable to bridge that gap. Alternative means of acquisition
of
these
free
patent, have