Вы находитесь на странице: 1из 105

February 3, 2018 [PROPERTY]

G.R. No. L-3485 June 30, 1950


THE MUNICIPALITY OF PAOAY, ILOCOS NORTE, petitioner,
vs.
TEODORO MANAOIS and EULOGIO F. DE GUZMAN, Judge of the Court of First Instance of
Pangasinan, respondents.
First Assistant Solicitor General Roberto A. Gianzon and Solicitor Pacifico P. de Castro for petitioner.
Primicias, Abad, Mencias and Castillo for respondents.

MONTEMAYOR, J.:

Teodoro Manaois having obtained a judgment against the municipality of Paoay, Ilocos Norte in civil case No. 8026 of
the Court of First Instance of Pangasinan, Judge De Guzman of said province issued a writ of execution against the
defendant municipality. In compliance with said writ the Provincial Sheriff of Ilocos Norte levied upon and attached the
following properties:

(1) The amount of One thousand seven hundred twelve pesos and one centavo (P1,712.01) in the Municipal
Treasury of Paoay, Ilocos Norte, representing the rental paid by Mr. Demetrio Tabije of a fishery lot
belonging to the defendant municipality;

(2) About forty fishery lots leased to thirty-five different persons by the Municipality.

On July 26, 1949, the Provincial Fiscal of Ilocos Norte in representation of the municipality of Paoay, filed a petition in
the Court of First Instance of Pangasinan asking for the dissolution of that attachment of levy of the properties above-
mentioned. Judge De Guzman in his order of October 6, 1949, denied the petition for the dissolution of the
attachment; a motion for reconsideration was also denied. Instead of appealing from that order the municipality of
Paoay has filed the present petition for certiorari with the writ of preliminary injunction, asking that the order of
respondent Judge dated October 6, 1946, be reversed and that the attachment of the properties of the municipality
already mentioned be dissolved.

The petitioner goes on the theory that the properties attached by the sheriff for purposes of execution are not subject
to levy because they are properties for public use. It is therefore necessary to ascertain the nature and status back a
few years, specifically, to the year 1937.

It seems that the municipality of Paoay is and for many years has been operating or rather leasing fishery lots on
municipal waters. These waters have been parceled out in lots, either singly or in groups and let out or rented after
public bidding to the highest bidders, ordinarily, for a year, but sometimes, for a longer period of time. On April 4,
1937, the municipality of Paoay entered into a contract with one Francisco V. Duque for the lease of fishery lots 3, 4,
5, 6, 7, and 8 at a rental of P1,218.79 per annum, for a period of four years from January 1, 1937 to December 31,
1940. In 1938, the municipal council of Paoay approved a resolution confiscating said fishery lots on the ground that
Duque had failed to comply with the terms of the lease contract. Thereafter, the municipality advertised the lease of
its fishery lots for public bidding, including the lots above mentioned. Teodoro Manaois being the highest bidder for
said lots 3 to 8, was awarded the lease thereof as per resolution of the municipality council of Paoay of December 1,
1938. On January 1, 1939, Manaois paid P2,025 as rental for the said lots for the year 1939. However, when
Manaois and his men tried to enter the property in order to exercise his rights as lessee and to catch fish,
particularly bañgos fry, he found therein Duque and his men who claimed that he (Duque) was still the lessee, and
despite the appeal of Manaois to the Municipality of Paoay to put him in possession and the efforts of the municipality
to oust Duque, the latter succeeded in continuing in his possession and keeping Manaois and his men out. Manaois
brought an action against the Municipality of Paoay to recover not only the sum paid by him for the lease of the
fishery lots but also damages. He obtained judgment in his favor in June, 1940 in the Court of First Instance of
Pangasinan, civil case No. 8026, which decision has long become final. The writ of execution and the attachment and
levy mentioned at the beginning of this decision were issued and effected to enforce the judgment just mentioned.

There can be no question that properties for public use held by municipal corporation are not subject to levy and
execution. The authorities are unanimous on this point. This Court in the case of Viuda de Tantoco vs. Municipal
Council of Iloilo (49 Phil., 52) after citing Manresa, the works of McQuillin and Dillon on Municipal Corporations, and
Corpus Juris, held that properties for public use like trucks used for sprinkling the streets, police patrol wagons, police
stations, public markets, together with the land on which they stand are exempt from execution. Even public revenues
of municipal corporations destined for the expenses of the municipality are also exempt from the execution. The
reason behind this exemption extended to properties for public use, and public municipal revenues is that they are
held in trust for the people, intended and used for the accomplishment of the purposes for which municipal

1|Page
February 3, 2018 [PROPERTY]

corporations are created, and that to subject said properties and public funds to execution would materially impede,
even defeat and in some instances destroy said purpose.

Property however, which is patrimonial and which is held by municipality in its proprietary capacity is treated by great
weight of authority as the private asset of the town and may be levied upon and sold under an ordinary execution.
The same rule applies to municipal funds derived from patrimonial properties, for instance, it has been held that
shares of stocks held by municipal corporations are subject to execution. If this is true, with more reason should
income or revenue coming from these shares of stock, in the form of interest or dividends, be subject to execution?
(McQuillin on Municipal Corporations, Vol. 3, par. 1160.)

The fishery or municipal waters of the town of Paoay, Ilocos Norte, which had been parceled out or divided into lots
and later let out to private persons for fishing purposes at an annual rental are clearly not subject to execution. In the
first place, they do not belong to the municipality. They may well be regarded as property of State. What the
municipality of Paoay hold is merely what may be considered the usufruct or the right to use said municipal waters,
granted to it by section 2321 of the Revised Administrative Code which reads as follows:

1. SEC. 2321. Grant of fishery. — A municipal council shall have authority, for purposes of profit, to grant the
exclusive privileges of fishery or right to conduct a fish-breeding ground within any definite portion, or area,
of the municipal waters.

"Municipal waters", as herein used, include not only streams, lakes, and tidal waters, include within the
municipality, not being the subject of private ownership, but also marine waters include between two lines
drawn perpendicular to the general coast line from points where the boundary lines of the municipality touch
the sea at high tide, and third line parallel with the general coast line and distant from it three marine
leagues.

Where two municipalities are so situated on opposite shores that there is less than six marine leagues of
marine waters between them the third line shall be a line equally distant from the opposite shores of the
respective municipalities.

Now, is this particular usufruct of the municipality of Paoay over its municipal waters, subject to execution to enforce
a judgment against the town? We are not prepared to answer this question in the affirmative because there are
powerful reasons against its propriety and legality. In the first place, it is not a usufruct based on or derived from an
inherent right of the town. It is based merely on a grant, more or less temporary, made by the Legislature. Take the
right of fishery over the sea or marine waters bordering a certain municipality. These marine waters are ordinarily for
public use, open to navigation and fishing by the people. The Legislature thru section 2321 of the Administrative
Code, as already stated, saw fit to grant the usufruct of said marine waters for fishery purpose, to the towns bordering
said waters. Said towns have no visited right over said marine waters. The Legislature, for reasons it may deem valid
or as a matter of public policy, may at any time, repeal or modify said section 2321 and revoke this grant to coastal
towns and open these marine waters to the public. Or the Legislature may grant the usufruct or right of fishery to the
provinces concerned so that said provinces may operate or administer them by leasing them to private parties.

All this only goes to prove that the municipality of Paoay is not holding this usufruct or right of fishery in a permanent
or absolute manner so as to enable it to dispose of it or to allow it to be taken away from it as its property through
execution.

Another reason against subjecting this usufruct or right of fishery over municipal waters, to execution, is that, if this
were to be allowed and this right sold on execution, the buyer would immediately step into the shoes of the judgment-
debtor municipality. Such buyer presumably buys only the right of the municipality. He does not buy the fishery itself
nor the municipal waters because that belongs to the State. All that the buyer might do would be to let out or rent to
private individuals the fishery rights over the lots into which the municipal waters had been parceled out or divided,
and that is, after public bidding. This, he must do because that is the only right granted to the municipality by the
Legislature, a right to be exercised in the manner provided by law, namely, to rent said fishery lots after public
bidding. (See sec. 2323 of the Administrative Code in connection with sec. 2319 of the same Code.) Then, we shall
have a situation rather anomalous to be sure, of a private individual conducting public bidding, renting to the highest
bidders fishery lots over municipal waters which are property of the State, and appropriating the results to his own
private use. The impropriety, if not illegality, of such a contingency is readily apparent. But that is not all. The situation
imagined implies the deprivation of the municipal corporation of a source of a substantial income, expressly provide

2|Page
February 3, 2018 [PROPERTY]

by law. Because of all this, we hold that the right or usufruct of the town of Paoay over its municipal waters,
particularly, the forty odd fishery lots included in the attachment by the Sheriff, is not subject to execution.

But we hold that the revenue or income coming from the renting of these fishery lots is certainly subject to execution.
It may be profitable, if not necessary, to distinguish this kind of revenue from that derived from taxes, municipal
licenses and market fees are provided for and imposed by the law, they are intended primarily and exclusively for the
purpose of financing the governmental activities and functions of municipal corporations. In fact, the real estate taxes
collected by a municipality do not all go to it. A portion thereof goes to the province, in the proportion provided for by
law. For the same reason, municipal markets are established not only to provide a place where the people may sell
and buy commodities but also to provide public revenues for the municipality. To many towns, market fees constitute
the bulk of their assets and incomes. These revenues are fixed and definite, so much so that the annual
appropriations for the expenses of the municipalities are based on these revenues. Not so with the income derived
form fisheries. In the first place, the usufruct over municipal waters was granted by the Legislature merely to help or
bolster up the economy of municipal government. There are many towns in the Philippines, specially in the interior,
which do not have municipal waters for fishery purpose and yet without much source of revenue, they can function,
which goes to prove that this kind of revenue is not indispensable for the performance of governmental functions. In
the second place, the amount of this income is far from definite or fixed. It depends upon the amounts which
prospective bidders or lessees are willing to pay. If fishing on these marine water, lakes and rivers in the municipality
is good, the bids would be high and the income would be substantial. If the fish in these waters is depleted or, if for
some reasons or another, fishing is not profitable, then the income would be greatly reduced. In other words, to many
municipalities engaged in this business of letting out municipal waters for fishing purposes, it is a sort of sideline, so
that even for fishing purposes, it is sort of sideline, so that even without it the municipality may still continue
functioning and perform its essential duties as such municipal corporations.

We call this activity of municipalities in renting municipal waters for fishing purposes as a business for the reasons
that the law itself (Sec. 2321, Administrative Code already mentioned and quoted) allowed said municipalities to
engage in it for profit. And it is but just that a town so engaged should pay and liquidate obligations contracted in
connection with said fishing business, with the income derived therefrom.

In conclusion, we hold that the fishery lots numbering about forty in the municipality of Paoay, mentioned at the
beginning of this decision are not subject to execution. For this reason, the levy and attachment made by the
Provincial Sheriff of Ilocos Norte of theses fishery lots is void and the order of the Court of First Instance of
Pangasinan insofar as it failed to dissolve the attachment made on these lots is reversed. However, the amount of
P1,712.01 in the municipal treasury of Paoay representing the rental paid by Demetrio Tabije on fishery lots let out by
the municipality of Paoay is a proper subject of levy, and the attachment made thereon by the Sheriff is valid. We
may add that other amounts coming or due from lessees of the forty odd fishery lots leased by the municipality to
different persons may also be attached or garnished to satisfy the judgement against the municipality of Paoay.

In this connection, we wish to say that had the municipality of Paoay paid the judgment rendered against it, all this
controversy and court action with all its vexation, troubles and expense would have been avoided. It will be
remembered that the decision against the municipality was rendered as far back as 1940. Evidently, the municipality
did not appeal from that decision. It has long become final. The Court of Pangasinan that rendered the decision saw
no valid defense of the municipality to the legitimate claim of Teodoro Manaois. After the municipality had failed to
place Manaois in possession of the lots leased to him, the municipality did not even offer to return or reimburse the
rental paid by him. It is hard to understand the position taken by the municipality of Paoay. The courts, including this
tribunal cannot condone, much less encourage, the repudiation of just obligations contracted by municipal
corporations. On the contrary, the courts and compel payments of their valid claims against municipalities with which
they entered into valid contracts. Municipal corporations are authorized by law to sue and be sued. (Sec. 2165, Rev.
Adm. Code). This authority naturally carries with it all the remedies and court processes, including writs of execution
and attachment against municipal corporations. While we are willing and ready to protect properties of municipalities
held for public use, as well as public revenues such as taxes, from execution, we believe that other properties of such
municipalities not held for public use, including funds which are not essential to the performance of their public
functions, may be levied upon and sold to satisfy valid claims against said municipalities. And this Tribunal will help
any citizen and give him every judicial facility to enforce his valid claim, especially a court award, against municipal
corporations, even to the extent of attaching and selling on execution, municipal revenues and properties not exempt
from execution.

In view of the foregoing, the order of the respondent Judge of October 6, 1949, is reversed insofar as it failed to
dissolved the attachment of the forty odd fishery lots. In all other respect, said order is hereby affirmed.

3|Page
February 3, 2018 [PROPERTY]

[G.R. No. L-28034. February 27, 1971.]

THE BOARD OF ASSESSMENT APPEALS OF ZAMBOANGA DEL SUR and PLACIDO L. LUMBAY, in his
capacity as Provincial Assessor of Zamboanga del Sur, Petitioners, v. SAMAR MINING COMPANY, INC. and
THE COURT OF TAX APPEALS, Respondents.

Solicitor General Antonio P. Barredo, Assistant Solicitor General Pacifico P. de Castro and Solicitor Lolita O.
Gal-lang, for Petitioners.

Pacifico de Ocampo and Sofronio G. Sayo for respondent Samar Mining Company, Inc.

DECISION

ZALDIVAR, J.:

Appeal from the decision of the Court of Tax Appeals, in its CTA Case No. 1705, declaring respondent Samar Mining
Company, Inc. (hereinafter referred to as Samar, for short) exempt from paying the real property tax assessed
against it by the Provincial Assessor of Zamboanga del Sur.

There is no dispute as to the facts of this case. Samar is a domestic corporation engaged in the mining industry. As
the mining claims and the mill of Samar are located inland and at a great distance from the loading point or pier site, it
decided to construct a gravel road as a convenient means of hauling its ores from the mine site at Buug to the pier
area at Pamintayan, Zamboanga del Sur; that as an initial step in the construction of a 42-kilometer road which would
traverse public lands Samar, in 1958 and 1959, filed with the Bureau of Lands and the Bureau of Forestry
miscellaneous lease applications for a road right of way on lands under the jurisdiction of said bureaus where the
proposed road would traverse; that having been given temporary permit to occupy and use the lands applied for by it,
said respondent constructed a road thereon, known as the Samico road; that although the gravel road was finished in
1959, and had since then been used by the respondent in hauling its iron from its mine site to the pier area, and that
its lease applications were approved on October 7, 1965, the execution of the corresponding lease contracts were
held in abeyance even up to the time this case was brought to the Court of Tax Appeals. 1

On June 5, 1964, Samar received a letter from the Provincial Assessor of Zamboanga del Sur assessing the 13.8
kilometer road 2 constructed by it for real estate tax purposes in the total sum of P1,117,900.00. On July 14, 1964,
Samar appealed to the Board of Assessment Appeals of Zamboanga del Sur, (hereinafter referred to as Board, for
short), contesting the validity of the assessment upon the ground that the road having been constructed entirely on a
public land cannot be considered an improvement subject to tax within the meaning of section 2 of Commonwealth
Act 470, and invoking further the decision of this Court in the case of Bislig Bay Lumber Company, Inc. v. The
Provincial Government of Surigao, G.R. No. L-9023, promulgated on November 13, 1956. On February 10, 1965,
after the parties had submitted a stipulation of facts, Samar received a resolution of the Board, dated December 22,
1964, affirming the validity of the assessment made by the Provincial Assessor of Zamboanga del Sur under tax
declaration No. 3340, but holding in abeyance its enforceability until the lease contracts were duly executed.

On February 16, 1965, Samar moved to reconsider the resolution of the Board, praying for the cancellation of tax
declaration No. 3340, and on August 3, 1965, Samar received Resolution No. 13 not only denying its motion for
reconsideration but modifying the Board’s previous resolution of December 22, 1964 declaring the assessment
immediately enforceable, and that the taxes to be paid by Samar should accrue or commence with the year 1959.
When its second motion for reconsideration was again denied by the Board, Samar elevated the case to the Court of
Tax Appeals.

The jurisdiction of the Court of Tax Appeals to take cognizance of the case was assailed by herein petitioners (the
Board and the Provincial Assessor of Zamboanga del Sur) due to the failure of Samar to first pay the realty tax
imposed upon it before interposing the appeal, and prayed that the resolution of the Board appealed from be
affirmed. On June 28, 1967, the Court of Tax Appeals ruled that it had jurisdiction to entertain the appeal and then
reversed the resolution of the Board. The Court of Tax Appeals ruled that since the road is constructed on public
lands such that it is an integral part of the land and not an independent improvement thereon, and that upon the
termination of the lease the road as an improvement will automatically be owned by the national government, Samar
should be exempt from paying the real estate tax assessed against it. Dissatisfied with the decision of the Court of
Tax Appeals, petitioners Board and Placido L. Lumbay, as Provincial Assessor of Zamboanga del Sur, interposed the
present petition for review before this Court.

The issue to be resolved in the present appeal is whether or not respondent Samar should pay realty tax on the
assessed value of the road it constructed on alienable or disposable public lands that are leased to it by the

4|Page
February 3, 2018 [PROPERTY]

government.

Petitioners maintain that the road is an improvement and, therefore, taxable under Section 2 of the Assessment Law
(Commonwealth Act No. 470) which provides as follows:jgc:chanrobles.com.ph

"Sec. 2. Incidence of real property tax. — Except in chartered cities, there shall be levied, assessed, and collected, an
annual, ad valorem tax on real property including land, buildings, machinery, and other improvements not hereinafter
specifically exempted."cralaw virtua1aw library

There is no question that the road constructed by respondent Samar on the public lands leased to it by the
government is an improvement. But as to whether the same is taxable under the aforequoted provision of the
Assessment Law, this question has already been answered in the negative by this Court. In the case of Bislig Bay
Lumber Co., Inc. v. Provincial Government of Surigao, 100 Phil. 303, where a similar issue was raised as to whether
the timber concessionaire should be required to pay realty tax for the road it constructed at its own expense within the
territory of the lumber concession granted to it, this Court, after citing Section 2 of Commonwealth Act 470,
held:jgc:chanrobles.com.ph

"Note that said section authorizes the levy of real tax not only on lands, buildings, or machinery that may be erected
thereon, but also on any other improvements, and considering the road constructed by appellee on the timber
concession granted to it as an improvement, appellant assessed the tax now in dispute upon the authority of the
above provision of the law.

"It is the theory of appellant that, inasmuch as the road was constructed by appellee for its own use and benefit it is
subject to real tax even if it was constructed on a public land. On the other hand, it is the theory of appellee that said
road exempt from real tax because (1) the road belongs to the national government by right of accession, (2) the road
belongs to the be removed or separated from the land on which it is constructed and so it is part and parcel of the
public land, and (3), according to the evidence, the road was built not only for the use and benefit of appellee but also
of the public in general.

"We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that the ownership of the
road that was constructed by appellee belongs to the government by right of accession not only because it is
inherently incorporated or attached to the timber land leased to appellee but also because upon the expiration of the
concession, said road would ultimately pass to the national government (Articles 440 and 445, new Civil Code;
Tobatabo v. Molero, 22 Phil., 418). In the second place, while the road was constructed by appellee primarily for its
use and benefit, the privilege is not exclusive, for, under the lease contract entered into by the appellee and the
government, its use can also be availed of by the employees of the government and by the public in general. . . . In
other words, the government has practically reserved the rights to use the road to promote its varied activities. Since,
as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although
in part is for its benefit, it is clear that the same cannot be the subject of assessment within the meaning of section 2
of Commonwealth Act No. 470.

"We are not oblivious of the fact that the present assessment was made by appellant on the strength of an opinion
rendered by the Secretary of Justice, but we find that the same is predicated on authorities which are not in point, for
they refer to improvements that belong to the lessees although constructed on lands belonging to the government. It
is well settled that a real tax, being a burden upon the capital, should be paid by the owner of the land and not by a
usufructuary (Mercado v. Rizal, 67 Phil., 608; Article 597, new Civil Code). Appellee is but a partial usufructuary of
the road in question."cralaw virtua1aw library

Again, in the case of Municipality of Cotabato, Et. Al. v. Santos, Et Al., 105 Phil. 963, this Court ruled that the lessee
who introduced improvements consisting of dikes, gates and guard-houses on swamp lands leased to him by the
Bureau of Fisheries, in converting the swamps into fishponds, is exempt from payment of realty taxes on those
improvements. This Court held:jgc:chanrobles.com.ph

"We however believe that the assessment on the improvements introduced by defendant on the fishpond has
included more than what is authorized by law. The improvements as assessed consist of dikes, gates and guard-
houses and bodegas totals P6,850.00 which appellants are not now questioning, but they dispute the assessment on
the dikes and gates in this wise: ‘After the swamps were leased to appellants, the latter cleared the swamps and built
dikes, by pushing the soil to form these dikes in the same way that paddies are built on lands intended for the
cultivation of palay, the only difference being that dikes used in fishponds are relatively much larger than the dikes
used in ricelands.’ We believe this contention to be correct, because those dikes can really be considered as integral
parts of the fishponds and not as independent improvements. They cannot be taxed under the assessment law. The
assessment, therefore, with regard to improvements should be modified excluding the dikes and gates."cralaw

5|Page
February 3, 2018 [PROPERTY]

virtua1aw library

It is contended by petitioners that the ruling in the Bislig case is not applicable in the present case because if the
concessionaire in the Bislig case was exempt from paying the realty tax it was because the road in that case was
constructed on a timberland or on an indisposable public land, while in the instant case what is being taxed is 13.8
kilometer portion of the road traversing alienable public lands. This contention has no merit. The pronouncement in
the Bislig case contains no hint whatsoever that the road was not subject to tax because it was constructed on
inalienable public lands. What is emphasized in the lease is that the improvement is exempt from taxation because it
is an integral part of the public land on which it is constructed and the improvement is the property of the government
by right of accession. Under Section 3(a) of the Assessment Law (Com. Act 470), all properties owned by the
government, without any distinction, are exempt from taxation.

It is also contended by petitioners that the Court of Tax Appeals can not take cognizance of the appeal of Samar from
the resolution of the Board assessing realty tax on the road in question, because Samar had not first paid under
protest the realty tax assessed against it as required under the provisions of Section 54 of the Assessment Law
(Com. Act 470), which partly reads as follows:jgc:chanrobles.com.ph

"SEC. 54. Restriction upon power of Court to impeach tax. — No court shall entertain any suit assailing the validity of
a tax assessment under ‘this Act until the taxpayer shall have paid under protest the taxes assessed against him, no
shall any court declare any tax invalid by reason . . ."cralaw virtua1aw library

The extent and scope of the jurisdiction of the Court of Tax Appeals regarding matters related to assessment or real
property taxes are provided for in Section 7, paragraph (3) and Section 11 of Republic Act No. 1125, which partly
read as follows:jgc:chanrobles.com.ph

"SEC. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal,
as herein provided —
x x x

(3) Decisions of provincial or city Board of Assessment Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment Law, including rules and regulations relative
thereto."cralaw virtua1aw library

"SEC. 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a
decision or ruling of . . . any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax
Appeals within thirty days after the receipt of such decision or ruling."cralaw virtua1aw library

In this connection the Court of Tax Appeals, in the decision appealed from, said:jgc:chanrobles.com.ph

"Prior to the enactment of Republic Act No. 1125, all civil actions involving the legality of any tax, impost or
assessment were under the jurisdiction of the Court of First Instance (Sec. 44, Republic Act No. 296). It is clear,
therefore, that before the creation of the Court of Tax Appeals all cases involving the legality of assessments for real
property taxes, as well as the refund thereof, were properly brought and taken cognizance by the said court.
However, with the passage by Congress and the approval by the President of Republic Act No. 1125, the jurisdiction
over cases involving the validity of realty tax assessment were transferred from the Court of First Instance to the
Court of Tax Appeals (See Sec. 22, Rep. Act No. 1125). The only exception to the grant of exclusive appellate
jurisdiction to the Tax Court relates to cases involving the refund of real property taxes which remained with the Court
of First Instance (See of Cabanatuan, Et. Al. v. Gatmaitan, Et Al., G.R. No. L-19129, February 28, 1963).

"A critical and analytical study of Section 7 of Republic Act No. 1125, in relation to subsections (1), (2) and (3)
thereof, will readily show that it was the intention of Congress to lodge in the Court of Tax Appeals the exclusive
appellate jurisdiction over cases involving the legality of real property tax assessment. as distinguished from cases
involving the refund of real property taxes. To require the taxpayer, as contended by respondents, to pay first the
disputed real property tax before he can file an appeal assailing the legality and validity of the realty tax assessment
will render nugatory the appellate jurisdictional power of the Court of Tax Appeals as envisioned in Section 7 (3), in
relation to Section 11, of Republic Act No. 1125. If we follow the contention of respondents to its logical conclusion,
we cannot conceive of a case involving the legality and validity of real property tax assessment, decided by the Board
of Assessment Appeals, which can be appealed to the Court of Tax Appeals, The position taken by respondents is,
therefore, in conflict with the Explanatory Note contained in House Bill No. 175, submitted during the First Session,
Third Congress of the Republic of the Philippines, and the last paragraph of Section 21 of Republic Act No. 1125
which provide as follows:chanrob1es virtual 1aw library

6|Page
February 3, 2018 [PROPERTY]

SEC. 21. General provisions. —

x x x

Any law or part of law, or any executive order, rule or regulation or part thereof, inconsistent with the provisions of this
Act is hereby repealed.

"Accordingly, we hold that this Court can entertain and give due course to petitioner’s appeal assailing the legality
and validity of the real property tax assessment here in question without paying first the disputed real property tax as
required by Section 54 of the Assessment Law."cralaw virtua1aw library

We agree with the foregoing view of the Court of Tax Appeals. It should be noted that what is involved in the present
case is simply an assessment of realty tax, as fixed by the Provincial Assessor of Zamboanga del Sur, which was
disputed by Samar before the Board of Assessment Appeals of said province. There was no demand yet for payment
of the realty tax. In fact the letter of Provincial Assessor, of June 5, 1964, notifying Samar of the assessment, states
as follows:jgc:chanrobles.com.ph

"Should you find the same to be not in accordance with law or its valuation to be not satisfactory, you may appeal this
assessment under Section 17 of Commonwealth Act 470 to the Board of Assessment Appeals, through the Municipal
Treasurer of Buug, Zamboanga del Sur, within 60 days from the date of your receipt hereof." 3

Accordingly Samar appealed to the Board questioning the validity of the assessment. The Board rendered a
resolution over-ruling the contention of Samar that the assessment was illegal. Then Samar availed of its right to
appeal from the decision of the Board to the Court of Tax Appeals as provided in Section 11 of Republic Act 1125.
Section 11 does not require that before an appeal from the decision of the Board of Assessment Appeals can be
brought to the Court of Tax Appeals it must first be shown that the party disputing the assessment had paid under
protest the realty tax assessed. In the absence of such a requirement under the law, all that is necessary for a party
aggrieved by the decision of the Board of Assessment Appeals is to file his notice of appeal to the Court of Tax
Appeals within 30 days after receipt of the decision of the Board of Assessment Appeals, as provided in Section 11 of
Republic Act 1125.

This Court, in the case of City of Cabanatuan v. Gatmaitan, 4 said:jgc:chanrobles.com.ph

". . . if the real estate tax has already been paid it is futile for a taxpayer to take the matter to the City Board of
Assessment Appeals for the jurisdiction of that body is merely confined to the determination of the reasonableness of
the assessment or taxation of the property and is not extended to the authority of requiring the refund of the tax unlike
cases involving assessment of internal revenue taxes. In the circumstances, we hold that this case comes under the
jurisdiction of the proper court of first instance it involving the refund of a real estate tax which does not come under
the appellate jurisdiction of the Court of Tax Appeals."cralaw virtua1aw library

From the aforequoted portion of the decision of this Court, We gather that the only question that may be brought
before the City or Provincial Board of Assessment Appeals is the question which relates to the reasonableness or
legality of the realty tax that is assessed against a taxpayer. Such being the case, it would be unjust to require the
realty owner to first pay the tax, that he precisely questions, before he can lodge an appeal to the Court of Tax
Appeals. We believe that it is not the intendment of the law that in questioning before the Court of Tax Appeals the
validity or reasonableness of the assessment approved by the Board of Assessment Appeals the taxpayer should first
pay the questioned tax. It is Our view that in so far as appeals from the decision or resolution of the Board of
Assessment Appeals, Section 54 of Commonwealth Act 470 does not apply, and said section can be considered as
impliedly repealed by Sections 7, 11 and 21 of Republic Act 1125.

IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals, appealed from, is affirmed, without
pronouncement as to costs. It is so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee, Villamor and Makasiar, JJ.,
concur.

Barredo, J., took no part.

7|Page
February 3, 2018 [PROPERTY]

G.R. No. L-29158 December 29, 1928

Estate of the deceased Rosendo Hernaez. RAFAEL R. ALUNAN, administrator-appellee,


vs.
ELEUTERIA CH. VELOSO, opponent-appellant.

Hipolito Alo for appellant.


R. Nolan for appellee.

AVANCEÑA, C. J.:

This case deals with an account filed in these intestate proceedings for the settlement of the estate of the deceased
Rosendo Hernaez by his judicial administrator, Rafael Alunan, and approved by the court below. Jose Hernaez, one
of the heirs interested in this proceedings, assigned the whole of his portion to Eleuteria Ch. Veloso, and the latter
objects to some of the items of the account filed, assigning four errors to the resolution of the court below.

In the first place, it is alleged that the lower court erred in imposing a preferred lien of P12,683.83 upon the Panaogao
Hacienda, adjudicated to the appellant Eleuteria Ch. Veloso. Before the partition, Jose Hernaez leased said
Panaogao Hacienda for two harvests the stipulated rent being 12 per cent of all the sugar to be produced thereon,
provided, however, that he should pay at least 12 per cent of 8,000, even if the production should fall below this
amount. During the two years Jose Hernaez produced less than 8,000 piculs, and only 12 per cent of what he did
produce was collected from him as rent, thus leaving him indebted in an amount equal to the difference between 12
per cent of the sugar he produced, and 12 per cent of 8,000 piculs which he had to pay at least. The P12,683.83 to
which the first error refers is the value of this difference and is therefore a legal debt of Jose Hernaez's transmitted to
the appellant, and affecting here participation in the intestate estate. According to an agreement previously entered
into by and between the heirs, the share belonging or which may belong to each heir shall be liable and subject to a
lien in favor of all the heirs for any account or debt pending which the heirs may owe to the intestate estate.

This first error then is not well grounded.1awphi1.net

As to the second error, which is made to consist in the lower court having held that the sum of P20,000 is another lien
upon the said Panaogao Hacienda, in favor of the administrator Rafael Alunan, should the latter be ordered to pay
that sum in civil case No. 6391 of the Court of First Instance of Iloilo, Mr. Alunan is agreeable that this holding be
eliminated from the judgment appealed from.

The third error refers to the sum of P24,991.42 as attorney's fees and compensation of the administrators who took
part in this proceeding. This amount, it is alleged, is excessive. It appears that a great part of these fees were paid to
Jose Hernaez himself, the appellant's predecessor in interest, and most of these fees, as well as of the attorney's
fees, have already been approved by the court below. At all events, since it has been found necessary to employ
several lawyers and more than one administrator in this proceeding, and taking into account the unusual amount of
the interests involved, we find no merit in the objection to this item of the account.

The fourt error is made to consist in the lower court having admitted the partition proposed by the administrator in his
account. According to this account, the total amount to be partitioned among the heirs is P88,979.08, which the
administrator distributed equally among all the heirs, including the widow's each one receiving P11,122.38.

This partition is object to with respect to the widow. It is alleged that the distributed amount is in money, and since the
widow's right is only a usufruct, and as there can be no usufruct of money, since it is a fungible thing, the adjudication
made to the widow was erroneous. It is incorrect to say that there can be no usufruct of money, because it is a
fungible thing (art. 482, Civil Code).

It is likewise alleged, that, at any rate, this amount which should go to the widow should be offset by the P55,000
which she has already received as a pension. Neither do we find any ground for this error, since, according to the
agreement of the heirs already referred to, her portion in the inheritance either wholly or in part.

Lastly, it is alleged, that the portion given to the widow is not in accordance with law. We find the objection with
respect to this point to be correct. The widow, according to the law, only has a right to a portion of the estate equal to
that of the legitime of each of the children without betterment. In the instant case none of the children received a

8|Page
February 3, 2018 [PROPERTY]

betterment. Consequently, the widow should receive a portion equal to the share of each in the two-thirds of the
distributable amount making up the legitime, to be taken from the one-third forming the betterment. Then, the other
free third, which the decedent failed to dispose of, must be partitioned among the heirs to the exclusion of the widow,
as an addition to their legitime. Working out the computations on this basis, the widow should receive only P8,474.19.

Therefore, it being understood that there be eliminated from the decision the holding that the Panaogao Hacienda,
which was adjudged to the appellant, should answer for the amount of P20,000 as a lien in favor of Rafael Alunan
should the latter be ordered to pay it in civil case No. 6391 of the Court of First Instance of Iloilo, and it being further
understood that the widow's portion is only P8,474.19, the remainder of the P88,979.08 which is distributable,
pertaining to the heirs, share and share alike, excluding the widow, the judgment appealed from is affirmed, without
special pronouncement as to costs. So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.

9|Page
February 3, 2018 [PROPERTY]

[G.R. No. L-12666. May 22, 1959.]

JUAN CLARIDAD, substituted by TRINIDAD BELONIO, Plaintiff-Appellant, v. ISABEL NOVELLA, Defendant-


Appellee.

Melanio O. Lalisan for Appellant.

Inocencio Jose Y. Hilado for Appellee.


SYLLABUS

1. SALE WITH PACTO DE RETRO; INADEQUACY OF PRICE, NOT GROUND FOR ANNULMENT. — In a sale with
pacto de retro, the inadequacy of the price cannot be considered a ground for annulling the contract. The practice is
to fix a relatively reduced price to afford the vendor a retro every facility to redeem the land unlike in an absolute sale
where the vendor, in permanently giving away his property, tries to get, as compensation, its real value.

2. ID.; RIGHT OF VENDEE A RETRO TO ENJOY USUFRUCT OF LAND. — The fact that the vendee a retro was
given the right to enjoy the usufruct of the land during the period of redemption, far from being a factor favoring an
equitable mortgage is an argument in favor os sale with pacto de retro, for usufruct is an element of ownership which
is involved in a contract of sale.

DECISION

BAUTISTA ANGELO, J.:

On April 25, 1932, spouses Lorenzo Claridad and Isabel Togle executed a deed of sale with right to repurchase of a
parcel of land situated in Bago, Negros Occidental, in favor of Paterno Aposagas on condition that the vendors may
repurchase the same within a period of 10 years from said date. It was also agreed that during the period of 10 years
the vendee may enjoy the land as usufructuary.

On March 10,1936, Aposagas transferred all his rights and interests in the sale to Isabel Novella subject to the same
conditions stipulated in the contract executed on April 25, 1932. On May 20, 1942, twenty-four days after the
expiration of the 10-year period agreed upon for redemption, Isabel Novella consolidated her ownership over the land
for failure of the vendors to exercise their right of redemption. On March 27, 1944, the vendors a retro deposited the
sum of P800.00 in Japanese notes with the clerk of court of Negros Occidental by way of consignation in an attempt
to redeem the land from the vendee Isabel Novella.

In the meantime, spouses Lorenzo Claridad and Isabel Togle, original vendors a retro, died and because of the
refusal of Isabel Novella to allow the redemption of the property notwithstanding the tender of payment they had
made, the heirs of said spouses filed on March 13, 1944 an action before the Court of First Instance of Negros
Occidental against Isabel Novella praying that the latter be ordered to reconvey the land to them after acceptance of
the deposit of P800.00 they had made and that she be ordered to pay damages and costs. On May 5, 1944, after due
trial, the court, Judge Francisco Arellano presiding, rendered a decision dismissing the complaint and ordering that
the deposit of P800.00 made by the plaintiffs be returned to them, with costs. In due time, plaintiffs took the case on
appeal to the Court of Appeals, but no action thereon was taken until the records of the case were destroyed as a
result of the battle for liberation.

Plaintiffs, instead of reconstituting the records that were destroyed, filed on June 3, 1950 a new case before the same
court covering the same subject matter as in the original case. Defendant filed a motion to dismiss on the ground that
the action was barred by a prior judgment, referring to the decision rendered by Judge Francisco Arellano. This
motion was sustained by Judge Jose Teodoro, Sr. in an order entered on August 11, 1950. Plaintiffs appealed this
order to the Supreme Court (G.R.No.L-4207), and on October 24, 1952, the latter rendered decision reversing the
order of Judge Teodoro, Sr. and ordering that the case be remanded to the court below for further proceedings.

While the case was pending trial on the merits as ordered by the Supreme Court, it was discovered that the records
of the original case which involved the same parties and subject matter were not destroyed and so, in line with the
ruling of this Court in the case of Nacua v. Alo, 93 Phil., 595; 49 Off. Gaz., 3353, both parties filed a joint motion
praying for the dismissal of the case and for the revival of the original Case No. 54, giving to plaintiffs-appellants a
period of 30 days within which to present a new record on appeal, notice of appeal and appeal bond for elevation to
the Court of Appeals. This was done and so the original case then pending appeal in the Court of Appeals was
deemed duly reconstituted and submitted for decision with the only hitch that, upon examination of the records as

10 | P a g e
February 3, 2018 [PROPERTY]

reconstituted, it was found that while the stenographic notes taken during the trial were intact, they have not however
been transcribed. And on May 23, 1957, considering that the only issue involved in the appeal is one of law, the Court
of Appeals certified the case to us for adjudication under the Judiciary Act of 1948, as amended.

Appellants contend that the trial court erred in not entertaining their claim that they had offered to repurchase the land
from appellee sometime in March, 1942 or before the expiration of the 10-year period of redemption which the latter
unreasonably refused to accept for which reason they deposited the sum of P800.00 with the clerk of court by way of
consignation as required by law. The trial court, after analyzing the evidence submitted by both parties, made on this
point the following findings:jgc:chanrobles.com.ph

"Cuando se considera que Juan Claridad en Marzo 27, 1944, casi doe anos despues de expirar el plazo para el
retracto, al ofrecer la recompra del lote en cuestion, hubo de hacerse acompanar por Antonio Canellada que le
corroboro, para presenciar v atestiguar este el acto, en cambio, ni en Marzo de 1942 ni en igual mes de 1943, en que
pretende haber hecho igual oferta, no solo dejo de tomar igual o similar precaucion, sino que no tomo absolutamente
ninguna, a falta de satisfactorio explicacion, el Juzgado abriga serias dudas sobre la veracidad de su pretension y
declaracion. Y si a este se anade que no hizo consignacio de pago, cuando, como pretende, le fue rechazada la
oferta en 1942 o en 1943, cosa que lo hizo en 1944 con extra-ordinaria prontitud, estando como estaba el Juzgado
funcionando normalmente en Marzo y Abril hasta el 20 de Mayo de 1942 y en todo el ano 1943, el Juzgado llega a la
conclusion de que los demandantes no hicieron tal oferta de recompra en 1942, y al no hacerlo, la venta a retro a
favor de la demandada queda convertida despues del 25 de Abril de 1942, en una venta absoluta y definitiva. La
conducta de Juan Claridad durante su testimonio ha sido altamente suspechoso para el Juzgado; sus contestaciones
no eran espontaneas tenian la apariencia de una atestacion estudiada y forzada. Por el contrario, la conducta de la
demandada en el banquillo testifical esa natural, y sus declaraciones son, en opinion del Juzgado, espontaneas y
sinceras y llevan el sello de la verdad. Habiendo llegado el Juzgado a esta conclusion, la consignacion (Exh.’A’)
hecha por los demandantes del precio de la recompra un ano y once meses despues de haber expirado el plazo
para el retracto, es una consignacion hecha fuera de tiempo, y por tanto es improcedente."cralaw virtua1aw library

Since the issue involved in this agreement of error is one of fact, or one which involves an evaluation of the evidence,
the same cannot now be looked into since this case was certified to us on purely questions of law.

It is however contended that even if it be considered that appellants, or their predecessors in interest, have failed to
redeem the land within the period stipulated, such failure is of no consequence for the reason that the real contract
entered into between appellants’ predecessors in interest and appellee is not none of sale with right to repurchase
but only an equitable mortgage and so appellants should still be allowed to reacquire the property by paying the
obligation that may be due the appellee. And in support of this contention, they advance the following arguments: (1)
inadequacy of price, that is, the price of the sale is P800.00 when the land sold has an assessed value of P1,710.00;
(2) the vendee a retro was given, under the contract, the usufruct of the land during the entire period of redemption;
and (3) the contract employs the Spanish term "devolviesemos" when referring to the right of the vendor a retro to
repurchase the property.

To begin with, the contention that the contract in question involves merely an equitable mortgage is a belated one for
right along appellants have always claimed that the transaction concluded by their predecessors in interest is one of
sale with right to repurchase. This is borne out not only by the original complaint filed by appellants’ predecessors in
interest on March 13, 1944 but also by the complaint filed by them on June 3, 1950 wherein the same averments of
sale with right to repurchase appear. In fact, this is the issue submitted by them to the trial court when this case was
originally tried and said court held that the alleged contract is one of sale with option to repurchase.

In the second place, the claim regarding inadequacy of price is insubstantial considering that the transaction in
question is a sale with pacto de retro and not an absolute sale. In transactions of this nature, the practice is to fix a
relatively reduced price to afford the vendor a retro every facility to redeem the land unlike in an absolute sale where
the actual market value of the property is considered. At any rate, such a reduced price cannot be considered a
ground for annulling the contract, as was held by this Court in a number of cases. Thus, in Feliciano v. Limjuco, 41
Phil., 147, this Court laid down the following doctrine:jgc:chanrobles.com.ph

"Without deciding that the assessed value of a parcel of land is its true value on sale, the difference between the price
of P500 agreed upon by the parties and the assessed value of P1,010 does not, in the absence of sufficient evidence
of the true value, of itself justify the annulment of a sale wiht the right to repurchase. The testimony of persons
interested in the case is no sufficient proof of the value of the land. The price fixed in a sale with the right to
repurchase is not necessarily the true value of the land sold. (De Ocampo y Custodio v. Lim, 38 Phil., 579.) And this
must be true, because in this kind of sale as distinguished from absolute sales in which the vendor, in permanently
giving away his property, tries to get, as compensation, its real value, the hope of redeeming the land sold and the
facility of returningg the price received are important factors and in order that this hope may be realized easily the

11 | P a g e
February 3, 2018 [PROPERTY]

vendor generally fixes a price less than the real value." 1

Finally, the fact that the vendee a retro was given the right to enjoy the usufruct of the land during the period of
redemption, far from being a factor favoring an equitable mortgage, is an argument in favor of appellee’s theory, for
usufruct is an element of ownership which is involved in a contract of sale. And as regards the Spanish term
"devolviesemos" employed in the contract, appellants’ claim cannot be of any help, for that term in English
terminology also conveys the idea of repayment which is in line with a right of repurchase.

Wherefore, the decision appealed from is affirmed, with costs against appellants.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Labrador and Endencia, JJ., concur.

Concepcion, J., concurs in the result.

12 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 6969 December 20, 1911

VICENTE REYES, plaintiff-appellant,


vs.
JOSE GREY, ET AL., defendants-appellees.

Ramon Salinas, for appellant.


D. R. Williams, for appellees.

TRENT, J.:

Judgment having been rendered by the Court of First Instance of the city of Manila, the Hon. Charles S. Lobingier
presiding, dismissing the complaint in this case upon its merits, the plaintiff appealed.

The only question raised by this appeal is purely one of law.1awphil.net

Remedios Grey, wife of the plaintiff, died intestate in 1905 without ascendants or descendants, leaving a surviving
husband and one sister and three brothers. Under the law, the sisters and brothers are called to inherit all of the
estate of the deceased, subject only to the right of the surviving husband, the plaintiff, to a usufructuary interest in
one-half thereof.

Administration proceedings in the estate of the deceased wife not taken out until June 15, 1907, when Jose Grey,
one of the defendants, was appointed administrator. In these administration proceedings, the Court of First Instance
of this city issued a decree on December 3, 1910, declaring that each one of the defendants in the case at the bar
was entitled to one-fourth part of the estate of the deceased Remedios Grey, subject to the plaintiff's (Vicente Reyes')
right to usufruct.

Prior to the appointment of the administrator for the estate of the deceased Remedios Grey, and as the result of
certain judicial proceedings had against her surviving husband (the plaintiff in the case at bar), his usufructuary
interest in the estate of his deceased wife was sold under execution and deeds issued therefor to the purchaser, the
defendant Jose Grey. Such deeds still subsist in full force and effect, no steps ever having been taken either to annul
or set them aside or to redeem the interest of the plaintiff thus sold.1awphil.net

The plaintiff, as surviving husband of the deceased Remedios Grey, now sues the sister and brothers of his
deceased wife, claiming of them the payment of his usufructuary interest in the property of the deceased, basing his
claim upon two grounds: first, that the execution sale and the sheriff's deeds executed pursuant thereto did not divest
him of his usufructuary interest in the property and that the defendants still remain charge with its payment; and
second, the defendants having failed to appear from the order of the probate court dated December 3, 1910, which
order was issued some three years after an attempt was made to sell under execution the plaintiff's usufructuary
interest, and that order having become final, it settled the plaintiffs right to a usufructuary interest, and the defendants
can not now deny this fact.

Counsel for the plaintiff now insists that a usufructuary interest in real property is not such an interest or right as can
be sold under execution. With this connection we can not agree. Section 450 of the Code of Civil Procedure provides
as follows:

SEC. 450. Property liable to execution. — All goods, chattels, moneys, and other property, both real and
personal, or any interest therein of the judgment debtor, not excempt by law, and all property and rights of
property seized and held under attachment in the action, shall be liable to execution. Shares and interests in
any corporation or company, and debts, credits, and all other property, both real and personal, or any
interest in either real or personal property, and all other property not capable of manual delivery, may be
attached on execution, in like manner as upon writs of attachment.itc-alf

The term "property" as here applied to lands comprehends every species of title, inchoate or complete; legal or
equitable. This statute authorizes the sale under execution of every kind of property, and every interest in property
which is, or may be, the subject of private ownership and transfer. It deals with equitable rights and interests as it
deals with legal, without anywhere expressly recognizing or any distinction between them.

13 | P a g e
February 3, 2018 [PROPERTY]

Article 480 of the Civil Code reads:

The usufructuary may personally enjoy the thing in usufruct, lease it to another person, or alienate his right
to the usufruct, even for a good consideration; . . . .

If the usufructuary right is one which may be leased or sold, it must logically and necessarily follow that such a right is
an "interest" in real property within the meaning of section 450 of the Code of Civil Procedure, above quoted. It was
the plaintiff's usufructuary right in real property which was sold under execution. This right was conferred upon him at
the death of his wife by operation of law, and by virtue of such a right he was entitled to receive all the natural,
industrial, and civil fruits of said real property in usufruct. He was entitled to hold the actual, material possession of
such property during his lifetime, and was obligated only to preserve its form and substance. In other words, he was
entitled, subject to his restriction, to use the property as his own. He was the real owner of this interest, and article
480, supra, conferred upon him the right to enjoy the possession of the property or lease it to another or to sell such
interest outright. We think the real test, as to whether or not property can be attached and sold upon execution
is — does the judgment debtor hold such a beneficial interest in such property that he can sell or otherwise dispose
of it for value? If he does, then the property is subject to execution and payment of his debts. The right of usufruct is
such an interest, and when the sheriff sold the plaintiff's usufructuary right by virtue of an execution, he had no further
interest in said property.

The plaintiff's second contention that the defendants, by failing to appeal from the order of the court in the
administration proceedings dated December 3, 1910, wherein the right of plaintiff to a usufructuary interest in the
property was recognized, have lost their right to refuse such payment to him at this time, is not well founded. The
plaintiff had no interest in this property at the time the probate court issued this order. The order only set out the fact
that under the law the plaintiff was entitled to a usufructuary interest in one-half of the estate of his deceased wife. It
was not a finding that in the meantime the plaintiff had not sold, leased, or otherwise disposed of or lost such right of
participation. This order merely fixed the legal status of the plaintiff and did not have the effect of canceling or
annulling the sale made by the sheriff. Again, the plaintiff instituted the action in the case at bar on June 1, 1910,
several months prior to the order of December 3, 1910. The right to recover was traversed by the defendants on July
1 of that same year, and the question was pending and undetermined at the time the probate court issued its order.

The validity of the execution sale was not an issue in those administration proceedings, and the order of December
3d cannot, under any circumstances, be held to affect the validity of such sale.

The judgment appealed from is therefore affirmed, with costs against the appellant.

Arellano, C.J., Torres, Mapa, Johnson, Carson and Moreland, JJ., concur.

14 | P a g e
February 3, 2018 [PROPERTY]

NATIONAL POWER G.R. No. 168732


CORPORATION,
Petitioner,
Present:
-versus-

LUCMAN G. IBRAHIM, OMAR PUNO, C.J., Chairperson,


G. MARUHOM, ELIAS G. SANDOVAL-GUTIERREZ,*
MARUHOM, BUCAY G. CORONA,
MARUHOM, FAROUK G. AZCUNA, and
MARUHOM, HIDJARA G. GARCIA, JJ.
MARUHOM, ROCANIA G.
MARUHOM, POTRISAM G.
MARUHOM, LUMBA G. Promulgated:
MARUHOM, SINAB G.
MARUHOM, ACMAD G.
MARUHOM, SOLAYMAN G. June 29, 2007
MARUHOM, MOHAMAD M.
IBRAHIM, and CAIRONESA M.
IBRAHIM,
Respondents.
X----------------------------------------------------------------------------------------X
DECISION

AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul the
Decision[1] dated June 8, 2005 rendered by the Court of Appeals (CA) in C.A.-G.R. CV No. 57792.
The facts are as follows:

On November 23, 1994, respondent Lucman G. Ibrahim, in his personal capacity and in behalf of his co-
heirs Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara
G. Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim, instituted an action against
petitioner National Power Corporation (NAPOCOR) for recovery of possession of land and damages before the
Regional Trial Court (RTC) of Lanao del Sur.

In their complaint, Ibrahim and his co-heirs claimed that they were owners of several parcels of land
described in Survey Plan FP (VII-5) 2278 consisting of 70,000 square meters, divided into three (3) lots, i.e. Lots 1, 2,
and 3 consisting of 31,894, 14,915, and 23,191 square meters each respectively. Sometime in 1978, NAPOCOR,
through alleged stealth and without respondents knowledge and prior consent, took possession of the sub-terrain
area of their lands and constructed therein underground tunnels. The existence of the tunnels was only discovered
sometime in July 1992 by respondents and then later confirmed on November 13, 1992 by NAPOCOR itself through
a memorandum issued by the latters Acting Assistant Project Manager. The tunnels were apparently being used by
NAPOCOR in siphoning the water of Lake Lanao and in the operation of NAPOCORs Agus II, III, IV, V, VI, VII
projects located in Saguiran, Lanao del Sur; Nangca and Balo-i in Lanao del Norte; and Ditucalan and Fuentes
in Iligan City.

On September 19, 1992, respondent Omar G. Maruhom requested the Marawi City Water District for a
permit to construct and/or install a motorized deep well in Lot 3 located in Saduc, Marawi City but his request was
turned down because the construction of the deep well would cause danger to lives and property. On October 7,
1992, respondents demanded that NAPOCOR pay damages and vacate the sub-terrain portion of their lands but the
latter refused to vacate much less pay damages. Respondents further averred that the construction of the
underground tunnels has endangered their lives and properties as Marawi City lies in an area of local volcanic and
tectonic activity. Further, these illegally constructed tunnels caused them sleepless nights, serious anxiety and shock
thereby entitling them to recover moral damages and that by way of example for the public good, NAPOCOR must be
held liable for exemplary damages.
Disputing respondents claim, NAPOCOR filed an answer with counterclaim denying the material allegations of the
complaint and interposing affirmative and special defenses, namely that (1) there is a failure to state a cause of action

15 | P a g e
February 3, 2018 [PROPERTY]

since respondents seek possession of the sub-terrain portion when they were never in possession of the same, (2)
respondents have no cause of action because they failed to show proof that they were the owners of the property,
and (3) the tunnels are a government project for the benefit of all and all private lands are subject to such easement
as may be necessary for the same.[2]

On August 7, 1996, the RTC rendered a Decision, the decretal portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Denying plaintiffs [private respondents] prayer for defendant [petitioner]


National Power Corporation to dismantle the underground tunnels constructed between the lands
of plaintiffs in Lots 1, 2, and 3 of Survey Plan FP (VII-5) 2278;

2. Ordering defendant to pay to plaintiffs the fair market value of said 70,000
square meters of land covering Lots 1, 2, and 3 as described in Survey Plan FP (VII-5) 2278 less
the area of 21,995 square meters at P1,000.00 per square meter or a total of P48,005,000.00 for
the remaining unpaid portion of 48,005 square meters; with 6% interest per annum from the filing of
this case until paid;

3. Ordering defendant to pay plaintiffs a reasonable monthly rental of P0.68 per


square meter of the total area of 48,005 square meters effective from its occupancy of the
foregoing area in 1978 or a total of P7,050,974.40.

4. Ordering defendant to pay plaintiffs the sum of P200,000.00 as moral


damages; and

5. Ordering defendant to pay the further sum of P200,000.00 as attorneys fees


and the costs.

SO ORDERED.[3]

On August 15, 1996, Ibrahim, joined by his co-heirs, filed an Urgent Motion for Execution of Judgment Pending
Appeal. On the other hand, NAPOCOR filed a Notice of Appeal by registered mail on August 19, 1996. Thereafter,
NAPOCOR filed a vigorous opposition to the motion for execution of judgment pending appeal with a motion for
reconsideration of the Decision which it had received on August 9, 1996.

On August 26, 1996, NAPOCOR filed a Manifestation and Motion withdrawing its Notice of Appeal purposely
to give way to the hearing of its motion for reconsideration.

On August 28, 1996, the RTC issued an Order granting execution pending appeal and denying NAPOCORs
motion for reconsideration, which Order was received by NAPOCOR on September 6, 1996.

On September 9, 1996, NAPOCOR filed its Notice of Appeal by registered mail which was denied by the
RTC on the ground of having been filed out of time. Meanwhile, the Decision of the RTC was executed pending
appeal and funds of NAPOCOR were garnished by respondents Ibrahim and his co-heirs.

On October 4, 1996, a Petition for Relief from Judgment was filed by respondents Omar G. Maruhom, Elias
G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Potrisam G.
Maruhom and Lumba G. Maruhom asserting as follows:

1) they did not file a motion to reconsider or appeal the decision within the reglementary
period of fifteen (15) days from receipt of judgment because they believed in good faith
that the decision was for damages and rentals and attorneys fees only as prayed for in the
complaint:

2) it was only on August 26, 1996 that they learned that the amounts awarded to the
plaintiffs represented not only rentals, damages and attorneys fees but the greatest
portion of which was payment of just compensation which in effect would make the
defendant NPC the owner of the parcels of land involved in the case;

3) when they learned of the nature of the judgment, the period of appeal has already
expired;

16 | P a g e
February 3, 2018 [PROPERTY]

4) they were prevented by fraud, mistake, accident, or excusable negligence from taking
legal steps to protect and preserve their rights over their parcels of land in so far as the
part of the decision decreeing just compensation for petitioners properties;

5) they would never have agreed to the alienation of their property in favor of anybody,
considering the fact that the parcels of land involved in this case were among the valuable
properties they inherited from their dear father and they would rather see their land
crumble to dust than sell it to anybody.[4]

The RTC granted the petition and rendered a modified judgment dated September 8, 1997, thus:

WHEREFORE, a modified judgment is hereby rendered:

1) Reducing the judgment award of plaintiffs for the fair market value
of P48,005,000.00 by 9,526,000.00 or for a difference by P38,479,000.00 and by
the further sum of P33,603,500.00 subject of the execution pending appeal
leaving a difference of 4,878,500.00 which may be the subject of execution upon
the finality of this modified judgment with 6% interest per annum from the filing of
the case until paid.

2) Awarding the sum of P1,476,911.00 to herein petitioners Omar G. Maruhom,


Elias G. Maruhom, Bucay G. Maruhom, Mahmod G. Maruhom, Farouk G.
Maruhom, Hidjara G. Maruhom, Portrisam G. Maruhom and Lumba G. Maruhom
as reasonable rental deductible from the awarded sum of P7,050,974.40
pertaining to plaintiffs.

3) Ordering defendant embodied in the August 7, 1996 decision to pay plaintiffs


the sum of P200,000.00 as moral damages; and further sum of P200,000.00 as
attorneys fees and costs.

SO ORDERED.[5]

Subsequently, both respondent Ibrahim and NAPOCOR appealed to the CA.

In the Decision dated June 8, 2005, the CA set aside the modified judgment and reinstated the original
Decision dated August 7, 1996, amending it further by deleting the award of moral damages and reducing the amount
of rentals and attorneys fees, thus:

WHEREFORE, premises considered, herein Appeals are hereby partially GRANTED, the Modified
Judgment is ordered SET ASIDE and rendered of no force and effect and the original Decision of
the court a quo dated 7 August 1996 is hereby RESTORED with the MODIFICATION that the
award of moral damages is DELETED and the amounts of rentals and attorneys fees
are REDUCED to P6,888,757.40 and P50,000.00, respectively.

In this connection, the Clerk of Court of RTC Lanao del Sur is hereby directed to reassess and
determine the additional filing fee that should be paid by Plaintiff-Appellant IBRAHIM taking into
consideration the total amount of damages sought in the complaint vis--vis the actual amount of
damages awarded by this Court. Such additional filing fee shall constitute a lien on the judgment.

SO ORDERED.[6]

Hence, this petition ascribing the following errors to the CA:

(a) RESPONDENTS WERE NOT DENIED THE BENEFICIAL USE OF THEIR SUBJECT
PROPERTIES TO ENTITLE THEM TO JUST COMPENSATION BY WAY OF DAMAGES;

17 | P a g e
February 3, 2018 [PROPERTY]

(b) ASSUMING THAT RESPONDENTS ARE ENTITLED TO JUST COMPENSATION BY


WAY OF DAMAGES, NO EVIDENCE WAS PRESENTED ANENT THE VALUATION OF
RESPONDENTS PROPERTY AT THE TIME OF ITS TAKING IN THE YEAR 1978 TO
JUSTIFY THE AWARD OF ONE THOUSAND SQUARE METERS (P1000.00/SQ. M.)
EVEN AS PAYMENT OF BACK RENTALS IS ITSELF IMPROPER.

This case revolves around the propriety of paying just compensation to respondents, and, by extension, the basis for
computing the same. The threshold issue of whether respondents are entitled to just compensation hinges upon who
owns the sub-terrain area occupied by petitioner.

Petitioner maintains that the sub-terrain portion where the underground tunnels were constructed does not
belong to respondents because, even conceding the fact that respondents owned the property, their right to the
subsoil of the same does not extend beyond what is necessary to enable them to obtain all the utility and
convenience that such property can normally give. In any case, petitioner asserts that respondents were still able to
use the subject property even with the existence of the tunnels, citing as an example the fact that one of the
respondents, Omar G. Maruhom, had established his residence on a part of the property. Petitioner concludes that
the underground tunnels 115 meters below respondents property could not have caused damage or prejudice to
respondents and their claim to this effect was, therefore, purely conjectural and speculative. [7]

The contention lacks merit.

Generally, in an appeal by certiorari under Rule 45 of the Rules of Court, the Court does not pass upon questions of
fact. Absent any showing that the trial and appellate courts gravely abused their discretion, the Court will not examine
the evidence introduced by the parties below to determine if they correctly assessed and evaluated the evidence on
record.[8] The jurisdiction of the Court in cases brought to it from the CA is limited to reviewing and revising the errors
of law imputed to it, its findings of fact being as a rule conclusive and binding on the Court.

In the present case, petitioner failed to point to any evidence demonstrating grave abuse of discretion on the
part of the CA or to any other circumstances which would call for the application of the exceptions to the above
rule. Consequently, the CAs findings which upheld those of the trial court that respondents owned and possessed the
property and that its substrata was possessed by petitioner since 1978 for the underground tunnels, cannot be
disturbed. Moreover, the Court sustains the finding of the lower courts that the sub-terrain portion of the property
similarly belongs to respondents. This conclusion is drawn from Article 437 of the Civil Code which provides:

ART. 437. The owner of a parcel of land is the owner of its surface and of everything
under it, and he can construct thereon any works or make any plantations and excavations which
he may deem proper, without detriment to servitudes and subject to special laws and ordinances.
He cannot complain of the reasonable requirements of aerial navigation.

Thus, the ownership of land extends to the surface as well as to the subsoil under it. In Republic of the Philippines v.
Court of Appeals,[9] this principle was applied to show that rights over lands are indivisible and, consequently, require
a definitive and categorical classification, thus:

The Court of Appeals justified this by saying there is no conflict of interest between the owners of
the surface rights and the owners of the sub-surface rights. This is rather strange doctrine, for it is
a well-known principle that the owner of a piece of land has rights not only to its surface but also
to everything underneath and the airspace above it up to a reasonable height. Under the
aforesaid ruling, the land is classified as mineral underneath and agricultural on the surface,
subject to separate claims of title. This is also difficult to understand, especially in its practical
application.

Under the theory of the respondent court, the surface owner will be planting on the land
while the mining locator will be boring tunnels underneath. The farmer cannot dig a well because
he may interfere with the mining operations below and the miner cannot blast a tunnel lest he
destroy the crops above. How deep can the farmer, and how high can the miner go without
encroaching on each others rights? Where is the dividing line between the surface and the sub-
surface rights?

The Court feels that the rights over the land are indivisible and that the land itself cannot
be half agricultural and half mineral. The classification must be categorical; the land must be either
completely mineral or completely agricultural.

18 | P a g e
February 3, 2018 [PROPERTY]

Registered landowners may even be ousted of ownership and possession of their properties in the event the
latter are reclassified as mineral lands because real properties are characteristically indivisible. For the loss sustained
by such owners, they are entitled to just compensation under the Mining Laws or in appropriate expropriation
proceedings.[10]

Moreover, petitioners argument that the landowners right extends to the sub-soil insofar as necessary for
their practical interests serves only to further weaken its case. The theory would limit the right to the sub-soil upon the
economic utility which such area offers to the surface owners. Presumably, the landowners right extends to such
height or depth where it is possible for them to obtain some benefit or enjoyment, and it is extinguished beyond such
limit as there would be no more interest protected by law.[11]

In this regard, the trial court found that respondents could have dug upon their property motorized deep
wells but were prevented from doing so by the authorities precisely because of the construction and existence of the
tunnels underneath the surface of their property. Respondents, therefore, still had a legal interest in the sub-terrain
portion insofar as they could have excavated the same for the construction of the deep well. The fact that they could
not was appreciated by the RTC as proof that the tunnels interfered with respondents enjoyment of their property and
deprived them of its full use and enjoyment, thus:

Has it deprived the plaintiffs of the use of their lands when from the evidence they have
already existing residential houses over said tunnels and it was not shown that the tunnels either
destroyed said houses or disturb[ed] the possession thereof by plaintiffs? From the evidence, an
affirmative answer seems to be in order. The plaintiffs and [their] co-heirs discovered [these] big
underground tunnels in 1992. This was confirmed by the defendant on November 13, 1992 by the
Acting Assistant Project Manager, Agus 1 Hydro Electric Project (Exh. K). On September 16, 1992,
Atty. Omar Maruhom (co-heir) requested the Marawi City Water District for permit to construct a
motorized deep well over Lot 3 for his residential house (Exh. Q). He was refused the permit
because the construction of the deep well as (sic) the parcels of land will cause danger to lives and
property. He was informed that beneath your lands are constructed the Napocor underground
tunnel in connection with Agua Hydroelectric plant (Exh. Q-2). There in fact exists ample evidence
that this construction of the tunnel without the prior consent of plaintiffs beneath the latters property
endangered the lives and properties of said plaintiffs. It has been proved indubitably
that Marawi City lies in an area of local volcanic and tectonic activity. Lake Lanao has been formed
by extensive earth movements and is considered to be a drowned basin of volcano/tectonic
origin. In Marawi City, there are a number of former volcanoes and an extensive amount of faulting.
Some of these faults are still moving. (Feasibility Report on Marawi City Water District by Kampsa-
Kruger, Consulting Engineers, Architects and Economists, Exh. R). Moreover, it has been shown
that the underground tunnels [have] deprived the plaintiffs of the lawful use of the land and
considerably reduced its value. On March 6, 1995, plaintiffs applied for a two-million peso loan with
the Amanah Islamic Bank for the expansion of the operation of the Ameer Construction and
Integrated Services to be secured by said land (Exh. N), but the application was disapproved by the
bank in its letter of April 25, 1995 (Exh. O) stating that:

Apropos to this, we regret to inform you that we cannot consider your loan
application due to the following reasons, to wit:

That per my actual ocular inspection and verification, subject property offered as
collateral has an existing underground tunnel by the NPC for the Agus I Project,
which tunnel is traversing underneath your property, hence, an encumbrance. As
a matter of bank policy, property with an existing encumbrance cannot be
considered neither accepted as collateral for a loan.

All the foregoing evidence and findings convince this Court that preponderantly plaintiffs
have established the condemnation of their land covering an area of 48,005 sq. meters located at
Saduc, Marawi City by the defendant National Power Corporation without even the benefit of
expropriation proceedings or the payment of any just compensation and/or reasonable monthly
rental since 1978.[12]

In the past, the Court has held that if the government takes property without expropriation and devotes the property to
public use, after many years, the property owner may demand payment of just compensation in the event restoration

19 | P a g e
February 3, 2018 [PROPERTY]

of possession is neither convenient nor feasible. [13] This is in accordance with the principle that persons shall not be
deprived of their property except by competent authority and for public use and always upon payment of just
compensation.[14]

Petitioner contends that the underground tunnels in this case constitute an easement upon the property of
respondents which does not involve any loss of title or possession. The manner in which the easement was created
by petitioner, however, violates the due process rights of respondents as it was without notice and indemnity to them
and did not go through proper expropriation proceedings. Petitioner could have, at any time, validly exercised the
power of eminent domain to acquire the easement over respondents property as this power encompasses not only
the taking or appropriation of title to and possession of the expropriated property but likewise covers even the
imposition of a mere burden upon the owner of the condemned property. [15] Significantly, though, landowners cannot
be deprived of their right over their land until expropriation proceedings are instituted in court. The court must then
see to it that the taking is for public use, that there is payment of just compensation and that there is due process of
law.[16]

In disregarding this procedure and failing to recognize respondents ownership of the sub-terrain portion,
petitioner took a risk and exposed itself to greater liability with the passage of time. It must be emphasized that the
acquisition of the easement is not without expense. The underground tunnels impose limitations on respondents use
of the property for an indefinite period and deprive them of its ordinary use. Based upon the foregoing, respondents
are clearly entitled to the payment of just compensation. [17] Notwithstanding the fact that petitioner only occupies the
sub-terrain portion, it is liable to pay not merely an easement fee but rather the full compensation for land. This is so
because in this case, the nature of the easement practically deprives the owners of its normal beneficial
use. Respondents, as the owners of the property thus expropriated, are entitled to a just compensation which should
be neither more nor less, whenever it is possible to make the assessment, than the money equivalent of said
property.[18]

The entitlement of respondents to just compensation having been settled, the issue now is on the manner of
computing the same. In this regard, petitioner claims that the basis for the computation of the just compensation
should be the value of the property at the time it was taken in 1978. Petitioner also impugns the reliance made by the
CA upon National Power Corporation v. Court of Appeals and Macapanton Mangondato [19]as the basis for computing
the amount of just compensation in this action. The CA found that the award of damages is not excessive because
the P1000 per square meter as the fair market value was sustained in a case involving a lot adjoining the property in
question which case involved an expropriation by [petitioner] of portion of Lot 1 of the subdivision plan (LRC) PSD
116159 which is adjacent to Lots 2 and 3 of the same subdivision plan which is the subject of the instant
controversy.[20]

Just compensation has been understood to be the just and complete equivalent of the loss [21] and is
ordinarily determined by referring to the value of the land and its character at the time it was taken by the
expropriating authority.[22] There is a taking in this sense when the owners are actually deprived or dispossessed of
their property, where there is a practical destruction or a material impairment of the value of their property, or when
they are deprived of the ordinary use thereof. There is a taking in this context when the expropriator enters private
property not only for a momentary period but for more permanent duration, for the purpose of devoting the property to
a public use in such a manner as to oust the owner and deprive him of all beneficial enjoyment thereof. [23] Moreover,
taking of the property for purposes of eminent domain entails that the entry into the property must be under warrant or
color of legal authority.[24]
Under the factual backdrop of this case, the last element of taking mentioned, i.e., that the entry into the
property is under warrant or color of legal authority, is patently lacking. Petitioner justified its nonpayment of the
indemnity due respondents upon its mistaken belief that the property formed part of the public dominion.

This situation is on all fours with that in the Mangondato case. NAPOCOR in that case took the property of
therein respondents in 1979, using it to build its Aqua I Hydroelectric Plant Project, without paying any compensation,
allegedly under the mistaken belief that it was public land. It was only in 1990, after more than a decade of beneficial
use, that NAPOCOR recognized therein respondents ownership and negotiated for the voluntary purchase of the
property.

In Mangondato, this Court held:

The First Issue: Date of Taking or Date of Suit?

The general rule in determining just compensation in eminent domain is the value
of the property as of the date of the filing of the complaint, as follows:

20 | P a g e
February 3, 2018 [PROPERTY]

Sec. 4. Order of Condemnation. When such a motion is overruled or when any party fails to defend
as required by this rule, the court may enter an order of condemnation declaring that the plaintiff
has a lawful right to take the property sought to be condemned, for the public use or purpose
described in the complaint, upon the payment of just compensation to be determined as of the date
of the filing of the complaint. x x x (Italics supplied).

Normally, the time of the taking coincides with the filing of the complaint for expropriation. Hence,
many ruling of this Court have equated just compensation with the value of the property as of the
time of filing of the complaint consistent with the above provision of the Rules. So too, where the
institution of the action precedes entry to the property, the just compensation is to be ascertained
as of the time of filing of the complaint.

The general rule, however, admits of an exception: where this Court fixed the value of the
property as of the date it was taken and not the date of the commencement of the
expropriation proceedings.

In the old case of Provincial Government of Rizal vs. Caro de Araullo, the Court ruled that x x x the
owners of the land have no right to recover damages for this unearned increment resulting from the
construction of the public improvement (lengthening of Taft Avenue from Manila to Pasay) from
which the land was taken. To permit them to do so would be to allow them to recover more than the
value of the land at the time it was taken, which is the true measure of the damages, or just
compensation, and would discourage the construction of important public improvements.

In subsequent cases, the Court, following the above doctrine, invariably held that the time of
taking is the critical date in determining lawful or just compensation. Justifying this stance,
Mr. Justice (later Chief Justice) Enrique Fernando, speaking for the Court in Municipality of La
Carlota vs. The Spouses Felicidad Baltazar and Vicente Gan, said, x x x the owner as is the
constitutional intent, is paid what he is entitled to according to the value of the property so devoted
to public use as of the date of taking. From that time, he had been deprived thereof. He had no
choice but to submit. He is not, however, to be despoiled of such a right. No less than the
fundamental law guarantees just compensation. It would be injustice to him certainly if from such a
period, he could not recover the value of what was lost. There could be on the other hand,
injustice to the expropriator if by a delay in the collection, the increment in price would
accrue to the owner. The doctrine to which this Court has been committed is intended precisely to
avoid either contingency fraught with unfairness.

Simply stated, the exception finds the application where the owner would be given undue
incremental advantages arising from the use to which the government devotes the property
expropriated -- as for instance, the extension of a main thoroughfare as was in the case in Caro
de Araullo. In the instant case, however, it is difficult to conceive of how there could have
been an extra-ordinary increase in the value of the owners land arising from the
expropriation, as indeed the records do not show any evidence that the valuation of
P1,000.00 reached in 1992 was due to increments directly caused by petitioners use of the
land. Since the petitioner is claiming an exception to Rule 67, Section 4, it has the burden in
proving its claim that its occupancy and use -- not ordinary inflation and increase in land values --
was the direct cause of the increase in valuation from 1978 to 1992.

Side Issue: When is there Taking of Property?

But there is yet another cogent reason why this petition should be denied and why the respondent
Court should be sustained. An examination of the undisputed factual environment would show that
the taking was not really made in 1978.

This Court has defined the elements of taking as the main ingredient in the exercise of power of
eminent domain, in the following words:

A number of circumstances must be present in taking of property for purposes of eminent domain:
(1) the expropriator must enter a private property; (2) the entrance into private property must be for
more than a momentary period; (3) the entry into the property should be under warrant or color of
legal authority; (4) the property must be devoted to a public use or otherwise informally
appropriated or injuriously affected; and (5) the utilization of the property for public use must be in

21 | P a g e
February 3, 2018 [PROPERTY]

such a way to oust the owner and deprive him of all beneficial enjoyment of the property.(Italics
supplied)

In this case, the petitioners entrance in 1978 was without intent to expropriate or was not made
under warrant or color of legal authority, for it believed the property was public land covered by
Proclamation No. 1354. When the private respondent raised his claim of ownership sometime in
1979, the petitioner flatly refused the claim for compensation, nakedly insisted that the property
was public land and wrongly justified its possession by alleging it had already paid financial
assistance to Marawi City in exchange for the rights over the property. Only in 1990, after more
than a decade of beneficial use, did the petitioner recognize private respondents ownership and
negotiate for the voluntary purchase of the property. A Deed of Sale with provisional payment and
subject to negotiations for the correct price was then executed. Clearly, this is not the intent nor the
expropriation contemplated by law. This is a simple attempt at a voluntary purchase and sale.
Obviously, the petitioner neglected and/or refused to exercise the power of eminent domain.

Only in 1992, after the private respondent sued to recover possession and petitioner filed its
Complaint to expropriate, did petitioner manifest its intention to exercise the power of eminent
domain. Thus the respondent Court correctly held:

If We decree that the fair market value of the land be determined as of 1978, then We would
be sanctioning a deceptive scheme whereby NAPOCOR, for any reason other than for
eminent domain would occupy anothers property and when later pressed for payment, first
negotiate for a low price and then conveniently expropriate the property when the land
owner refuses to accept its offer claiming that the taking of the property for the purpose of
the eminent domain should be reckoned as of the date when it started to occupy the
property and that the value of the property should be computed as of the date of the taking
despite the increase in the meantime in the value of the property.

In Noble vs. City of Manila, the City entered into a lease-purchase agreement of a building
constructed by the petitioners predecessor-in-interest in accordance with the specifications of the
former. The Court held that being bound by the said contract, the City could not expropriate the
building. Expropriation could be resorted to only when it is made necessary by the opposition of the
owner to the sale or by the lack of any agreement as to the price. Said the Court:

The contract, therefore, in so far as it refers to the purchase of the building, as we have interpreted
it, is in force, not having been revoked by the parties or by judicial decision. This being the case,
the city being bound to buy the building at an agreed price, under a valid and subsisting contract,
and the plaintiff being agreeable to its sale, the expropriation thereof, as sought by the defendant,
is baseless. Expropriation lies only when it is made necessary by the opposition of the owner to the
sale or by the lack of any agreement as to the price. There being in the present case a valid and
subsisting contract, between the owner of the building and the city, for the purchase thereof at an
agreed price, there is no reason for the expropriation. (Italics supplied)

In the instant case, petitioner effectively repudiated the deed of sale it entered into with the private
respondent when it passed Resolution No. 92-121 on May 25, 1992 authorizing its president to
negotiate, inter alia, that payment shall be effective only after Agus I HE project has been placed in
operation. It was only then that petitioners intent to expropriate became manifest as private
respondent disagreed and, barely a month, filed suit. [25]

In the present case, to allow petitioner to use the date it constructed the tunnels as the date of valuation
would be grossly unfair. First, it did not enter the land under warrant or color of legal authority or with intent to
expropriate the same. In fact, it did not bother to notify the owners and wrongly assumed it had the right to dig those
tunnels under their property. Secondly, the improvements introduced by petitioner, namely, the tunnels, in no way
contributed to an increase in the value of the land. The trial court, therefore, as affirmed by the CA, rightly computed
the valuation of the property as of 1992, when respondents discovered the construction of the huge underground
tunnels beneath their lands and petitioner confirmed the same and started negotiations for their purchase but no
agreement could be reached.[26]

As to the amount of the valuation, the RTC and the CA both used as basis the value of the adjacent
property, Lot 1 (the property involved herein being Lots 2 and 3 of the same subdivision plan), which was valued
at P1,000 per sq. meter as of 1990, as sustained by this Court in Mangondato, thus:
The Second Issue: Valuation

22 | P a g e
February 3, 2018 [PROPERTY]

We now come to the issue of valuation.

The fair market value as held by the respondent Court, is the amount of P1,000.00 per square
meter. In an expropriation case where the principal issue is the determination of just compensation,
as is the case here, a trial before Commissioners is indispensable to allow the parties to present
evidence on the issue of just compensation. Inasmuch as the determination of just compensation in
eminent domain cases is a judicial function and factual findings of the Court of Appeals are
conclusive on the parties and reviewable only when the case falls within the recognized exceptions,
which is not the situation obtaining in this petition, we see no reason to disturb the factual findings
as to valuation of the subject property. As can be gleaned from the records, the court-and-the-
parties-appointed commissioners did not abuse their authority in evaluating the evidence submitted
to them nor misappreciate the clear preponderance of evidence. The amount fixed and agreed to
by the respondent appellate Court is not grossly exorbitant. To quote:

Commissioner Ali comes from the Office of the Register of Deeds who may well be considered an
expert, with a general knowledge of the appraisal of real estate and the prevailing prices of land in
the vicinity of the land in question so that his opinion on the valuation of the property cannot be
lightly brushed aside.

The prevailing market value of the land is only one of the determinants used by the commissioners
report the other being as herein shown:

xxx

xxx

Commissioner Doromals report, recommending P300.00 per square meter, differs from the 2
commissioners only because his report was based on the valuation as of 1978 by the City
Appraisal Committee as clarified by the latters chairman in response to NAPOCORs general
counsels query.

In sum, we agree with the Court of Appeals that petitioner has failed to show why it should be
granted an exemption from the general rule in determining just compensation provided under
Section 4 of Rule 67. On the contrary, private respondent has convinced us that, indeed, such
general rule should in fact be observed in this case.[27]

Petitioner has not shown any error on the part of the CA in reaching such a valuation. Furthermore, these
are factual matters that are not within the ambit of the present review.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in C.A.-G.R. CV No. 57792
dated June 8, 2005 is AFFIRMED.

No costs.

SO ORDERED.

23 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 135385 December 6, 2000

ISAGANI CRUZ and CESAR EUROPA, petitioners,


vs.
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF BUDGET AND
MANAGEMENT and CHAIRMAN and COMMISSIONERS OF THE NATIONAL COMMISSION ON INDIGENOUS
PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI ASCARRAGA, EDTAMI MANSAYANGAN,
BASILIO WANDAG, EVELYN DUNUAN, YAOM TUGAS, ALFREMO CARPIANO, LIBERATO A. GABIN,
MATERNIDAD M. COLAS, NARCISA M. DALUPINES, BAI KIRAM-CONNIE SATURNO, BAE MLOMO-BEATRIZ
T. ABASALA, DATU BALITUNGTUNG-ANTONIO D. LUMANDONG, DATU MANTUMUKAW TEOFISTO
SABASALES, DATU EDUAARDO BANDA, DATU JOEL UNAD, DATU RAMON BAYAAN, TIMUAY JOSE ANOY,
TIMUAY MACARIO D. SALACAO, TIMUAY EDWIN B. ENDING, DATU SAHAMPONG MALANAW VI, DATU BEN
PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY, BAY INAY DAYA-MELINDA S. REYMUNDO, BAI
TINANGHAGA HELINITA T. PANGAN, DATU MAKAPUKAW ADOLINO L. SAWAY, DATU MAUDAYAW-
CRISPEN SAWAY, VICKY MAKAY, LOURDES D. AMOS, GILBERT P. HOGGANG, TERESA GASPAR, MANUEL
S. ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. PE, BENITO CARINO, JOSEPH JUDE CARANTES,
LYNETTE CARANTES-VIVAL, LANGLEY SEGUNDO, SATUR S. BUGNAY, CARLING DOMULOT, ANDRES
MENDIOGRIN, LEOPOLDO ABUGAN, VIRGILIO CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES,
ODETTE G. ESTEVEZ, RODOLFO C. AGUILAR, MAURO VALONES, PEPE H. ATONG, OFELIA T. DAVI,
PERFECTO B. GUINOSAO, WALTER N. TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O. SULATAN,
RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE ANDILAB, MIRLANDO H. MANGKULINTAS, SAMIE
SATURNO, ROMEO A. LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S. LIESES, FILIPE G. SAWAY,
HERMINIA S. SAWAY, JULIUS S. SAWAY, LEONARDA SAWAY, JIMMY UGYUB, SALVADOR TIONGSON,
VENANCIO APANG, MADION MALID, SUKIM MALID, NENENG MALID, MANGKATADONG AUGUSTO DIANO,
JOSEPHINE M. ALBESO, MORENO MALID, MARIO MANGCAL, FELAY DIAMILING, SALOME P. SARZA,
FELIPE P. BAGON, SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA MAPANSAGONOS, ROMEO SALIGA,
SR., JERSON P. GERADA, RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M. GERARDA,
ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO M. MALUDAO, MINORS MARICEL MALID, represented
by her father CORNELIO MALID, MARCELINO M. LADRA, represented by her father MONICO D. LADRA,
JENNYLYN MALID, represented by her father TONY MALID, ARIEL M. EVANGELISTA, represented by her
mother LINAY BALBUENA, EDWARD M. EMUY, SR., SUSAN BOLANIO, OND, PULA BATO B'LAAN TRIBAL
FARMER'S ASSOCIATION, INTER-PEOPLE'S EXCHANGE, INC. and GREEN FORUM-WESTERN
VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR THE CONSERVATION OF NATURAL
RESOURCES, INC., intervenor.

RESOLUTION

PER CURIAM:

Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as citizens and taxpayers,
assailing the constitutionality of certain provisions of Republic Act No. 8371 (R.A. 8371), otherwise known as the
Indigenous Peoples Rights Act of 1997 (IPRA), and its Implementing Rules and Regulations (Implementing Rules).

In its resolution of September 29, 1998, the Court required respondents to comment.1 In compliance, respondents
Chairperson and Commissioners of the National Commission on Indigenous Peoples (NCIP), the government agency
created under the IPRA to implement its provisions, filed on October 13, 1998 their Comment to the Petition, in which
they defend the constitutionality of the IPRA and pray that the petition be dismissed for lack of merit.

On October 19, 1998, respondents Secretary of the Department of Environment and Natural Resources (DENR) and
Secretary of the Department of Budget and Management (DBM) filed through the Solicitor General a consolidated
Comment. The Solicitor General is of the view that the IPRA is partly unconstitutional on the ground that it grants
ownership over natural resources to indigenous peoples and prays that the petition be granted in part.

On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the authors of the IPRA, Mr.
Ponciano Bennagen, a member of the 1986 Constitutional Commission, and the leaders and members of 112 groups
of indigenous peoples (Flavier, et. al), filed their Motion for Leave to Intervene. They join the NCIP in defending the
constitutionality of IPRA and praying for the dismissal of the petition.

24 | P a g e
February 3, 2018 [PROPERTY]

On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to Intervene and/or to Appear
as Amicus Curiae. The CHR asserts that IPRA is an expression of the principle of parens patriae and that the State
has the responsibility to protect and guarantee the rights of those who are at a serious disadvantage like indigenous
peoples. For this reason it prays that the petition be dismissed.

On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the Haribon Foundation for the
Conservation of Natural Resources, Inc. (Haribon, et al.), filed a motion to Intervene with attached Comment-in-
Intervention. They agree with the NCIP and Flavier, et al. that IPRA is consistent with the Constitution and pray that
the petition for prohibition and mandamus be dismissed.

The motions for intervention of the aforesaid groups and organizations were granted.

Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their respective
memoranda in which they reiterate the arguments adduced in their earlier pleadings and during the hearing.

Petitioners assail the constitutionality of the following provisions of the IPRA and its Implementing Rules on the
ground that they amount to an unlawful deprivation of the State’s ownership over lands of the public domain as well
as minerals and other natural resources therein, in violation of the regalian doctrine embodied in Section 2, Article XII
of the Constitution:

"(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b) which, in turn, defines
ancestral lands;

"(2) Section 5, in relation to section 3(a), which provides that ancestral domains including inalienable public lands,
bodies of water, mineral and other resources found within ancestral domains are private but community property of
the indigenous peoples;

"(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of ancestral domains and ancestral
lands;

"(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over the ancestral domains;

(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over the ancestral lands;

"(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting, extraction, development
or exploration of minerals and other natural resources within the areas claimed to be their ancestral domains, and the
right to enter into agreements with nonindigenous peoples for the development and utilization of natural resources
therein for a period not exceeding 25 years, renewable for not more than 25 years; and

"(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop, protect and conserve the
ancestral domains and portions thereof which are found to be necessary for critical watersheds, mangroves, wildlife
sanctuaries, wilderness, protected areas, forest cover or reforestation." 2

Petitioners also content that, by providing for an all-encompassing definition of "ancestral domains" and "ancestral
lands" which might even include private lands found within said areas, Sections 3(a) and 3(b) violate the rights of
private landowners.3

In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of the NCIP and
making customary law applicable to the settlement of disputes involving ancestral domains and ancestral lands on
the ground that these provisions violate the due process clause of the Constitution. 4

These provisions are:

"(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of ancestral domains
and which vest on the NCIP the sole authority to delineate ancestral domains and ancestral lands;

25 | P a g e
February 3, 2018 [PROPERTY]

"(2) Section 52[i] which provides that upon certification by the NCIP that a particular area is an ancestral
domain and upon notification to the following officials, namely, the Secretary of Environment and Natural
Resources, Secretary of Interior and Local Governments, Secretary of Justice and Commissioner of the
National Development Corporation, the jurisdiction of said officials over said area terminates;

"(3) Section 63 which provides the customary law, traditions and practices of indigenous peoples shall be
applied first with respect to property rights, claims of ownership, hereditary succession and settlement of
land disputes, and that any doubt or ambiguity in the interpretation thereof shall be resolved in favor of the
indigenous peoples;

"(4) Section 65 which states that customary laws and practices shall be used to resolve disputes involving
indigenous peoples; and

"(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes involving rights of the
indigenous peoples."5

Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative Order No. 1, series of
1998, which provides that "the administrative relationship of the NCIP to the Office of the President is characterized
as a lateral but autonomous relationship for purposes of policy and program coordination." They contend that said
Rule infringes upon the President’s power of control over executive departments under Section 17, Article VII of the
Constitution.6

Petitioners pray for the following:

"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other related provisions of
R.A. 8371 are unconstitutional and invalid;

"(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners of the NCIP to cease
and desist from implementing the assailed provisions of R.A. 8371 and its Implementing Rules;

"(3) The issuance of a writ of prohibition directing the Secretary of the Department of Environment and
Natural Resources to cease and desist from implementing Department of Environment and Natural
Resources Circular No. 2, series of 1998;

"(4) The issuance of a writ of prohibition directing the Secretary of Budget and Management to cease and
desist from disbursing public funds for the implementation of the assailed provisions of R.A. 8371; and

"(5) The issuance of a writ of mandamus commanding the Secretary of Environment and Natural Resources
to comply with his duty of carrying out the State’s constitutional mandate to control and supervise the
exploration, development, utilization and conservation of Philippine natural resources."7

After due deliberation on the petition, the members of the Court voted as follows:

Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice and Justices
Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged provisions of R.A. 8371. Justice
Puno also filed a separate opinion sustaining all challenged provisions of the law with the exception of Section 1, Part
II, Rule III of NCIP Administrative Order No. 1, series of 1998, the Rules and Regulations Implementing the IPRA,
and Section 57 of the IPRA which he contends should be interpreted as dealing with the large-scale exploitation of
natural resources and should be read in conjunction with Section 2, Article XII of the 1987 Constitution. On the other
hand, Justice Mendoza voted to dismiss the petition solely on the ground that it does not raise a justiciable
controversy and petitioners do not have standing to question the constitutionality of R.A. 8371.

Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a separate opinion
expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A. 8371 are unconstitutional.
He reserves judgment on the constitutionality of Sections 58, 59, 65, and 66 of the law, which he believes must await
the filing of specific cases by those whose rights may have been violated by the IPRA. Justice Vitug also filed a
separate opinion expressing the view that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo,
Pardo, Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug.

26 | P a g e
February 3, 2018 [PROPERTY]

As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case was redeliberated
upon. However, after redeliberation, the voting remained the same. Accordingly, pursuant to Rule 56, Section 7 of the
Rules of Civil Procedure, the petition is DISMISSED.

Attached hereto and made integral parts thereof are the separate opinions of Justices Puno, Vitug, Kapunan,
Mendoza, and Panganiban.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr.,
JJ., concur.
Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate opinion

27 | P a g e
February 3, 2018 [PROPERTY]

[G.R. No. 63528. September 9, 1996]

ATOK BIG-WEDGE MINING COMPANY, PETITIONER, VS. HON. INTERMEDIATE APPELLATE COURT and
TUKTUKAN SAINGAN, respondents.

DECISION

HERMOSISIMA, JR., J.:


In the face of two sets of divergent rulings of the Supreme Court on the nature of the rights of mining claimants
over the land where their claim is located, the parties herein seek a definitive ruling on the issue: What is actually the
right of a locator of a mining claim located and perfected under the Philippine Bill of 1902 over the land where the
claim is found? Does he have an absolute right of ownership thereof or does he have the mere right to possess and
claim the same? Whose right to the land should, therefore, prevail: the mining claimants or that of an applicant for
land registration? Does the mere recording or location of a mining claim ipso facto and irreversibly convert the land
into mineral land, notwithstanding the fact that the mining claimant failed to comply with the strict work requirement
under the Philippine Bill of 1902?
Petitioner Atok Big Wedge Mining Company appeals from the decision [1] of the Court of Appeals[2] which
reversed the decision[3] of the then Court of First Instance of Baguio City[4] in a land registration case.[5] The court a
quodenied and correspondingly dismissed the application for registration of title filed by private respondent Tuktukan
Saingan, finding no merit in Saingans claim of adverse, open and continuous possession in concept of an owner of
the tract of land applied for by him, which happened to be claimed by petitioner as part of its mining claim duly
recorded by the Mining Recorder of Benguet. Respondent appellate court found petitioner to have abandoned its
mining claim over the said tract of land and, on the other hand, adjudged private respondent to be the owner thereof
by virtue of his having possessed the same under a bona fide claim of ownership for at least thirty (30) years prior to
the filing of his land registration application in 1965.
The court a quo made the following findings of fact:

Applicant [private respondent] seeks the registration of a parcel of land with an area of 41,296 square meters situated
in the barrio of Lucnab, Itogon, Benguet, which is shown in survey plan Psu-209851 x x x.

The evidence for the applicant [private respondent] who was 70 years old at the time he testified shows that he
acquired the land from his father-in-law, Dongail, when he married his daughter; that he was then 18 years old; that at
the time of his acquisition, it was planted with camotes, casava [sic], langka, gabi, coffee and avocados; that he lived
on the land since his marriage up to the present; that he has been paying the taxes during the Japanese occupation
and even before it; that he was never disturbed in his possession. Supporting his oral testimony, applicant [private
respondent] submitted tax declarations x x x both dated March 20, 1948, the former for a rural land and the latter for
urban land and improvement therein. The receipt showing payment of the taxes on such tax declarations is
dated Feb. 8, 1949 x x x. The said tax declarations x x x show that they cancel tax declaration No. 439 dated Feb. 10,
1947 which was presented by the Oppositor [petitioner] Atok Big Wedge Mining Company as its Exhibit 14, and the
land tax under Exh. 14 was paid by applicant [private respondent] in 1947 x x x. Applicant [private respondent] has
also submitted Exh. `C, which indicates that all pre-war records of tax declarations and real property receipts of the
municipality of Itogon where the property is located were burned and destroyed during the last world war.

The Bureau of Lands and Bureau of Forestry, represented by the Provincial fiscal, oppose [sic] application. The Atok
Big Wedge Mining Company came in also as oppositor claiming that the land in question is within its mineral claims -
Sally, Evelyn and Ethel x x x Atok Big Wedge Mining Company submitted Exhibits 6, 7 and 8, all showing that the
annual assessment work of these mineral claims were maintained from 1932 to 1967 for Sally and Evelyn and from
1946 to 1967 for Ethel. It was likewise shown that these mineral claims were recorded in the mining recorders office;
Sally and Evelyn on Jan. 2, 1931 and Ethel on March 18, 1921 x x x.[6]

The respondent appellate court additionally found that the tract of land in question according to the evidence,
Exh. 2, covers portion of mineral claims, Sally, Evelyn, and Ethel, the first two located by one Reynolds in 1931 and
the last, also by Reynolds in 1921[7] but Atok x x x has not even been shown how connected with locator
Reynolds.[8] Private respondent reiterates this fact in his Comment:

x x x (T)he mining claims have become vested rights and properties of the locators, Messrs. H. I. Reynolds and E. J.
Harrison.

28 | P a g e
February 3, 2018 [PROPERTY]

However, the locators, Reynolds and Harrison, or the PETITIONERS herein, assuming that there is any relation
between Atok Big Wedge Mining Co., and the locators, Reynolds and Harrison, have never shown that their rights
have been preserved or remain vested.

xxx

Furthermore, when the land in question was registered in the office of the Mining Recorder in 1921, and 1931,
respectively, the mineral claims covering the land in question namely: Sally, Evelyn and Ethel were in the name of the
Locators E. J. Harrison and H. I. Reynolds. No evidence was ever presented as to how Petitioner herein obtained
ownership over said claims during the hearing of this case in the Lower Court up to this time. It was not even shown
how Petitioner herein, Atok Big Wedge Mining Co., is connected or related to locator Reynolds. x x x [9]

Significantly, nothing in the subsequent pleadings filed by petitioner rebuts, disputes or proves otherwise, the
aforecited issue raised by private respondent with regard to its personality, interests and authority to oppose the
application for registration filed by private respondent respecting land to which petitioner claims rights but as to which
it is not the duly recorded mining locator.
The Director of Lands, thru the Office of the Solicitor General, opposed private respondents application on the
ground that the applicant did not have title in fee simple over the questioned land and that he had not exercised
continuous, exclusive and notorious possession and occupation over the said land for at least thirty (30) years
immediately preceding the filing of the application. However, the Solicitor General no longer joined petitioner in this
ultimate appeal, the Solicitor General later conceding existence of private respondents rights.
Petitioners presentation of evidence proving registration of the mining claims of petitioner in the Mining
Recorder of Benguet dating back to 1931, at the latest, notably about sixteen (16) years before private respondent
declared the land in question for taxation purposes and thirty four (34) years before private respondent filed the land
registration proceedings in 1965, apparently impressed the court a quo. And so it ruled in favor of petitioner as
oppositor in the land registration proceedings, the court a quo ratiocinating in this wise:

x x x (T)he mining claims were recorded ahead of the time when the applicant [private respondent] declared the land
for taxation purposes based on his documentary exhibits. So the evidence of the applicant [private
respondent] cannot prevail over the documentary exhibits of the oppositor Atok Big Wedge Mining Company. The
government oppositors adopted the evidence of the mining company.

Moreover, if applicant [private respondent] was already in possession and occupation of the land in the concept of
owner, as claimed, it is strange that he did not oppose its survey when the mining company surveyed the area
preparatory to its recording in the mining recorders office. The conclusion is that he was not yet there when the
survey by the mining company was conducted or if he was already there the nature of his occupation was not in the
concept of owner for otherwise he could have asserted it at the time.

The foregoing facts show that the mining company had established its rights long before applicant [private
respondent] asserted ownership over the land. The perfection of mining claims over the mineral lands involved
segregate [sic] them from the public domain and the beneficial ownership thereof became vested in the locator.[10]

The trial court having dismissed private respondents application for registration on the ground that petitioners
had already acquired a vested right over the subject land, private respondent appealed to the respondent court. The
Director of Lands, thru the Solicitor General, adopted as his own, the appellees brief filed by petitioner.
The respondent appellate court, on its part, correctly considered inadequate, however, the mere recording
of petitioners mining claims in the Mining Recorder of Benguet and the corresponding, albeit religious, payment
of annual assessment fees therefor, to vest in petitioner ownership rights over the land in question. Truly, under
Executive Order No. 141[11], the payment of annual assessment fees is only proof of compliance with the charges
imposed by law and does not constitute proof of actual assessment work on the mining land concerned. Respondent
court ruled in this connection:

x x x (I)t must be conceded that the same having been located and existing since 1921 and 1931, the rights of locator
if correspondingly preserved, remained vested, - but as this Court also examines the evidence, what has been shown
is that affidavits of assessment work had been filed, yes, from 1932 in connection with claim Sally and from 1933 as
to Evelyn, and from 1936 as to claim Ethel, but tsn. would not show that in truth and in fact, there had been that
assessment work on the claims, [sic] witness Pelayo of Atok admits that he had not gone over the area x x x in fact

29 | P a g e
February 3, 2018 [PROPERTY]

he joined the company in 1962 only, [sic] in other words, all that Atok has shown as to assessment work is the
affidavit thereon, but as Ex. Order 141 of 1 August, [sic] 1968 has said:

(W)hat matters is [sic] maintaining and preserving possessory rights to the claims is the continuous performance of
the required assessment work, not the filing of an affidavit which may be disproved by findings of [sic] the ground,'

and here, the very fact that applicant has possessed continuously apparently without protest from Atok x x x must
disprove the truth that locator or Atok had indeed done assessment work x x x.[12]

Private respondent, in support of respondent courts quoted findings, points out in his pleadings that:

x x x The APPLICANT [private respondent] constructed various improvements on the land consisting of his 3
residential houses, fruit trees, ricefields and other permanent improvements. x x x

xxx

On the other hand, the PETITIONER Mining company has not shown that it has introduced a single improvement
(assessment work) on the property. It has only paid the minimum annual assessment required by law of P200.00 a
year. There was no evidence, whatsoever, of its alleged `factual possession of the property. No assessment work
was shown during the ocular inspection ordered by the Honorable Trial Court neither during the ocular inspection
conducted by the Bureau of Forestry.

THIS ritual of paying the uniform sum of P200.00 a year for alleged assessment work is not enough evidence that
such assessment work was actually made. It is precisely for this reason that Executive Order 141 dated August 1,
1968 was issued by the President of the Philippines. This order made it mandatory that it is not enough to
pay P200.00 a year but there must be actual continuous assessment work done on the surface of the mineral claims.
x x x [Underscoring supplied by private respondent.][13]

Also, private respondent also additionally informs this court that:

x x x PETITIONER Atok Big Wedge Mining Company has, on October 12, 1978, converted its application on mineral
claims in question (SALLY, EVELYN and ETHEL) into mining lease only in compliance with Presidential Decree
1214. PETITIONER mining company is now a mere lessee of the mining claims. And as such lessee, it has no right
on the surface rights of such mineral claims. An official certification to that effect by the Bureau of Mines & Geo-
Sciences, Regional Office No. 1 of the City of Baguio is hereby attached as Annex `A and made integral part hereof.
x x x.[14]

an allegation which obviously clinches this case in his favor.


Respondent court having reversed the trial courts decision on the ground that private respondent had, by
sufficient evidence, shown his right to registration over the contested parcel of land, petitioner elevated its cause to
this court.The Director of Lands, however, did not join in petitioners appeal. Thus, in a Manifestation and Motion,
dated June 21, 1983,[15] the Director of Lands, thru the Solicitor General, acknowledged that the respondent Courts
decision has become final with respect to the Director of Lands.[16]
Petitioner, left to its own by the Director of Lands, cites the following grounds for the grant of the instant petition:
I

THAT THE LAND IN QUESTION HAD LONG BEEN SEGREGATED FROM THE PUBLIC DOMAIN AND
OWNERSHIP THERETO HAD LONG BECOME VESTED IN HEREIN PETITIONER WHEN ITS MINING CLAIMS IN
QUESTION WERE REGISTERED IN THE OFFICE OF THE MINING RECORDER IN 1921 AND 1931
RESPECTIVELY.

II

THAT THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION IN FINDING THAT THE
APPLICANT WAS IN CONTINUOUS OPEN AND ADVERSE POSSESSION OF THE LAND IN QUESTION.[17]

30 | P a g e
February 3, 2018 [PROPERTY]

We find these arguments to be devoid of merit.


The records bear out that private
respondent has been in possession of
subject parcel of land in concept of owner
for more than thirty (30) years
----------------------------------------------------
The court a quo made the following factual findings based on the testimony of private respondent:

The evidence x x x shows that he [private respondent] acquired the land from his father-in-law, Dongail, when he
married his daughter; that he was then 18 years old; that at the time of his acquisition, it was planted with camotes,
casava [sic], langka, gabi, coffee and avocados; that he lived on the land since his marriage up to the present; that he
has been paying the taxes during the Japanese occupation and even before it; that he was never disturbed in his
possession. Supporting his oral testimony, applicant submitted tax declarations x x x both dated March 20, 1948, the
former for a rural land and the latter for urban land and improvement therein.[18]

Substantiating the aforecited testimonial evidence of private respondents actual, adverse and continuous
possession of the subject land for more than thirty (30) years are the observations of the court commissioner during
the ocular inspection of the subject land on February 1, 1969, pertinent transcribed portions of which read as follows:

Upon verification of the extent of the area applied for by the applicant which tallies with the plan on record, we find the
following improvements;

The land applied for is almost 90% improved with numerous irrigated rice terraces newly planted to palay at the time
of the ocular inspection and others planted to vegetables such as potatoes, banana plants, flowering plants and fruit
trees such as mangoes, jackfruits, coffee plants, avocados and citrus - all fruit bearing.

Most of the fruit trees such as the mango trees are about one half (1/2) meter in diameter.

There are four houses owned by the applicant [private respondent] and his children.

There is a creek traversing the middle portion of the land which serves as irrigation for the numerous rice paddies.

Upon verification of the surrounding area which we did by hiking all the way, there are no assessment tunnels or any
sign of mining activities.

xxx

There are earthen dikes and fences surrounding the property applied for.

It also appears that the surrounding area of the land applied for is also fully cultivated especially on the western
portion, southern portion and also on the northern portion.

On the northwestern ridge are numerous terraces planted to various vegetables and on the edges of the property is a
plantation of tiger grass used for brooms.

On the eastern slope are also numerous terraces planted to flowering plants and numerous banana plants.

There are only two (2) pine trees growing situated on the eastern slope of the land in question.

On the northern portion are terraces and ricefields and mango tree as well as banana plants.

At the northern slope of the land applied for is [sic] fully cultivated with the exception of whatever portions are planted
to bananas and tiger grass.

31 | P a g e
February 3, 2018 [PROPERTY]

The terraces at the time of the ocular inspection is planted to vegetables and flowering plants such as African dishes
[sic].

On the northwestern portion of the land are numerous terraces planted to seasonal vegetable crops. The rest are
planted to banana except the small steep portion planted to tiger grass to prevent the land from eroding.

On the western portion is a big irrigation canal with plenty of water which serve [sic] as a water supply to irrigate the
ricefields which are found around the property.

An estimate of around 90 to 120 big and small trees are scattered all over the property. Around the houses are full of
fruit trees.

xxx

The mining compound of Itogon is very far from this place and this land is at the boundary of Baguio City and
Itogon. That is why it is more suitable for residential and agricultural purposes. Nowhere do we find any mining work
done, any cable or anything that would show any mining operation in this area.

Around the yard of the houses of the applicant are numerous coffee trees, jackfruits, pomelos, papaya, pineapples,
banana plants, guava trees and carrots.

The orchard is fully planted to coffee trees. The area is estimated to be more than one hectare which is planted to
coffee trees and other plants.[19]

Private respondent, it must be emphasized, offered in evidence in the land registration proceedings before the
court a quo, tax declarations, dated March 20, 1948, and tax payment receipts, dated February 8, 1949.
Significantly, petitioner did not present any evidence in rebuttal of private respondents aforestated claims of
having acquired the subject land from his wifes father and having lived on the land since his marriage at the age of
eighteen (18). Neither has petitioner taken exception to the aforecited observations of the court commissioner during
the ocular inspection of the subject land. There is nary a showing in petitioners numerous pleadings filed before us
that there exists substantial basis for us not to believe petitioners claims, and this is understandable, for petitioner
largely anchored its cause on its alleged vested rights to its mining claims under the mandate of the Philippine Bill of
1902 and our rulings in McDaniel vs. Apacible and Cuisia[20] and the catena of cases subsequent thereto.
Considering the aforestated evidence borne out by the records of the instant case, their credibleness and the
lack of adequate opposition thereto, we agree with respondent Court of Appeals that a reading of tsn. would rather
persuade that applicant [private respondent] had shown quite well that subject property had been in (the) continuous
and adverse possession, first, of his predecessor-in-interest, Dongail and, after the death of the latter, (by
respondent) himself, years before, that is, long before the outbreak of the last war. [21]
Petitioner is deemed to have abandoned
his mining claims under E.O. No. 141 and
P.D. No. 1214
-------------------------------------------
All mineral lands, as part of the countrys natural resources, belong to the Philippine State. This concept of jura
regalia enshrined in past and present Philippine constitutions, has not always been the prevailing principle in this
jurisdiction, however, the abundant resources within our coastal frontiers having in the past filled not just one
colonizers booty haul. Indeed, there was a time in our history when the mining laws prevailing in this jurisdiction were
compromising, to say the least, of the Filipino peoples inherent rights to their natural wealth.
Before the cession of the Philippine Islands to the United States under the Treaty of Paris, the prevailing mining
law in the colony was the Royal Decree of May, 1867, otherwise known as The Spanish Mining Law.
In the advent of American occupation, the Philippines was governed by means of organic acts which were in the
nature of charters serving as a Constitution of the occupied territory from 1900 to 1935. [22] Among the principal
organic acts of the Philippines was the Act of Congress of July 1, 1902 through which the United States Congress
assumed the administration of the Philippine Islands.

32 | P a g e
February 3, 2018 [PROPERTY]

The Philippine Bill of 1902 contained provisions for, among many other things, the open and free exploration,
occupation and purchase of mineral deposits and the land where they may be found. It declared all valuable mineral
deposits in public lands in the Philippine Islands, both surveyed and unsurveyed x x x to be free and open to
exploration, occupation, and purchase, and the land in which they are found to occupation and purchase, by citizens
of the United States, or of said Islands x x x.[23]
Any qualified person desiring to locate a mineral claim may enter upon the same and locate a plot of ground
measuring, where possible, but not exceeding, one thousand feet in length by one thousand feet in breadth, in as
nearly as possible a rectangular form.[24] Under the Philippine Bill of 1902, the holder of the mineral claim so located
is entitled to all the minerals which may lie within his claim, but he may not mine outside the boundary lines of his
claim.[25] The mine claim locator must have his claim recorded in the mining recorder within thirty (30) days after the
location thereof; otherwise, he will be deemed to have abandoned the same. [26]
One of the continuing requirements for the subsistence of the mining claim is performance of not less than one
hundred dollars worth of labor or undertaking of improvements of the same value every year. [27] This is a strict
requisite, the locators failure to comply with which shall operate to open the claim or mine to relocation in the same
manner as if no location of the same had even been made. [28] Unequivocal is the mandatory nature of the work or
labor requirement on the mine that the Philippine Bill specifically designates the time when the work or labor required
to be done annually on all unpatented mineral claims, shall commence. [29]
Subsequently, among a few laws passed amending the Philippine Bill of 1902 was Act No. 624 passed by the
United States Philippine Commission and approved on February 7, 1903. Said Act prescribed regulations to govern
the location and the manner of recording mining claims and the amount of work necessary to hold possession
thereof. Such regulations reinforced the annual work or labor requirement of not less than one hundred dollars worth
as provided for in the Philippine Bill of 1902, in accordance with Section 36 thereof which limits the power of the
United States Philippine Commission to make regulations but not in conflict with the provision of this Act [i.e., the
Philippine Bill of 1902], governing the location, manner of recording, and amount of work necessary to hold
possession of a mining claim x x x.
On November 15, 1935, the Constitution of the Commonwealth took effect. The 1935 Constitution declared all
natural resources of the Philippines, including mineral lands and minerals, to be property belonging to the
State.[30]However, as it turned out, not really all of the Philippines natural resources were considered part of the public
domain. Those natural resources, and for that matter, those mineral lands and minerals with respect to which there
already was any existing right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution, were then considered outside the application of the jura regalia doctrine or at
least not unconditionally or totally within the contemplation of said doctrine.
On November 7, 1936, the First National Assembly enacted Commonwealth Act No. 137, otherwise known as
the Mining Act. In contradistinction with the Philippine Bill of 1902 which was patterned after the United States
Federal Mining Acts which rejected the regalian doctrine, the Mining Act expressly adopted the regalian doctrine
following the provisions of the 1935 Constitution. Since said Constitution necessarily prohibits the alienation of mining
lands, the Mining Act granted only lease rights to mining claimants who are proscribed from purchasing the mining
claim itself. These provisions of the Mining Act, however, were expressly inapplicable to mining claimants who had
located and recorded their claims under the Philippine Bill of 1902.
The nationalism underlying the adoption of the regalian doctrine in the 1935 Constitution was further eroded by
the amendment thereto which was adopted by the First Congress on September 18, 1946 and approved by a majority
at the elections held on March 11, 1947. This amendment which came in the form of an Ordinance Appended to the
Constitution is what is known as the Parity Rights amendment. It provided that, notwithstanding the adoption in the
Constitution of the regalian doctrine and the proscription against aliens participating in the natural wealth of the
nation, excepted therefrom were the citizens of the United States and its business enterprises which would have the
equal right in the disposition, exploitation, development and utilization of our natural resources, among them, our
mining lands and minerals for the period from July 4, 1946 to July 3, 1974.
In the meantime, the provisions of the Philippine Bill of 1902 regarding mining claims, insofar as the mining
lands and mining claims acquired before the effectivity of the 1935 Constitution are concerned, continued to be in
effect.Annual performance of labor or undertaking of improvements on the mine remained an annual requirement,
non-compliance with which resulted in the mine becoming again open to relocation but now subject to the lease
provisions of the Mining Act. The intention for this annual work requirement to be a strict prerequisite to maintenance
of a claimants rights under the Philippine Bill of 1902 apparently not lost on subsequent legislators, they took the
same as an absolute prerequisite with grave consequences and believed it necessary to expressly enact a
law[31] waiving this requirement during the period from January 1, 1952 to January 1, 1954 as the circumstances then
necessitated the same.

33 | P a g e
February 3, 2018 [PROPERTY]

The Philippine Bill of 1902 clearly required the annual performance of work on the mine or the undertaking of
improvements thereon in order for the mine claim locator to continue enjoying all the rights accruing to him as such
under the said Bill. This and nothing short of this was the requirement. The filing of affidavits of annual assessment
work, which procedure is not even provided for in the Philippine Bill of 1902, is required only for purposes of proving
that there had actually been work or improvements done. Such filing could not have been intended to replace the
actual work requirement, and nary is there a basis in law to support any conclusion to the contrary, notwithstanding
what was appearing to be the practice of mine claim locators of annually filing affidavits of annual assessment but
willfully not undertaking actual work or tangible improvement on the mine site.
On August 1, 1968, then President Marcos issued Executive Order (E.O.) No. 141. Whereas mining claim
holders under the Philippine Bill of 1902 x x x are of the impression that they may hold on to their claims indefinitely
by the mere filing of affidavits of annual assessment work x x x, E.O. No. 141 precisely declared that such impression
is not correct, for what matters in maintaining and preserving possessory title to the claim is the continuous
performance of the required assessment work, not the filing of an affidavit which may be disproved by findings on the
ground. Consequently, E.O. No. 141 established the status of such unpatented mining claims which have not
complied with the annual work requirement, as having been abandoned and open for relocation, their declarations of
location being accordingly cancelled.
On January 17, 1973, the 1973 Constitution came into force and effect. Unlike the former Charter, the 1973
Constitution did not expressly qualify the application of the regalian doctrine as being subject to any right granted
before the effectivity of the 1935 Constitution or the 1973 Constitution for that matter. It provided:

SEC. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential
energy, fisheries, wildlife, and other natural resources of the Philippines belong to the State. x x x.[32]

But the conditional application of the regalian doctrine under the 1973 Constitution could be found in
Presidential Decree (P.D.) No. 463, enacted on May 17, 1974, which revised the Mining Act (C.A. No. 137). While the
said decree declares that x x x all mineral deposits in public or private lands x x x belong to the State, inalienably and
imprescriptively x x x, it also recognizes whatever rights or reservations had already been existing with respect to
certain mining lands,[33] apparently alluding to the rights of mining claim holders under the Philippine Bill of 1902.
Under the Philippine Bill of 1902, the procedure was that a mining claim locator need not apply for a patent soon
after locating the mine. The patent may come later, and the said locator, for as long as he complies with the annual
actual work requirement, enjoyed possessory rights with respect to such mining claim with or without a patent
therefor. It has already been stated that under E.O. No. 141, unpatented mining claims shall be deemed abandoned
upon a finding that the holders thereof had not been actually performing any work or labor or undertaking any
improvement at the mine site notwithstanding their having religiously filed annual affidavits of assessment.
Even under P.D. 463 which was enacted in 1974, the possessory rights of mining claim holders under the
Philippine Bill of 1902 remained effective for as long as said holders complied with the annual actual work
requirement. But on October 14, 1977, P.D. No. 1214 required all the holders of unpatented mining claims to secure
mining lease contracts under P.D. No. 463. Faced with the grave consequence of forfeiture of all their rights to their
claims, holders of subsisting and valid patentable mining claims located under the Philippine Bill of 1902 were to file
mining lease applications therefor within one (1) year from the effectivity of the said decree. [34] The filing of such
mining lease applications was considered a waiver of the holders rights to the issuance of mining patents for their
claims.[35] Corollarily, non-filing of applications for mining lease by the holders thereof within the one-year period
would cause the forfeiture of all their rights to their claims. [36]
Against the backdrop of the afore-chronicled evolution of the pertinent mining laws, past and present, in this
jurisdiction, we now proceed to resolve the controlling issue in this case: Whether or not the ownership of subject land
had long been vested on petitioner after it had allegedly located and recorded its mining claim in accordance with the
pertinent provisions of the Philippine Bill of 1902.
This issue is certainly not a novel one. It has been first ruled upon by this court in the 1922 case of McDaniel vs.
Apacible and Cuisia.[37] There, applying American precedents, we stated:

The moment the locator discovered a valuable mineral deposit on the lands located, and perfected his location in
accordance with law, the power of the United States Government to deprive him of the exclusive right to the
possession and enjoyment of the located claim was gone, the lands had become mineral lands and they were
exempted from lands that could be granted to any other person. The reservations of public lands cannot be made so
as to include prior mineral perfected located locations; and of course, if a valid mining location is made upon public
lands afterward included in a reservation, such inclusion or reservation does not affect the validity of the former

34 | P a g e
February 3, 2018 [PROPERTY]

location. By such location and perfection, the land located is segregated from the public domain even as against the
Government. x x x.[38]

We reiterated this ruling in the subsequent cases of Gold Creek Mining vs. Rodriguez (1938),[39] Salacot Mining
Company vs. Abadilla (1939),[40] Salacot Mining Company vs. Rodriguez (1939),[41] Bambao vs. Lednicky
(1961),[42] Comilang vs. Buendia (1967),[43] Benguet Consolidated, Inc. vs. Republic (1986),[44] Republic vs. Court of
Appeals (1988)[45] and Atok-Big Wedge Mining Co., Inc. vs. Court of Appeals (1991).[46]
Notwithstanding our ruling in the aforecited cases, however, there came about thereafter a catena of cases
where we declared that the rights of the holder of a mining claim located under the Philippine Bill of 1902, are not
absolute or are not strictly of ownership. This declaration was a necessary premise in our affirmation of the
constitutionality of P.D. No. 1214 in the 1987 case of Santa Rosa Mining Co., Inc. vs. Leido, Jr.[47] where we stated:

Mere location does not mean absolute ownership over the affected land or mining claim. It merely segregates the
located land or area from the public domain by barring other would-be locators from locating the same and
appropriating for themselves the minerals found therein. To rule otherwise would imply that location is all that is
needed to acquire and maintain rights over a located mining claim. This, we cannot approve or sanction because it is
contrary to the intention of the lawmaker that the locator should faithfully and consistently comply with the
requirements for annual work and improvements in the located mining claim.[48]

And our ruling there was upheld in the tradition of stare decisis in the subsequent cases of Director of Lands vs.
Kalahi Investments, Inc. (1989),[49] Zambales Chromite Mining Company, Inc. vs. Leido, Jr. (1989),[50] Poe Mining
Association vs. Garcia (1991),[51] United Paracale Mining Company, Inc. vs. De la Rosa (1993),[52] and Manuel vs.
Intermediate Appellate Court (1995).[53]
While petitioner adamantly insists that there is only one construction of the provisions of the Philippine Bill of
1902 as regards his mining claim rights, and this is that the same are absolute and in the nature of ownership, private
respondent posits the ultimate question of which between the aforecited seemingly inconsistent rulings is the correct
interpretation of the Philippine Bill of 1902 in relation to E.O. No. 141 and P.D. 1214 insofar as the rights of mining
claim holders under the said Bill are concerned.
This is not the first time either that we are asked to, in all awareness of the precedents, resolve these
postulations of this court that are perceived to be contradictory. In the 1994 case of United Paracale Mining
Company vs. Court of Appeals,[54] posed before us by petitioner therein was the same question that herein private
respondent asks us to resolve in the ultimate. We noted in that case:

"The query of petitioner: What is actually the right of a locator of mining claim located and perfected under the
Philippine Bill of 1902. Does he have an absolute right of ownership, or merely a right to possess and claim?

Petitioner contends that there are two (2) conflicting rulings made by this Court on the same issue. In Director of
Lands vs. Kalahi Investments, Inc. (169 SCRA 683), a locator of mining claims perfected under the Philippine Bill of
1902 has been held not to have an absolute right of ownership over said claims but merely a possessory right
thereto. In Atok-Big Wedge Mining Company, Inc. vs. Court of Appeals and Liwan Consi (193 SCRA 71), however, a
locator of mining claim perfected under the Philippine Bill of 1902, the Court has ruled, does have an absolute right of
ownership over his claim being thereby removed from the public domain.[55]

In that case of United Paracale Mining, it would have been premature for us to rule on the query, not all indispensable
parties therein having been joined. That is not the situation in this present controversy, however, and so we shall
forthwith resolve the matter at hand once and for all.
The earlier chronicle of the evolution of the mining laws, past and present, in this jurisdiction was not without a
predetermined purpose. The detailing of the provisions of those laws, especially of the Philippine Bill of 1902, was
certainly deliberate. It is undeniable at this point that the determination of the rights of a mining claim holder under the
said Bill is best undertaken on the basis of the very source of those rights, that is, the Bill itself. And any alteration or
change in the nature of those rights must be conceded for as long as such is statutorily and constitutionally
sanctioned, for even vested rights may be taken away by the State in the exercise of its absolute police power.
Under the Philippine Bill of 1902, the mining claim holder, upon locating and recording of his claim, has the right
to acquire for himself all mineral deposits found within his claim to the exclusion of everyone, including the
Government. Such rights are necessarily possessory as they are essentially utilitarian and exploitative. Such rights
accruing to the mining claim locator are personal to him in the sense that no conclusion as to the nature of the land
may definitively be made based solely on the fact that a mining claim has been recorded as regards a particular

35 | P a g e
February 3, 2018 [PROPERTY]

land. However, insofar as his rights are exclusive and no other person may undertake mining activities on a recorded
mining claim, unless the same has been abandoned or the works thereon not done, the mining locators rights are
also protected against adverse mining claims of third persons. He also has the right to immediately or eventually
secure a patent on his mining claim and in the event that he postpones securing a patent, his rights to exclusive
possession and exploitation of his mining claim subsist for as long as he complies with the continuing requirement of
annually performing work or undertaking improvements at the mine site. Insofar as the Philippine Bill of 1902 does
not provide a specific time within which the mining claim holder must secure a patent, his rights to possession and
use of the mining land appear to be unconditional, the option not at all to secure a patent being available to him in the
absence of a deadline or ultimatum therefor. The Philippine Bill of 1902, however, did not foreclose a subsequent act
on the part of the State to limit the time within which the said patent must be secured under threat of forfeiture of
rights provided for under the Philippine Bill of 1902. Thus, in the sense that the rights of a mining claim holder may in
the future be curtailed by failure to obtain a patent, especially if we recall that Section 36 of the said Bill itself foretold
the subsequent promulgation of regulations regarding mining claims, such rights cannot also be said to be truly
unconditional or absolute.
We also learn from our reading of our past and present mining laws in their proper historical perspectives, that
the process of recording mining claims could not have been intended to be the operative act of classifying lands into
mineral lands. The recording of a mining claim only operates to reserve to the registrant exclusive rights to undertake
mining activities upon the land subject of the claim. The power to classify lands into mineral lands could not have
been intended under the Philippine Bill of 1902 to be vested in just anyone who records a mining claim. In fact, this
strengthens our holding that the rights of a mining claimant are confined to possessing the land for purposes of
extracting therefrom minerals in exclusion of any or all other persons whose claims are subsequent to the original
mining locator. Thus, if no minerals are extracted therefrom, notwithstanding the recording of the claim, the land is not
mineral land and registration thereof is not precluded by such recorded claim. Thus, in the case at bench, the mining
claimant, who had failed to comply with the annual minimum labor requirement, could not, all the more, be expected
to have extracted minerals from the mining location. Utter lack of proof of even its potential deposits on the part of the
petitioner, thus, does not surprise us at all.
Thus, it can be said (1) that the rights under the Philippine Bill of 1902 of a mining claim holder over his claim
has been made subject by the said Bill itself to the strict requirement that he actually performs work or undertakes
improvements on the mine every year and does not merely file his affidavit of annual assessment, which requirement
was correctly identified and declared in E.O. No. 141; and (2) that the same rights have been terminated by P.D. No.
1214, a police power enactment, under which non-application for mining lease amounts to waiver of all rights under
the Philippine Bill of 1902 and application for mining lease amounts to waiver of the right under said Bill to apply for
patent. In the light of these substantial conditions upon the rights of a mining claim holder under the Philippine Bill of
1902, there should remain no doubt now that such rights were not, in the first place, absolute or in the nature of
ownership, and neither were they intended to be so.
Applying the aforecited ruling to the facts of this case, we find that, not only has petitioner failed to sufficiently
show compliance with actual annual work requirement on its mining claims but also that credible are the transcribed
observations of the trial commissioner that nowhere on the subject land could be found tangible works or
improvements of an extent that would have existed had petitioner really complied with the annual work requirement
from 1931 when it allegedly first located said mining claims. In fact, no mining infrastructure or equipment of any sort
can be found on the area. Understandable thus is the action of the Director of Lands not to further appeal from
respondent courts decision, Director of Lands eventually conceding the subject land to be registrable, considering
petitioners non-performance of mining works thereon, private respondents adverse possession of the subject land
more than thirty (30) years and its use thereof for as many years solely for agricultural purposes.
Equally borne out by the records is the fact that petitioner has indeed applied for a mining lease under P.D. No.
1214. For that reason, it has, in effect, waived its right to secure a patent and it shall have been governed, if private
respondents claim of adverse and open possession of the subject land for more than 30 years were not established,
by P.D. No. 463 in its activities respecting its mining lease.
WHEREFORE, the petition is HEREBY DISMISSED, with costs against petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

36 | P a g e
February 3, 2018 [PROPERTY]

SYLLABUS

1. CIVIL LAW; LAND REGISTRATION; MINING CLAIMS; RIGHT OF A LOCATOR OF A MINING CLAIM LOCATED
AND PERFECTED UNDER THE PHILIPPINE BILL OF 1902 OVER THE LAND WHERE THE CLAIM IS
FOUND; A LOCATOR OF A MINING CLAIM DOES NOT HAVE AN ABSOLUTE RIGHT OF OWNERSHIP
THEREOF, BUT HAS MERELY A RIGHT TO POSSESS AND CLAIM THE SAME. We now proceed to resolve
the controlling issue in this case: Whether or not the ownership of subject land had long been vested on
petitioner after it had allegedly located and recorded its mining claim in accordance with the pertinent provisions
of the Philippine Bill of 1902.This issue is certainly not a novel one. It has been first ruled upon by this court in
1922 case of Mc Daniel vs. Apacible and Cuisia. There, applying American precedents, we stated: The moment
the locator discovered a valuable mineral deposit on the lands located, and perfected his location in accordance
with law, the power of the United States Governemnt to deprive him of the exclusive right to the possession and
enjoyment of the located claim was gone, the lands had become mineral lands and they were exempted from
lands that could be granted to any other person. The reservations of public lands cannot be made so as to
include prior mineral perfected located locations; and of course, if a valid mining location is made upon public
lands afterward included in a reservation, such inclusion or reservation does not affect the validity of the former
location. By such location and perfection, the land located is segregated from the public domain even as against
the Government. Xxx. Nothwithstanding our ruling in the said cases, however, there came about thereafter a
catena of cases where we declared that the rights of the holder of a mining claim located under the Philippine
Bill of 1902, are not absolute or are not strictly of ownership. This declaration was a necessary premise in our
affirmation of the constitutionality of P.D. No. 1214 in the 1987 case of Santa Rosa Mining Co., Inc. vs. Leido,
Jr., (156 SCRA 1) where we stated: Mere location does not mean absolute ownership over the affected land or
mining claim. It merely segregates the located land or area from the public domain by barring other would-be
locators from locating the same and appropriating for themselves the minerals found therein. To rule otherwise
would imply that location is all that is needed to acquire and maintain rights over a located mining claim. This,
we cannot approve or sanction because it is contrary to the intention of the lawmaker that the locator should
faithfully and consistently comply with the requirements for annual work and improvements in the located mining
claim. Thus, it can be said (1) that the rights under the Philippine Bill of 1902 of a mining claim holder over his
claim has been made subject by the said Bill itself to the strict requirement that he actually performs work or
undertakes improvements on the mine every year and does not merely file his affidavit of annual assessment,
which requirement was correctly identified and declared in E.O. No. 141; and (2) that the same rights have been
terminated by P.D. No. 1214, a police power enactment, under which non-application for mining lease amounts
to waiver of all rights under the Philippine Bill of 1902 and application for mining lease amounts to waiver of the
right under said Bill to apply for patent. In the light of these substantial conditions upon the rights of a mining
claim holder under the Philippine Bill of 1902, there should remain no doubt now that such rights were not, in the
first place, absolute or in the nature of ownership, and neither were they intended to be so.
2. ID.; SEEMINGLY INCONSISTENT RULING OF THIS COURT ON THE CORRECT INTERPRETATION OF THE
PHILIPPINE BILL OF 1902 IN RELATION TO E.O. NO. 141 AND P.D. 1214 INSOFAR AS THE RIGHTS OF
MINING CLAIM HOLDERS ARE CONCERNED IS HEREBY RESOLVED. This is not the first time either that we
are asked to, in all awareness of the precedents, resolve these postulations of this court that are perceived to be
contradictory. In the 1994 case of United Paracale Mining Company vs. Court of Appeals, (232 SCRA 663)
posed before us by petitioner therein was the same question that herein private respondent asks us to resolve
in the ultimate. We noted in that case: The query of petitioner: What is actually the right of a locator of mining
claim located and perfected under the Philippine Bill f 1902. Does he have an absolute right of ownership, or
merely a right to possess and claim? Petitioner contends that there are two (2) conflicting rulings made by this
Court on the same issue. In Director of Lands vs. Kalahi Investments, Inc. (169 SCRA 683), a locator of mining
claims perfected under the Philippine Bill of 1902 has been held not to have an absolute right of ownership over
said claims but merely a possessory right thereto. In Atok-Big Wedge Mining Company, Inc. vs. Court of
Appeals and Liwan Consi (193 SCRA 71), however, a locator of mining claim perfected under the Philippine Bill
of 1902, the Court has ruled, does have an absolute right of ownership over his claim being thereby removed
from the public domain. In that case of United Paracale Mining, it would have been premature for us to rule on
the query, not all indispensable parties therein having been joined. That is not the situation in this present
controversy, however, and so we shall forthwith resolve the matter at hand once and for all. The earlier
chronicle of the evolution of the mining laws, past and present, in this jurisdiction was not without a
predetermined purpose. The detailing of the provisions of those laws, especially of the Philippine Bill of 1902,
was certainly deliberate. It is undeniable at this point that the determination of the rights of a mining claim holder
under the said Bill is best undertaken on the basis of the very source of those rights must be conceded for as
long as such is statutorily and constitutionally sanctioned, for even vested rights may be taken away by the
State in the exercise of its absolute police power. Under the Philippine Bill of 1902, the mining claim holder,
upon locating and recording of his claim, has the right to acquire for himself all mineral deposits found within his

37 | P a g e
February 3, 2018 [PROPERTY]

claim to the exclusion of everyone, including the Government. Such rights are necessarily possessory as they
are essentially utilitarian and exploitative. Such rights accruing to the mining claim locator are personal to him in
the sense that no conclusion as to the nature of the land may definitively be made based solely on the fact that
a mining a claim has been recorded as regards a particular land. However, insofar as his rights are exclusive
and no other person may undertake mining activities on a recorded mining claim, unless the same has been
abandoned or the works thereon not done, the mining locators rights are also protected against adverse mining
claims of third persons, He also has the right to immediately or eventually secure a patent on his mining claim
and in the event that he postpones securing a patent, his rights to exclusive possession and exploitation of his
mining claim subsist for as long as he complies with the continuing requirement of annually performing work or
undertaking improvements at the mine site. Insofar as the Philippine Bill of 1902 does not provide a specific time
within which the mining claim holder must secure a patent, his rights to possession and use of the mining claim
holder must secure a patent, his rights to possession and use of the mining claim holder must secure a patent,
his rights to possession and use of the mining land appear to be unconditional, the option not all to secure a
patent being available to him in the absence of a deadline or ultimatum therefor. The Philippine Bill of 1902,
however, did not foreclose a subsequent act on the part of the State to limit the time within which the said patent
must be secured under threat of forfeiture of rights provided for under the Philippine Bill of 1902. Thus, in the
sense that the rights of a mining claim holder may in the future be curtailed by failure to obtain a patent,
especially if we recall that Section 36 of the said bill itself foretold and subsequent promulgation of regulations
regarding mining claims, such rights cannot also be said to be truly unconditional or absolute.
3. ID.; RECORDING OF A MINING CLAIM; NOT AN OPERATIVE ACT OF CLASSIFYING LANDS INTO MINERAL
LANDS, BUT ONLY OPERATES TO RESERVE TO THE REGISTRANT EXCLUSIVE RIGHTS TO
UNDERTAKE MINING ACTIVITIES UPON THE LAND SUBJECT TO THE CLAIM. We also learn from our
reading of our past and present mining laws in their proper historical perspectives, that the process of recording
mining claims could not have been intended to be the operative act of classifying lands into mineral lands. The
recording of a mining claim only operates to reserve to the registrant exclusive rights to undertake mining
activities upon the land subject of the claim. The power to classify lands into mineral lands could not have been
intended under the Philippine Bill of 1902 to be vested in just anyone who records a mining claim. In fact, this
strengthens our holding that the rights of a mining claimant are confined to possessing the land for purposes of
extracting therefrom minerals in exclusion of any or other persons whose claims are subsequent to the original
mining locator. Thus, if no minerals where extracted therefrom, notwithstanding the recording of the claim, the
land is not mineral land and registration thereof is not precluded by such recorded claim. Thus, in the case at
bench, the mining claimant, who had failed to comply with the annual minimum labor requirement, could not, all
the more, be expected to have extracted minerals from the mining location. Utter lack of proof of even its
potential deposits on the part of the petitioner, thus, does not surprise us at all.
4. ID.; PETITION HAVING APPLIED FOR A MINING LEASE UNDER P.D. NO. 1214, IT HAS, IN EFFECT, WAIVED
ITS RIGHT TO SECURE A PATENT. Equally born out by the records is the fact that petitioner has indeed
applied for a mining lease under P.D. No. 1214. For that reason, it has, in effect, waived its right to secure a
patent and it shall have been governed, if private respondents claim of adverse and open possession of the
subject land for more than 30 years were not established, by P.D. No. 463 in its activities respecting its mining
lease.

38 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 45859 September 28, 1938

GOLD CREEK MINING CORPORATION, petitioner,


vs.
EULOGIO RODRIGUEZ, Secretary of Agriculture and Commerce, and QUIRICO ABADILLA, Director of the
Bureau of Mines, respondents.

Claro M. Recto and DeWitt, Perkins & Ponce Enrile for petitioner.
Solicitor-General Tuason and Ramon Diokno for respondents.

ABAD SANTOS, J.:

This petition seeks to compel the respondents, as Secretary of Agriculture and Commerce and as Director of the
Bureau of Mines, respectively, to approve petitioner's application for patent for a certain mining claim and prepare the
necessary papers in relation thereto, and to forward and submit said papers for the signature of the President of the
Philippines.

The petition alleges that petitioner owns the Nob Fraction mineral claim, situated in the barrio of Gomok, municipality
of Itogon, sub-province of Benguet, Mountain Province, and located on public lands by C. L. O'Dowd in accordance
with the provisions of the Act of congress of July 1, 1902, as amended by the Act of Congress of February 6, 1905,
and of Act No. 624 of the Philippine Commission, relative to the location of mining claims; that said claim was located
on January 1, 1929, and the original declaration of location registered in the office of the mining recorder of Benguet,
Mountain Province, on January 7, 1929; that from March 16 to 17, 1934, an amended location on the premises was
made, for which an amended declaration of location was registered in the office of the mining recorder on April 3,
1934; that petitioner by itself and its predecessors in interest, has been in continuous and exclusive possession of
said claim from the date of location thereof: that prior to August 9, 1933, petitioner filed in the office of the Director of
Lands an application for an order of patent survey of said claim, which survey was duly authorized by the Secretary of
Agriculture and Commerce and performed by a mineral land surveyor in the former divisions of mines, Bureau of
Science, from August 9, 1933, to April 30, 1934, at the expense of petitioner; that the return of the surveyor, the plat
and field notes of the claim and certificate that more than P1,600 worth of labor and improvements had been
expended on said claim, were approved by the Director of the Bureau of Science; that prior to November 15, 1935,
petitioner filed with the mining recorder an application for patent, together with a certificate showing that more than
P1,600, worth of labor and/or improvements had been expended by the petitioner upon said claim, and with the plat
and field notes above mentioned; having previously posted a copy of such plat, together with notice of said
application for patent in a conspicuous place upon said claim; and filed a copy of such plat and of such notice in the
office of said mining recorder, as well as an affidavit of two persons that such notice had been duly posted; that prior
to November 15, 1935, the notice of petitioner's application for patent was forwarded by the mining recorder to the
division of mines, so that the latter could order the publication of said notice was made once a week for a period of
sixty days in the "Philippines Herald," "El Debate," and the Official Gazette, commencing February 13, 1936; that the
sum of P113.59 was tendered to respondents, as payment for the purchase price of said claim, the area of which is
4.5434 hectares; and that petitioner has requested the respondents, as Secretary of Agriculture and Commerce and
as director of the Bureau of Mines, respectively, to approve its application for patent, and to prepare the necessary
papers relative to the issuance thereof and to submit such papers for the signatures of the President of the
Philippines, but the respondents have failed and refused, and still fail and refuse, to do so.

Petitioner claims that it is entitled, as a matter of right, to the patent applied for, having complied with all the requisites
of the law for the issuance of such patent.

Respondents, in their answer, admit some allegations of the petition and deny others, and, by way of special defense,
allege that "petitioner was not and is not entitled as a matter of right to a patent to the 'Nob Fraction' claim because
the Constitution provides that 'natural resources, with the exception of public agriculture land, shall not be alienated';
and that the respondents are, not only under no obligation to approve petitioner's application for a patent to said claim
and to prepare the necessary papers in relation thereto, but, also, in duty bound to proven the issuance of said patent
and the preparation of the aforesaid papers, because they have sworn to support and defend the Constitution."

This is one of several cases now pending in this court which call for an interpretation, a determination of the meaning
and scope, of section 1 of Article XII of the Constitution, with reference to mining claims. The cases have been
instituted as test cases, with a view to determining the status, under the Constitution and the Mining Act

39 | P a g e
February 3, 2018 [PROPERTY]

(Commonwealth Act No. 137), of the holders of unpatented mining claims which were located under the provisions of
the Act of Congress of July 1, 1902, as amended.

In view of the importance of the matter, we deem it conducive to the public interest to meet squarely the fundamental
question presented, disregarding for that purpose certain discrepancies found in the pleadings filed in this case. This
is in accord with the view expressed by the Solicitor-General in his memorandum where he says that "the statements
of facts in both briefs of the petitioners may be accepted for the purpose of the legal issues raised. We deny some of
the allegations in the petitions and allege new ones in our answers, but these discrepancies are not of such a nature
or importance as should necessitate introduction of evidence before the cases are submitted for decision. From our
view of the cases, these may be submitted on the facts averred in the complaints, leaving out the difference between
the allegations in the pleadings to be adjusted or ironed out by the parties later, which, we are confident, can be
accomplished without much difficulty."

Section 1 of Article XII of the Constitution reads as follows:

SECTION 1. All agriculture, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited
to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of
which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution. Natural resources, with the exception of
public agriculture land, shall not be alienated, and no license, concession, or lease for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-
five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which cases beneficial use may
be the measure and the limit of the grant.

The fundamental principle of constitutional construction is to give effect to the intent of the framers of the organic law
and of the people adopting it. The intention to which force is to be given is that which is embodied and expressed in
the constitutional provisions prohibits the alienation of natural resources, with the exception of public agriculture land.
It seems likewise clear that the term "natural resources," as used therein, includes mineral lands of the public domain,
but not mineral lands which at the time the provision took effect no longer formed part of the public domain. The
reason for this conclusion is found in the terms of the provisions itself. It first declares that all agricultural, timber, and
mineral lands of the public domain, etc., and other natural resources of the Philippines, belong to the State. It then
provides that "their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines,
or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject
to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under
this Constitution." Next comes the prohibition against the alienation of natural resources. This prohibition is directed
against the alienation of such natural resources as were declared to be the property of the State. And as only
"agricultural, timber, and mineral lands of the public domain" were declared property of the State, it is fair to conclude
that mineral lands which at the time the constitutional provision took effect no longer formed part of the public domain,
do not come within the prohibition.

This brings us to the inquiry of whether the mining claim involved in the present proceeding formed part of the public
domain on November 15, 1935, when the provisions of Article XII of the Constitution became effective in accordance
with section 6 of Article XV thereof. In deciding this point, it should be borne in mind that a constitutional provisions
must be presumed to have been framed and adopted in the light and understanding of prior and existing laws and
with reference to them. "Courts are bound to presume that the people adopting a constitution are familiar with the
previous and existing laws upon the subjects to which its provisions relate, and upon which they express their
judgment and opinion in its adoption." (Barry vs. Truax, 13 N. D., 131; 99 N. W., 769; 65 L. R. A., 762.)

It is not disputed that the location of the mining claim under consideration was perfected prior to November 15, 1935,
when the Government of the Commonwealth was inaugurated; and according to the laws existing at that time, as
construed and applied by this court in McDaniel vs. Apacible and Cuisia (42 Phil., 749), a valid location of a mining
claim segregated the area from the public domain. Said the court in that case: "The moment the locator discovered a
valuable mineral deposit on the lands located, and perfected his location in accordance with law, the power of the
United States Government to deprive him of the exclusive right to the possession and enjoyment of the located claim
was gone, the lands had become mineral lands and they were exempted from lands that could be granted to any
other person. The reservations of public lands cannot be made so as to include prior mineral perfected locations; and,
of course, if a valid mining location is made upon public lands afterward included in a reservation, such inclusion or

40 | P a g e
February 3, 2018 [PROPERTY]

reservation does not effect the validity of the former location. By such location and perfection, the land located is
segregated from the public domain even as against the Government . (Union Oil Co. vs. Smith, 249 U. S., 337; Van
Ness vs. Rooney, 160 Cal., 131; 27 Cyc., 546.)"

The legal effect of a valid location of a mining claim is not only to segregate the area from the public domain, but to
grant to the locator the beneficial ownership of the claim and the right to a patent therefor upon compliance with the
terms and conditions prescribed by law. "Where there is a valid location of a mining claim, the area becomes
segregated from the public domain and the property of the locator." (St. Louis Mining & Milling Co. vs. Montana
Mining Co., 171 U. S., 650, 655; 43 Law. ed., 320, 322.) "When a location of a mining claim is perfected it has the
effect of a grant by the United States of the right of present and exclusive possession, with the right to the exclusive
enjoyment of all the surface ground as well as of all the minerals within the lines of the claim, except as limited by the
extralateral rights of adjoining locators; and this is the locator's right before as well as after the issuance of the patent.
While a lode locator acquires a vested property right by virtue of his location made in compliance with the mining
laws, the fee remains in the government until patent issues." (18 R. C. L., 1152.) In Noyes vs. Mantle (127 U. S., 348,
351; 32 Law. ed., 168, 170), the court said:

There is no pretense in this case that the original locators did not comply with all the requirements of the law
in making the location of the Pay Streak Lode Mining claim, or that the claim was ever abandoned or
forfeited. They were the discoverers of the claim. They marked its boundaries by stakes, so that they could
be readily traced. They posted the required notice, which was duly recorded in compliance with the
regulations of the district. They had thus done all that was necessary under the law for the acquisition of an
exclusive right to the possession and enjoyment of the ground. The claim was thenceforth their property.
They needed only a patent of the United States to render their title perfect, and that they could obtain at any
time upon proof of what they had done in locating the claim, and of subsequent expenditures to specified
amount in developing it. Until the patent issued the government held the title in trust for the locators or their
vendees. The ground itself was not afterwards open to sale.

In a recent case decided by the Supreme Court of the United States, it was said:

The rule established by innumerable decisions of this court, and of state and lower Federal courts, that when
the location of a mining claim is perfected under the law, it has the effect of a grant by the United States of
the right of present and exclusive possession. The claim is property in the fullest sense of that term; and
may be sold, transferred, mortgaged, and inherited without infringing any right or title of the United States.
The right of the owner is taxable by the state; and is "real property," subject to the lien of a judgment
recovered against the owner in a state or territorial court. (Belk vs. Neagher, 104 U. S., 279, 283; 26 L. ed.,
737, 737; 1 Mor. Rep., 510; Manuel vs. Wulff, 152 U. S., 505, 510, 511; 38 L. ed., 532-534; 14. Sup. Ct.
Rep., 651; 18 Mor. Min. Rep., 85; Elder vs. Wood, 208 U. S., 226, [317] 232; 52 L. ed., 464, 466; 28 Sup. Ct.
Rep., 263; Bradford vs. Morrison, 212 U. S., 389; 53 L. ed., 564; 29 Sup. Ct. Rep., 349.) The owner is not
required to purchased the claim or secure patent from the United states; but so long as he complies with the
provisions of the mining laws, his possessory right, for all practical purposes of ownership, is as good as
though secured by patent. (Wilbur vs. United States ex rel. Krushnic, 280 U. S., 306; 74 Law. ed., 445.)

The Solicitor-General admits in his memorandum that the decision in the McDaniel case in determinative of the
fundamental question involved in the instant case. But he maintains "that this decision is based on a
misapprehension of the authorities on which the court relied," and that it "is not well founded and should be
abandoned." We do not deem it necessary to belabor this point. Whether well founded or not, the decision in that
case was the law when section 1 Article XII of the Constitution became effective; and even if we were disposed to
overrule that decision now, our action could not affect rights already fixed under it.

Our conclusion is that, as the mining claim under consideration no longer formed part of the public domain when the
provisions of Article XII of the Constitution became effective, it does not come within the prohibition against the
alienation of natural resources; and the petitioner has the right to a patent therefor upon compliance with the terms
and conditions prescribed by law.

It remains to consider whether mandamus is the proper remedy in this case. In Wilbur vs. United States ex rel.
Krushnic, supra, the Supreme Court of the United States held that "mandamus will lie to compel the secretary of the
Interior to dispose of an application for a patent for a mining claim on its merits, where his refusal to do so is based on
his misinterpretation of a statute." In the course of its decision the court said: "While the decision of this court exhibit a
reluctance to direct a writ of mandamus against an executive officer, they recognize the duty to do so by settled
principles of law in some cases. (Lane vs. Hoglund, 244 U. S., 174, 181; 61 L. ed., 1066, 1069; 37 Sup. Ct. Rep.,

41 | P a g e
February 3, 2018 [PROPERTY]

552; and case cited.) In Roberts vs. United States (176 U. S., 221, 231; 44 L. ed., 443, 447; 20 Sup. Ct. Rep., 376),
referred to and quoted in the Hoglund case, this court said:

"Every statute to some extent requires constructions by the public officer whose duties may be defined
therein. Such officer must read the law, and he must therefore, in a certain sense, construe it, in order to
form a judgment from its languages what duty he is directed by the statute to perform. But that does not
necessarily and in all cases make the duty of the officer anything other than a purely ministerial one. If the
law direct him to perform an act in regard to which no discretion is committed to him, and which, upon the
facts existing, he is bound to perform, then that act is ministerial, although depending upon a statute which
requires, in some degree a construction of its language by the officer. Unless this be so, the value of this writ
is very greatly impaired. Every executive officer whose duty is plainly devolved upon him by a statute might
refuse to perform it, and hen his refusal is brought before the court he might successfully plead that the
performance of the duty involved the construction of a statute by him, and therefore it as not ministerial, and
the court could on that account be powerless to give relief. Such a limitation of the powers of the court, we
think, would be most unfortunate, as it would relieve from judicial supervision all executive officers in the
performance of their duties whenever they should plead that the duty required of them arose upon the
construction of a statute, no matter how plain its language, nor how plainly they violated their duty in refusing
to perform the act required."

In the instant case, we are not justified, upon the state of the pleadings, to grant the relief sought by the petitioner.
Considering, however, that the refusal of the respondents to act on the application for a patent on its merits as due to
their misinterpretation of certain constitutional and statutory provisions, following the precedent established by the
Supreme Court of the United States in Wilbur vs. United States ex rel. Krushnic, supra, a writ of mandamus should
issue directing the respondents to dispose of the application for patent on its merits, unaffected by the prohibition
against the alienation of natural resources contained in section 1 of Article XII of the constitution and in
Commonwealth Act No. 137. So ordered.

Avanceña, C.J., Villa-Real, Imperial and Diaz, JJ., concur.

42 | P a g e
February 3, 2018 [PROPERTY]

[G.R. No. 124242. January 21, 2005]

SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S.


BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.

DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla,
(hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-
39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta,
(hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of
fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date.
Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in
his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses
about having received information that the spouses sold the same property to another without his knowledge and
consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the
property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the
balance of the purchase price became due, he requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of
San Pedro, Laguna, a Complaint for Specific Performance and Damages[1] against his co-respondents herein, the
Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by
the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final
deed of sale in his favor, respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total
advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and
consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to
Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the
balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total
payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly
failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta
had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per
square meter and when the Spouses Lu refused to grant Babasantas request, the latter rescinded the contract to sell
and declared that the original loan transaction just be carried out in that the spouses would be indebted to him in the
amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank
Managers Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 1990[3] wherein he prayed for the issuance of a
writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba,
Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the
transfer or conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended complaint contending that it raised new matters which
seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17
January 1990[5] admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for
Intervention[6] before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a
Deed of Absolute Sale with Mortgage.[7] It alleged that it was a buyer in good faith and for value and therefore it had a
better right over the property in litigation.
In his Opposition to SLDCs motion for intervention,[8] respondent Babasanta demurred and argued that the latter
had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him

43 | P a g e
February 3, 2018 [PROPERTY]

by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of
land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed
its Complaint-in-Intervention on 19 April 1990.[9] Respondent Babasantas motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11 January 1991[10] conditioned upon his filing of a
bond in the amount of fifty thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor
an Option to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the purchase of
the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the
Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00)
they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of
title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis
pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January
1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good faith, SLDC
argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because
Babasantas claims were not annotated on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to
SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal
interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the complaint-in-
intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendensannotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register
the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession
of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of
the property to the latter. It concluded that symbolic possession could be considered to have been first transferred to
SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the
trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by
the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred
in failing to consider that the contract to sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses
Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to
sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu.
They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding
damages in his favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision[11] which set aside the judgment of the trial court.
It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses
to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the
purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that
the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a
purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest
and to pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court. [12] However, in
a Manifestation dated 20 December 1995,[13] the Spouses Lu informed the appellate court that they are no longer
contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate court considered as withdrawn the motion for
reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court
denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were raised therein
which would warrant modification or reversal of the courts decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:

44 | P a g e
February 3, 2018 [PROPERTY]

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH
BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE
ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED
PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA
HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR
INTERESTS IN THE DISPUTED PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE
FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL
COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH. [15]

SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over
the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to
Pacita Lu upon the latters representation that she needed the money to pay her obligation to Babasanta. It argued
that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos
(P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due
from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance
did Pacita Lu inform it that the lands had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the
property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership.
Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had
every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to
determine the condition of the property. Invoking the presumption of good faith, it added that the burden rests on
Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the
notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated
on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that
due to financial constraints they have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals.[16]
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property
because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the
time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on
the titles of the property made as early as 2 June 1989. Hence, petitioners registration of the sale did not confer upon
it any right. Babasanta further asserted that petitioners bad faith in the acquisition of the property is evident from the
fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos
(P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better
right over the two parcels of land subject of the instant case in view of the successive transactions executed by the
Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita
Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm
lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. [17] While the receipt signed by Pacita did not mention
the price for which the property was being sold, this deficiency was supplied by Pacita Lus letter dated 29 May
1989[18]wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00)
per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads
to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract
of sale.

45 | P a g e
February 3, 2018 [PROPERTY]

Contracts, in general, are perfected by mere consent, [19] which is manifested by the meeting of the offer and the
acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance
absolute.[20] Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present.[21]
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00)
from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full payment of the price which is a
distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for
the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly
refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to
him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer
title, they could have easily executed the document of sale in its required form simultaneously with their acceptance
of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as
a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full payment of the price.[22] In a contract of sale, the vendor has
lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective.[23]
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price.
There being an obligation to pay the price, Babasanta should have made the proper tender of payment and
consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention
to pay without the accompanying payment is not considered a valid tender of payment. [24] Consignation of the
amounts due in court is essential in order to extinguish Babasantas obligation to pay the balance of the purchase
price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper
consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired
obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a contract to sell,
Babasantas claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent [25] and from that moment, the parties may
reciprocally demand performance.[26] The essential elements of a contract of sale, to wit: (1) consent or meeting of
the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established.[27]
The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the
legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by
which to affect dominion or ownership.[28] Under Article 712 of the Civil Code, ownership and other real rights over
property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence
of certain contracts, by tradition. Contracts only constitute titles or rights to the transfer or acquisition of ownership,
while delivery or tradition is the mode of accomplishing the same. [29] Therefore, sale by itself does not transfer or
affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as
a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Article 1497 to 1501. [30] The word delivered should not be taken
restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of
delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the vendee. [31] Legal or
constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public
instrument evidencing the sale;[32] symbolical tradition such as the delivery of the keys of the place where the
movable sold is being kept;[33] traditio longa manu or by mere consent or agreement if the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale; [34] traditio brevi manu if the buyer already had

46 | P a g e
February 3, 2018 [PROPERTY]

possession of the object even before the sale;[35] and traditio constitutum possessorium, where the seller remains in
possession of the property in a different capacity.[36]
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the
receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive
delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at
any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he
was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the
perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of
delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold. [37]
However, it must be stressed that the juridical relationship between the parties in a double sale is primarily
governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property.
It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of
double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good faith, shall be deemed the owner. [38] Verily, the act of
registration must be coupled with good faith that is, the registrant must have no knowledge of the defect or lack of title
of his vendor or must not have been aware 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. [39]
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasantas
claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer
upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that
at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the
Register of Deeds, the same having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery
and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in favor of
Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of
SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of the
agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute
Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the
Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer
and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis
pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys 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 such purchase, or before he
has notice of the claim or interest of some other person in the property. [40] Following the foregoing definition, we rule
that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of
the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the
registered owners of the property and were in fact in possession of the lands. Time and again, this Court has ruled
that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is
charged with notice of burdens on the property which are noted on the face of the register or on the certificate of
title.[41] In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on

47 | P a g e
February 3, 2018 [PROPERTY]

the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529)
which reads, thus:

Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register
of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the
time of such registering, filing, or entering.

However, the constructive notice operates as suchby the express wording of Section 52from the time of the
registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in
favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over
the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the
notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v. Esteban,[42] serves as
a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should
keep his hands off the same, unless he intends to gamble on the results of the litigation. Precisely, in this case SLDC
has intervened in the pending litigation to protect its rights. Obviously, SLDCs faith in the merit of its cause has been
vindicated with the Courts present decision which is the ultimate denouement on the controversy.
The Court of Appeals has made capital [43] of SLDCs averment in its Complaint-in-Intervention[44] that at the
instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony of
Pacita Lu herself on cross-examination.[45] However, there is nothing in the said pleading and the testimony which
explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that
the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took
place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis
pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim could not
prevail over that of SLDCs. In Abarquez v. Court of Appeals,[46] this Court had the occasion to rule that if a vendee in
a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there
is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee,
Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court
awarded the property to the Israels because registration of the property by Abarquez lacked the element of good
faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in
favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the
property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no
knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta.
The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there
being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third
priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the
property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time,
SLDCs right is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in
this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to
sell. In Dichoso v. Roxas,[47] we had the occasion to rule that Article 1544 does not apply to a case where there was a
sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was no double sale of the same land in that
case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is
REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is
REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

48 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of


2
Appeals involving questions in the resolution of which the respondent appellate court analyzed and
interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the respondent
court reversed the trial court3 which, in dismissing the complaint for specific performance with damages and
annulment of contract,4 found the option clause in the lease contracts entered into by private respondent
Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to
be impossible of performance and unsupported by a consideration and the subsequent sale of the subject
property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been made without
any breach of or prejudice to, the said lease contracts. 5

We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located
at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the
Register of Deeds of Manila.

On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a
portion of Carmelo's property particularly described, to wit:

A PORTION OF THE SECOND FLOOR of the two-storey building, situated at


C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters.

THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at


C.M. Recto Avenue, Manila, with a floor area of 150 square meters.

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair
thereafter constructed on the leased property a movie house known as "Maxim Theatre."

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo
for the lease of another portion of Carmelo's property, to wit:

A PORTION OF THE SECOND FLOOR of the two-storey building, situated at


C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.

THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of
the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area
of 300 square meters and bearing street numbers 1871 and 1875,

for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up
another movie house known as "Miramar Theatre" on this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which reads:

That if the LESSOR should desire to sell the leased premises, the LESSEE shall
be given 30-days exclusive option to purchase the same.

49 | P a g e
February 3, 2018 [PROPERTY]

In the event, however, that the leased premises is sold to someone other than
the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof.

Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M.
Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy
the property for Six to Seven Million Pesos.

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair
replied through a letter stating as follows:

It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's
Mr. Henry Yang through the telephone that your company desires to sell your
above-mentioned C.M. Recto Avenue property.

Under your company's two lease contracts with our client, it is uniformly provided:

8. That if the LESSOR should desire to sell the leased premises the LESSEE
shall be given 30-days exclusive option to purchase the same. In the event,
however, that the leased premises is sold to someone other than the LESSEE,
the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and obligates
itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions hereof (sic).

Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in
acquiring not only the leased premises but "the entire building and other improvements if the price
is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second
letter.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building,
which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.

In September 1978, Mayfair instituted the action a quo for specific performance and annulment of
the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and
affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto
Avenue property and offered the same to Mayfair, but the latter answered that it was interested
only in buying the areas under lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of
consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option
is void for lack of consideration (sic) and is unenforceable by reason of its impossibility of
performance because the leased premises could not be sold separately from the other portions of
the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase
of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's
claims.

During the pre-trial conference held on January 23, 1979, the parties stipulated on the following:

1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;

50 | P a g e
February 3, 2018 [PROPERTY]

2. That in both contracts of lease there appear (sic) the stipulation granting the
plaintiff exclusive option to purchase the leased premises should the lessor
desire to sell the same (admitted subject to the contention that the stipulation is
null and void);

3. That the two buildings erected on this land are not of the condominium plan;

4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the
contracts of lease constitute the consideration for the plaintiff's occupancy of the
leased premises, subject of the same contracts of lease, Exhibits A and B;

xxx xxx xxx

6. That there was no consideration specified in the option to buy embodied in the
contract;

7. That Carmelo & Bauermann owned the land and the two buildings erected
thereon;

8. That the leased premises constitute only the portions actually occupied by the
theaters; and

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty
is the land and the two buildings erected thereon.

xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion
of which reads as follows:

WHEREFORE, judgment is hereby rendered:

(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way
of attorney's fees on its counterclaim;

(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of areas not covered by the contract (sic) of
lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal interest
from July 31, 1978; P70,000 00 per month as reasonable compensation for the
use of the premises covered by the contracts (sic) of lease dated (June 1, 1967
from June 1, 1987 until plaintiff vacates the premises plus legal interest from
June 1, 1987; P55,000.00 per month as reasonable compensation for the use of
the premises covered by the contract of lease dated March 31, 1969 from March
30, 1989 until plaintiff vacates the premises plus legal interest from March 30,
1989; and P40,000.00 as attorney's fees;

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo &


Bauermann.

The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
expired and all persons claiming rights under these contracts are directed to
vacate the premises.6

51 | P a g e
February 3, 2018 [PROPERTY]

The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an
option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct
consideration therefor.

The court a quo ratiocinated:

Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of
lease is not supported by a separate consideration. Without a consideration, the option is therefore
not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The
option invoked by the plaintiff appears in the contracts of lease . . . in effect there is no option, on
the ground that there is no consideration. Article 1352 of the Civil Code, provides:

Contracts without cause or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good custom, public order or
public policy.

Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:

When the offeror has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration, as something paid or
promised.

in relation with Article 1479 of the same Code:

A promise to buy and sell a determine thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determine thing for a price


certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
establishes the existence of a distinct consideration. In other words, the promisee has the burden
of proving the consideration. The consideration cannot be presumed as in Article 1354:

Although the cause is not stated in the contract, it is presumed that it exists and
is lawful unless the debtor proves the contrary.

where consideration is legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more specifically by Article 1479
whereby the promisee has the burden of proving the existence of consideration distinct from the
price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of
Article 1479 refers to sales in particular, and, more specifically, to an accepted
unilateral promise to buy or to sell. In other words, Article 1479 is controlling in
the case at bar.

(2) In order that said unilateral promise may be binding upon the promissor,
Article 1479 requires the concurrence of a condition, namely, that the promise be
supported by a consideration distinct from the price.

Accordingly, the promisee cannot compel the promissor to comply with the
promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such

52 | P a g e
February 3, 2018 [PROPERTY]

consideration. Plaintiff herein has not even alleged the existence thereof in his
complaint. 7

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former.

Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of
Appeals. Respondent appellate court reversed the court a quo and rendered judgment:

1. Reversing and setting aside the appealed Decision;

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to
execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair
of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and

4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between the defendants-appellants Carmelo & Bauermann,
Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the parties.8

Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated
between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case,
and concluded that since paragraph 8 of the two lease contracts does not state a fixed price for the
purchase of the leased premises, which is an essential element for a contract of sale to be perfected, what
paragraph 8 is, must be a right of first refusal and not an option contract. It explicated:

Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of
the Civil Code.

Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept
within a certain period. Under this article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted the offer. However, the offer
cannot be withdrawn by the offeror within the period if a consideration has been promised or given
by the offeree in exchange for the privilege of being given that period within which to accept the
offer. The consideration is distinct from the price which is part of the offer. The contract that arises
is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing
Bouvier, defined an option as follows: "A contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of buying from or selling to B, certain
securities or properties within a limited time at a specified price," (pp. 686-7).

Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral
promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee
if the promise is supported by a consideration distinct from the price." That "unilateral promise to
buy or to sell a determinate thing for a price certain" is called an offer. An "offer", in laws, is a
proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer,
the proposal must be certain as to the object, the price and other essential terms of the contract
(Art. 1319, Civil Code).

Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days
exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324
and 1479, second paragraph, of the Civil Code. Although the provision is certain as to the object
(the sale of the leased premises) the price for which the object is to be sold is not stated in the
provision Otherwise stated, the questioned stipulation is not by itself, an "option" or the "offer to
sell" because the clause does not specify the price for the subject property.

53 | P a g e
February 3, 2018 [PROPERTY]

Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid and binding stipulation. W hat the trial court
failed to appreciate was the intention of the parties behind the questioned proviso.

xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in a contract of lease. Even
appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at
the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell
the leased property. This intention of the parties is achieved in two ways in accordance with the
stipulation. The first is by giving Mayfair "30-days exclusive option to purchase" the leased
property. The second is, in case Mayfair would opt not to purchase the leased property, "that the
purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the
terms and conditions thereof."

In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair
"30-days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the
opportunity to purchase and acquire the leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it
had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the
property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the
latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling
the leased property to third parties. The right vested in Mayfair is analogous to the right of first
refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should receive any offer from third parties to
purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that
offer.

In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made
the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:

Q Can you tell this Honorable Court how you made the offer to
Mr. Henry Yang by telephone?

A I have an offer from another party to buy the property and


having the offer we decided to make an offer to Henry Yang on
a first-refusal basis. (TSN November 8, 1983, p. 12.).

and on cross-examination:

Q When you called Mr. Yang on August 1974 can you


remember exactly what you have told him in connection with
that matter, Mr. Pascal?

A More or less, I told him that I received an offer from another


party to buy the property and I was offering him first choice of
the enter property. (TSN, November 29, 1983, p. 18).

We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties.9

Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of
distinct consideration indispensable in an option contract, has no application, respondent appellate court
also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and
effective, it is impossible of performance because it covered only the leased premises and not the entire
Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in question. The Court
of Appeals ruled as to this issue in this wise:

54 | P a g e
February 3, 2018 [PROPERTY]

We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the
Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the
information submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not been
controverted by the appellees, and which We, therefore, take judicial notice of the two theaters
stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT No.
118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the
whole Recto property demonstrates the legal and physical possibility that each parcel of land,
together with the buildings and improvements thereof, could have been sold independently of the
other parcels.

At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the remainder
of the whole Recto property. The peculiar language of the stipulation would tend to limit Mayfair's
right under paragraph 8 of the Contract of Lease to the acquisition of the leased areas only. Indeed,
what is being contemplated by the questioned stipulation is a departure from the customary
situation wherein the buildings and improvements are included in and form part of the sale of the
subjacent land. Although this situation is not common, especially considering the non-condominium
nature of the buildings, the sale would be valid and capable of being performed. A sale limited to
the leased premises only, if hypothetically assumed, would have brought into operation the
provisions of co-ownership under which Mayfair would have become the exclusive owner of the
leased premises and at the same time a co-owner with Carmelo of the subjacent land in proportion
to Mayfair's interest over the premises sold to it.10

Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of
respondent Court of Appeals on the basis of the following assigned errors:

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE
IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN
DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH
CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE
PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.

II

WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN


DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.

III

THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF


ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF
THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.

IV

THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE".11

55 | P a g e
February 3, 2018 [PROPERTY]

We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in
the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we already took
note of this matter and set out the proper applicable procedure to be the following:

On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-
complaint to this Court alleging certain irregularities and infractions committed by certain lawyers,
and Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No.
32918 (now G.R. No. 106063). This partakes of the nature of an administrative complaint for
misconduct against members of the judiciary. While the letter-complaint arose as an incident in
case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof should be separate
and independent from Case G.R. No. 106063. However, for purposes of receiving the requisite
pleadings necessary in disposing of the administrative complaint, this Division shall continue to
have control of the case. Upon completion thereof, the same shall be referred to the Court En
Banc for proper disposition.13

This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate subject for an administrative complaint based on misconduct
by the lawyers and justices implicated therein, it is the correct, prudent and consistent course of action not to
pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a
discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the players therein.

In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in
the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court
and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as
Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.

Both contracts of lease in question provide the identically worded paragraph 8, which reads:

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of
Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.14

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right
of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of
first refusal.

As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our characterization of an option
contract as one necessarily involving the choice granted to another for a distinct and separate consideration
as to whether or not to purchase a determinate thing at a predetermined fixed price.

It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4,
1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck
the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of
three months and for its assessed valuation, a grant which necessarily implied the offer or
obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period
and for the price mentioned . . . There was, therefore, a meeting of minds on the part of the one
and the other, with regard to the stipulations made in the said document. But it is not shown that
there was any cause or consideration for that agreement, and this omission is a bar which
precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, . . .
there can be no contract without the requisite, among others, of the cause for the obligation to be
established.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:

56 | P a g e
February 3, 2018 [PROPERTY]

A contract by virtue of which A, in consideration of the payment of a certain


sum to B, acquires the privilege of buying from, or selling to B, certain securities
or properties within a limited time at a specified price. (Story vs. Salamon, 71
N.Y., 420.)

From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24
Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:

An agreement in writing to give a person the option to purchase lands within a


given time at a named price is neither a sale nor an agreement to sell. It is simply
a contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time. He
does not sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor an agreement that
he shall have lands, but he does get something of value; that is, the right to call
for and receive lands if he elects. The owner parts with his right to sell his lands,
except to the second party, for a limited period. The second party receives this
right, or, rather, from his point of view, he receives the right to elect to buy.

But the two definitions above cited refer to the contract of option, or, what amounts to the same
thing, to the case where there was cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.

Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square
meter upon failure to make the purchase within the time specified; 17 in one other case we freed the landowner from
her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such option was
not supported by a distinct consideration;18 in the same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of consideration; 19 and as an
exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the
leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal
contracts, like lease, the obligation or promise of each party is the consideration for that of the other. 20 In all these
cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract
or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of
Appeals21 that:

. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. . . .

57 | P a g e
February 3, 2018 [PROPERTY]

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price


certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price. (1451a).

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise


(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract
is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule
is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in
South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Parañaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to
a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed period. The option, however, is
an independent contract by itself; and it is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter
may not sue for specific performance on the proposed contract ("object" of the option) since it has
failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the opinion. . .

In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two
lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of the
second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease
contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.

58 | P a g e
February 3, 2018 [PROPERTY]

There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which
would bring them into the ambit of the usual offer or option requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It
is a separate and distinct contract from that which the parties may enter into upon the consummation of the
option. It must be supported by consideration.22 In the instant case, the right of first refusal is an integral part
of the contracts of lease. The consideration is built into the reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article
1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual or
"inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The
Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the
benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy
the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract
of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair
is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match
the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino
vs. Palarca,23 in reciprocal contract, the obligation or promise of each party is the consideration for that of
the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to
be that of a contractual grant of the right of first refusal to Mayfair.

We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and
Equatorial.

The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals.24

First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".

What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the
right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There
was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however,
did not pursue the exercise to its logical end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at
least an interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive
option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then
sold, without prior notice to Mayfair, the entire Claro M Recto property to Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.

. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil
Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to
third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for
they had substantial interests that were prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparation for damages caused to them by a contract, even if this should
be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. It is a relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract may cause, or to protect some

59 | P a g e
February 3, 2018 [PROPERTY]

incompatible and preferent right created by the contract. Rescission implies a contract which, even
if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for
reasons of equity.

It is true that the acquisition by a third person of the property subject of the contract is an obstacle
to the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be regarded as acquired lawfully and in good
faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically
admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the
subject property at the time it was sold to it. Although the Contract of Lease was not annotated on
the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more
binding than presumed notice by registration.

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 such purchase or before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and
such knowledge should have cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease. Assuming this to be true, we nevertheless agree with the observation of the respondent
court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,


which includes Par. 20 on priority right given to the Bonnevies, it had only itself to
blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to show
to it the Contract of Lease in which Par. 20 is contained.25

Petitioners assert the alleged impossibility of performance because the entire property is indivisible property.
It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and
fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect
by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal.
A valid and legal contract where the ascendant or the more important of the two parties is the landowner
should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner.
Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its
rights, the right of first refusal should include not only the property specified in the contracts of lease but also
the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted
in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of
Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate
within the 30-day period.

Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of the offer under the right of first
refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion
vs. Court of Appeals should be modified, if not amplified under the peculiar facts of this case.

60 | P a g e
February 3, 2018 [PROPERTY]

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad
faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact,
as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract
of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would prejudice its own interests.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so there should be no piecemeal determination of this
case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations
of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all injury and damage the contract
may cause or to protect some incompatible and preferred right by the contract. 26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period.27

This Court has always been against multiplicity of suits where all remedies according to the facts and the
law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which
Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no
dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The
fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled
to accept or reject which is P11,300,000.00. This is clear from the records.

To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter
of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate
to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of
Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the river. Why should
Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed.
After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an
increased price?

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to
execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations
governed not by the law on contracts but by the codal provisions on human relations. This may apply here if
the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to
first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which
created the obligation. It should be enforced according to the law on contracts instead of the panoramic and
indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to
execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then to Mayfair, at the price when that offer
should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is
it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms.

On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind
that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract
entered into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and
full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant
of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for
the property. It has used the P11,300,000.00 all these years earning income or interest from the amount.
Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned
over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no
obligation to pay any interests arising from this judgment to either Carmelo or Equatorial.

61 | P a g e
February 3, 2018 [PROPERTY]

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-
G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo &
Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is
directed to execute the deeds and documents necessary to return ownership to Carmelo and Bauermann of
the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots
for P11,300,000.00.

SO ORDERED.

Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur.

Narvasa, C.J., took no part.

62 | P a g e
February 3, 2018 [PROPERTY]

[G.R. No. 117187. July 20, 2001]

UNION MOTOR CORPORATION, petitioner-appellant, vs. THE COURT OF APPEALS, JARDINE-MANILA


FINANCE, INC., SPOUSES ALBIATO BERNAL and MILAGROS BERNAL, respondents-appelles.

DECISION
DE LEON, JR., J.:

Before us on appeal, by way of a petition for review on certiorari, is the Decision[1] dated March 30, 1994 and
Resolution[2] dated September 14, 1994 of the Court of Appeals [3] which affirmed the Decision dated March 6, 1989 of
the Regional Trial Court of Makati, Metro Manila, Branch 150, in Civil Case No. 920 as well as its Resolution dated
September 14, 1994 which denied the Motion for Reconsideration of the petitioner.
The facts are as follows:
On September 14, 1979, the respondent Bernal spouses purchased from petitioner Union Motor Corporation
one Cimarron Jeepney for Thirty Seven Thousand Seven Hundred Fifty Eight Pesos and Sixty Centavos
(P37,758.60) to be paid in installments. For this purpose, the respondent spouses executed a promissory note and a
deed of chattel mortgage in favor of the petitioner. Meanwhile, the petitioner entered into a contract of assignment of
the promissory note and chattel mortgage with Jardine-Manila Finance, Inc. Through Manuel Sosmea, an agent of
the petitioner, the parties agreed that the respondent spouses would pay the amount of the promissory note to
Jardine-Manila Finance, Inc., the latter being the assignee of the petitioner. To effectuate the sale as well as the
assignment of the promissory note and chattel mortgage, the respondent spouses were required to sign a notice of
assignment, a deed of assignment, a sales invoice, a registration certificate, an affidavit, and a disclosure
statement. The respondent spouses were obliged to sign all these documents for the reason that, according to
Sosmea, it was a requirement of petitioner Union Motor Corporation and Jardine-Manila Finance, Inc. for the
respondent spouses to accomplish all the said documents in order to have their application approved. Upon the
respondent spouses tender of the downpayment worth Ten Thousand Thirty-Seven Pesos (P10,037.00), and the
petitioners acceptance of the same, the latter approved the sale. Although the respondent spouses have not yet
physically possessed the vehicle, Sosmea required them to sign the receipt as a condition for the delivery of the
vehicle.
The respondent spouses continued paying the agreed installments even if the subject motor vehicle remained
undelivered inasmuch as Jardine-Manila Finance, Inc. promised to deliver the subject jeepney. The respondent
spouses have paid a total of Seven Thousand Five Hundred Seven Pesos (P7,507.00) worth of installments before
they discontinued paying on account of non-delivery of the subject motor vehicle. According to the respondent
spouses, the reason why the vehicle was not delivered was due to the fact that Sosmea allegedly took the subject
motor vehicle in his personal capacity.
On September 11, 1981, Jardine-Manila Finance, Inc., filed a complaint for a sum of money, docketed as Civil
Case No. 42849, against the respondent Bernal spouses before the then Court of First Instance of Manila. This case
was later on transferred to the Regional Trial Court of Makati, Branch 150. On November 10, 1981, the complaint was
amended to include petitioner Union Motor Corporation as alternative defendant, the reason being that if the
respondent spouses refusal to pay Jardine-Manila Finance, Inc. was due to petitioners non-delivery of the unit, the
latter should pay Jardine-Manila Finance, Inc. what has been advanced to the petitioner. After the petitioner filed its
answer, the respondent spouses filed their amended answer with cross-claim against the former and counterclaim
against Jardine-Manila Finance, Inc. Following the presentation of evidence of Jardine-Manila Finance, Inc., the
respondent spouses presented as witnesses Albiato Bernal and Pacifico Tacub in support of their defense and
counterclaim against the plaintiff and cross-claim against the petitioner. The petitioner did not present any evidence
inasmuch as the testimony of the witness it presented was ordered stricken off the record for his repeated failure to
appear for cross-examination on the scheduled hearings. The trial court deemed the presentation of the said witness
as having been waived by the petitioner.
On March 6, 1989, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering:

1. Plaintiff to pay spouses Bernals the sum of P7,507.15 plus legal interest until fully paid;
2. Union Motor Corporation to pay defendants spouses Bernals the downpayment in the amount of
P10,037.00, plus legal interest until fully paid;

63 | P a g e
February 3, 2018 [PROPERTY]

3. Union Motor Corporation to pay plaintiff P23,268.29, plus legal interest until fully paid, and attorneys
fees equivalent to 20% of the amount due to plaintiff.

Union Motor Corporation shall further pay defendants spouses Bernals the sum of P20,000.00 as moral damages,
P10,000.00 as attorneys fees and costs of suit.[4]

The petitioner interposed an appeal before the Court of Appeals while the respondent spouses appealed to hold
the petitioner solidarily liable with Jardine-Manila Finance, Inc. The appellate court denied both appeals and affirmed
the trial courts decision by holding that:

Now, as to the appeal of defendant Union Motors, it must be noted that said defendant had failed to adduce evidence
in court to support its claim of non-liability. We cannot see how the absence of any evidence in favor of said
defendant can result in favorable reliefs to its side on appeal. There is simply no evidence to speak of in appellant
Union Motors favor to cause a reversal of the lower courts decision. In the case of Tongson v. C.A. G.R. No. 77104,
Nov. 6, 1992, the Supreme Court reiterated that:

As mandated by the Rules of Court, each party must prove his own affirmative allegation, i.e., one who
asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence
required by law to obtain a favorable judgment: by preponderance of evidence in civil cases, and by proof
beyond reasonable doubt in criminal cases. x x x.

Hence, the instant petition anchored on the following assigned errors:


I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS
DISCRETION IN NOT FINDING THAT THE LOWER COURT A QUOS DECISION OF MARCH 6, 1989 IS
CONTRARY TO LAW AND THE EVIDENCE ON RECORD;

II

THE HONORALBLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS
DISCRETION IN NOT FINDING THAT THE APPEALED DECISION WAS RENDERED IN DEPRIVATION AND
IN DENIAL OF HEREIN PETITIOENR-APPELLANTS RIGHT TO DUE PROCESS.

The first issue to be resolved in the instant case is whether there has been a delivery, physical or constructive,
of the subject motor vehicle.
On this score, petitioner Union Motor Corporation maintains that the respondent spouses are not entitled to a
return of the downpayment for the reason that there was a delivery of the subject motor vehicle. According to the
petitioner, the appellate court erred in holding that no delivery was made by relying exclusively on the testimonial
evidence of respondent Albiato Bernal without considering the other evidence on record, like the sales invoice and
delivery receipt which constitute an admission that there was indeed delivery of the subject motor vehicle. Also, there
was a constructive delivery of the vehicle when respondent Albiato Bernal signed the registration certificate of the
subject vehicle. Inasmuch as there was already delivery of the subject motor vehicle, ownership has been transferred
to the respondent spouses. The Chattel Mortgage Contract signed by the respondent Bernal spouses in favor of the
petitioner likewise proves that ownership has already been transferred to them for the reason that, under Article 2085
of the New Civil Code, the mortgagor must be the owner of the property. [5] As owners of the jeepney, the respondent
Bernal spouses should bear the loss thereof in accordance with Article 1504 of the New Civil Code which provides
that when the ownership of goods is transferred to the buyer, the goods are at the buyers risk whether actual delivery
has been made or not. These, then, are the contentions of the petitioner.
The main allegation of the respondent Bernal spouses, on the other hand, is that they never came into
possession of the subject motor vehicle. Thus, it is but appropriate that they be reimbursed by the petitioner of the
initial payment which they made. They also claim that Jardine-Manila Finance, Inc., and the petitioner conspired to
defraud and deprive them of the subject motor vehicle for which they suffered damages.
We rule in favor of the respondent Bernal spouses.

64 | P a g e
February 3, 2018 [PROPERTY]

Undisputed is the fact that the respondent Bernal spouses did not come into possession of the subject Cimarron
jeepney that was supposed to be delivered to them by the petitioner. The registration certificate, receipt and sales
invoice that the respondent Bernal spouses signed were explained during the hearing without any opposition by the
petitioner. According to testimonial evidence adduced by the respondent spouses during the trial of the case, the said
documents were signed as a part of the processing and for the approval of their application to buy the subject motor
vehicle. Without such signed documents, no sale, much less delivery, of the subject jeepney could be made. The
documents were not therefore an acknowledgment by respondent spouses of the physical acquisition of the subject
motor vehicle but merely a requirement of petitioner so that the said subject motor vehicle would be delivered to
them.
We have ruled that the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the
buyer; an invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has
been considered not a bill of sale.[6]
The registration certificate signed by the respondent spouses does not conclusively prove that constructive
delivery was made nor that ownership has been transferred to the respondent spouses. Like the receipt and the
invoice, the signing of the said documents was qualified by the fact that it was a requirement of petitioner for the sale
and financing contract to be approved. In all forms of delivery, it is necessary that the act of delivery, whether
constructive or actual, should be coupled with the intention of delivering the thing. The act, without the intention, is
insufficient.[7] The critical factor in the different modes of effecting delivery which gives legal effect to the act, is the
actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no
tradition.[8] Enlightening is Addison v. Felix and Tioco[9] wherein we ruled that:

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered
when it is placed in the hands and possession of the vendee. (Civil Code, Art. 1462). It is true that the same article
declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor
shall have had control over the thing sold that, at the moment of the sale, its material delivery could have been
made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must
be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is
sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has not been
effected. (Italics supplied)

The act of signing the registration certificate was not intended to transfer the ownership of the subject motor
vehicle to respondent Bernal spouses inasmuch as the petitioner still needed the same for the approval of the
financing contract with Jardine-Manila Finance, Inc. The record shows that the registration certificate was submitted
to Jardine-Manila Finance, Inc., which took possession thereof until Sosmea requested the latter to hand over the
said document to him. The fact that the registration certificate was still kept by Jardine-Manila Finance, Inc. and its
unhesitating move to give the same to Sosmea just goes to show that the respondent spouses still had no complete
control over the subject motor vehicle as they did not even possess the said certificate of registration nor was their
consent sought when Jardine-Manila Finance, Inc. handed over the said document to Sosmea.
Inasmuch as there was neither physical nor constructive delivery of a determinate thing, (in this case, the
subject motor vehicle) the thing sold remained at the sellers risk. [10] The petitioner should therefore bear the loss of
the subject motor vehicle after Sosmea allegedly stole the same.
Petitioners reliance on the Chattel Mortgage Contract executed by the respondent spouses does not help its
assertion that ownership has been transferred to the latter since there was neither delivery nor transfer of possession
of the subject motor vehicle to respondent spouses. Consequently, the said accessory contract of chattel mortgage
has no legal effect whatsoever inasmuch as the respondent spouses are not the absolute owners thereof, ownership
of the mortgagor being an essential requirement of a valid mortgage contract. The Carlos case[11] cited by the
petitioner is not applicable to the case at bar for the reason that in the said case, apart from the fact that it has a
different issue, the buyer took possession of the personal property and was able to sell the same to a third party. In
the instant case, however, the respondent spouses never acquired possession of the subject motor vehicle. The
manifestations of ownership are control and enjoyment over the thing owned. The respondent spouses never became
the actual owners of the subject motor vehicle inasmuch as they never had dominion over the same.
The petitioner also disputes the finding of the appellate court that there was no delivery. It did not consider,
according to the petitioner, the fact that the circumstance of non-delivery was not shown and that the respondent
spouses never made any demand for the possession of the vehicle. Contrary to the petitioners allegation, the

65 | P a g e
February 3, 2018 [PROPERTY]

respondent spouses presented sufficient evidence to prove that Sosmea took delivery and possession of that subject
motor vehicle in his personal capacity as shown by a document [12] on which he (Sosmea) personally acknowledged
receipt of the registration certificate from Jardine-Manila Finance, Inc. Also, respondent Albiato Bernal testified to the
effect that they went several times to the office of the petitioner to demand the delivery of the subject motor
vehicle. The petitioner failed to refute that testimonial evidence considering that it waived its right to present evidence.
Anent the second issue, the petitioner claims that the trial court committed a violation of due process when it
ordered the striking off of the testimony of the petitioners witness as well as the declaration that petitioner has
abandoned its right to present evidence. According to the petitioner, the delays in the hearing of the case were
neither unjust nor deliberate. It just so happened that from August 5, 1986 up to June 1987, the designated counsel
for the petitioner was either appointed to the government or was short of time to go over the records of the case
inasmuch as he was a new substitute counsel. During the last time the petitioners counsel moved for the
postponement of the case, witness Ambrosio Balones was not available due to gastro-enteritis as shown by a
medical certificate.
Well-settled is the rule that factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual
findings of the trial court.[13] In the present case, the trial court found that after the direct testimony of petitioners
witness, Ambrosio Balones, the continuation of the cross-examination was postponed and re-scheduled for four (4)
times from November 21, 1986 up to June 19, 1987, all at the instance of petitioner Union Motor Corporation. For
three (3) times, the witness did not appear whenever the case was called for hearing. On June 19, 1987, when asked
by the trial court why the witness was not present, the petitioners counsel could not give any good reason for his
absence. Neither did the petitioner offer to present any other witness to testify on that day. The appellate court
assented to these findings by quoting the decision of the trial court, to wit:

Defendant Union Motors Corporation has no evidence as the testimony of its only witness, Ambrosio Balones, was
orderd stricken off the record in the hearing of June 19, 1987, for his continuous failure to appear on scheduled
hearings. The Court further considered said defendant to have waived further presentation of evidence. [14]

The petitioner attempts to shift the blame on the respondents for the failure of its witness, Balones, to finish his
testimony. It was at the instance of Atty. Tacub, counsel for the respondents, that the testimony of petitioners witness,
Balones, was discontinued after Atty. Tacub asked for a recess and later on for the postponement of the cross-
examination of the said witness. The petitioner had the duty to produce its witness when he was called to finish his
testimony. To place the blame on the respondent spouses is to put a premium on the negligence of the petitioner to
require its own witness to testify on cross-examination. By presenting witness Balones on direct-examination, the
petitioner had the corresponding duty to make him available for cross-examination in accordance with fair play and
due process. The respondents should not be prejudiced by the repeated failure of the petitioner to present its said
witness for cross-examination. Hence, the trial court ordered that the unfinished testimony of said witness be stricken
off the record.
However, we cannot affirm that part of the ruling of the courts a quo awarding moral damages to the
respondents. For moral damages to be awarded in cases of breach of contract, the plaintiff must prove bad faith or
fraudulent act on the part of the defendant.[15] In the instant case, the allegations about connivance and fraudulent
schemes by the petitioner and Manuel Sosmea were merely general allegations and without any specific evidence to
sustain the said claims. In fact, Exhibit 1 which bears the name and signature of Sosmea as the person who received
the registration certificate militates against the respondent spouses claim that the petitioner connived with its agent to
deprive them of the possession of the subject motor vehicle. The said document shows that Sosmea acted only in his
personal and private capacity, thereby effectively excluding any alleged participation of the petitioner in depriving
them of the possession of the subject motor vehicle. The petitioner should not be held liable for the acts of its agent
which were done by the latter in his personal capacity.
However, we affirm the award of attorneys fees. When a party is compelled to litigate with third persons or to
incur expenses to protect his interest, attorneys fees should be awarded.[16] In the present case, the respondent
spouses were forced to implead the petitioner Union Motor Corporation on account of the collection suit filed against
them by Jardine-Manila Finance, Inc., a case which was eventually won by the respondent spouses.
WHEREFORE, the appealed Decision dated March 30, 1994 of the Court of Appeals is hereby AFFIRMED with
the MODIFICATION that the award of moral damages is deleted. With costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and Buena, JJ., concur.
Quisumbing, J., on official leave.

66 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 77425 June 19, 1991

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the
SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA
RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents.

G.R. No. 77450 June 19, 1991

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the
SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA
RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents.

Severino C. Dominguez for petitioner Roman Catholic Bishop of Imus, Cavite.


Dolorfino and Dominguez Law Offices for Sps. Ignao.
Joselito R. Enriquez for private respondents.

REGALADO, J.:

These two petitions for review on certiorari1 seek to overturn the decision of the Court of Appeals in CA-G.R. CV No.
054562 which reversed and set aside the order of the Regional Trial Court of Imus, Cavite dismissing Civil Case No.
095-84, as well as the order of said respondent court denying petitioner's motions for the reconsideration of its
aforesaid decision.

On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of deed of donation,
rescission of contract and reconveyance of real property with damages against petitioners Florencio and Soledad C.
Ignao and the Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila,
before the Regional Trial Court, Branch XX, Imus, Cavite and which was docketed as Civil Case No. 095-84 therein.3

In their complaint, private respondents alleged that on August 23, 1930, the spouses Eusebio de Castro and Martina
Rieta, now both deceased, executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of
Manila covering a parcel of land (Lot No. 626, Cadastral Survey of Kawit), located at Kawit, Cavite, containing an
area of 964 square meters, more or less. The deed of donation allegedly provides that the donee shall not dispose or
sell the property within a period of one hundred (100) years from the execution of the deed of donation, otherwise a
violation of such condition would render ipso facto null and void the deed of donation and the property would revert to
the estate of the donors.

It is further alleged that on or about June 30, 1980, and while still within the prohibitive period to dispose of the
property, petitioner Roman Catholic Bishop of Imus, in whose administration all properties within the province of
Cavite owned by the Archdiocese of Manila was allegedly transferred on April 26, 1962, executed a deed of absolute
sale of the property subject of the donation in favor of petitioners Florencio and Soledad C. Ignao in consideration of
the sum of P114,000. 00. As a consequence of the sale, Transfer Certificate of Title No. 115990 was issued by the
Register of Deeds of Cavite on November 15, 1980 in the name of said petitioner spouses.

What transpired thereafter is narrated by respondent court in its assailed decision. 4

On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to dismiss based on the
grounds that (1) herein private respondents, as plaintiffs therein, have no legal capacity to sue; and (2) the complaint
states no cause of action.

On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss on three (3)
grounds, the first two (2) grounds of which were identical to that of the motion to dismiss filed by the Ignao spouses,
and the third ground being that the cause of action has prescribed.

67 | P a g e
February 3, 2018 [PROPERTY]

On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss on the ground that
he is not a real party in interest and, therefore, the complaint does not state a cause of action against him.

After private respondents had filed their oppositions to the said motions to dismiss and the petitioners had countered
with their respective replies, with rejoinders thereto by private respondents, the trial court issued an order dated
January 31, 1985, dismissing the complaint on the ground that the cause of action has prescribed. 5

Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) whether or not the action for
rescission of contracts (deed of donation and deed of sale) has prescribed; and (b) whether or not the dismissal of
the action for rescission of contracts (deed of donation and deed of sale) on the ground of prescription carries with it
the dismissal of the main action for reconveyance of real property. 6

On December 23, 1986, respondent Court of Appeals, holding that the action has not yet prescibed, rendered a
decision in favor of private respondents, with the following dispositive portion:

WHEREFORE, the Order of January 31, 1985 dismissing appellants' complaint is SET ASIDE and Civil
Case No. 095-84 is hereby ordered REINSTATED and REMANDED to the lower court for further
proceedings. No Costs.7

Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for reconsideration which
were denied by respondent Court of Appeals in its resolution dated February 6, 1987, 8 hence, the filing of these
appeals by certiorari.

It is the contention of petitioners that the cause of action of herein private respondents has already prescribed,
invoking Article 764 of the Civil Code which provides that "(t)he donation shall be revoked at the instance of the
donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter," and that
"(t)his action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the
heirs of the donor, and may be exercised against the donee's heirs.

We do not agree.

Although it is true that under Article 764 of the Civil Code an action for the revocation of a donation must be brought
within four (4) years from the non-compliance of the conditions of the donation, the same is not applicable in the case
at bar. The deed of donation involved herein expressly provides for automatic reversion of the property donated in
case of violation of the condition therein, hence a judicial declaration revoking the same is not necessary, As aptly
stated by the Court of Appeals:

By the very express provision in the deed of donation itself that the violation of the condition thereof would
render ipso facto null and void the deed of donation, WE are of the opinion that there would be no legal
necessity anymore to have the donation judicially declared null and void for the reason that the very deed of
donation itself declares it so. For where (sic) it otherwise and that the donors and the donee contemplated a
court action during the execution of the deed of donation to have the donation judicially rescinded or
declared null and void should the condition be violated, then the phrase reading "would render ipso facto null
and void" would not appear in the deed of donation.9

In support of its aforesaid position, respondent court relied on the rule that a judicial action for rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions.10 It called attention to the holding that there is nothing in the law that prohibits the parties from entering
into an agreement that a violation of the terms of the contract would cause its cancellation even without court
intervention, and that it is not always necessary for the injured party to resort to court for rescission of the
contract.11 It reiterated the doctrine that a judicial action is proper only when there is absence of a special provision
granting the power of cancellation.12

It is true that the aforesaid rules were applied to the contracts involved therein, but we see no reason why the same
should not apply to the donation in the present case. Article 732 of the Civil Code provides that donations inter
vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in Title III,
Book III on donations. Now, said Title III does not have an explicit provision on the matter of a donation with a
resolutory condition and which is subject to an express provision that the same shall be considered ipso

68 | P a g e
February 3, 2018 [PROPERTY]

facto revoked upon the breach of said resolutory condition imposed in the deed therefor, as is the case of the deed
presently in question. The suppletory application of the foregoing doctrinal rulings to the present controversy is
consequently justified.

The validity of such a stipulation in the deed of donation providing for the automatic reversion of the donated property
to the donor upon non-compliance of the condition was upheld in the recent case of De Luna, et al. vs. Abrigo, et
al.13 It was held therein that said stipulation is in the nature of an agreement granting a party the right to rescind a
contract unilaterally in case of breach, without need of going to court, and that, upon the happening of the resolutory
condition or non-compliance with the conditions of the contract, the donation is automatically revoked without need of
a judicial declaration to that effect. While what was the subject of that case was an onerous donation which, under
Article 733 of the Civil Code is governed by the rules on contracts, since the donation in the case at bar is also
subject to the same rules because of its provision on automatic revocation upon the violation of a resolutory
condition, from parity of reasons said pronouncements in De Luna pertinently apply.

The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary
not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an
agreement providing for rescission even without judicial intervention, but in order to determine whether or not the
rescission was proper.14

When a deed of donation, as in this case, expressly provides for automatic revocation and reversion of the property
donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil
Code. Since Article 1306 of said Code authorizes the parties to a contract to establish such stipulations, clauses,
terms and conditions not contrary to law, morals, good customs, public order or public policy, we are of the opinion
that, at the very least, that stipulation of the parties providing for automatic revocation of the deed of donation, without
prior judicial action for that purpose, is valid subject to the determination of the propriety of the rescission sought.
Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not in
itself the revocatory act.

On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the cause of action of herein
private respondents has not yet prescribed since an action to enforce a written contract prescribes in ten (10)
years.15 It is our view that Article 764 was intended to provide a judicial remedy in case of non-fulfillment or
contravention of conditions specified in the deed of donation if and when the parties have not agreed on the
automatic revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the
situation in the case at bar.

Nonetheless, we find that although the action filed by private respondents may not be dismissed by reason of
prescription, the same should be dismissed on the ground that private respondents have no cause of action against
petitioners.

The cause of action of private respondents is based on the alleged breach by petitioners of the resolutory condition in
the deed of donation that the property donated should not be sold within a period of one hundred (100) years from the
date of execution of the deed of donation. Said condition, in our opinion, constitutes an undue restriction on the rights
arising from ownership of petitioners and is, therefore, contrary to public policy.

Donation, as a mode of acquiring ownership, results in an effective transfer of title over the property from the donor to
the donee. Once a donation is accepted, the donee becomes the absolute owner of the property donated. Although
the donor may impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good
customs, public order and public policy. The condition imposed in the deed of donation in the case before us
constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property
donated, which right is an indispensable attribute of ownership. Such a prohibition against alienation, in order to be
valid, must not be perpetual or for an unreasonable period of time.

Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered applicable by
analogy.1âwphi1 Under the third paragraph of Article 494, a donor or testator may prohibit partition for a period which
shall not exceed twenty (20) years. Article 870, on its part, declares that the dispositions of the testator declaring all
or part of the estate inalienable for more than twenty (20) years are void.

It is significant that the provisions therein regarding a testator also necessarily involve, in the main, the devolution of
property by gratuitous title hence, as is generally the case of donations, being an act of liberality, the imposition of an

69 | P a g e
February 3, 2018 [PROPERTY]

unreasonable period of prohibition to alienate the property should be deemed anathema to the basic and actual intent
of either the donor or testator. For that reason, the regulatory arm of the law is or must be interposed to prevent an
unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and 870 of the Code.

In the case at bar, we hold that the prohibition in the deed of donation against the alienation of the property for an
entire century, being an unreasonable emasculation and denial of an integral attribute of ownership, should be
declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code. Consequently,
as specifically stated in said statutory provision, such condition shall be considered as not imposed. No reliance may
accordingly be placed on said prohibitory paragraph in the deed of donation. The net result is that, absent said
proscription, the deed of sale supposedly constitutive of the cause of action for the nullification of the deed of
donation is not in truth violative of the latter hence, for lack of cause of action, the case for private respondents must
fail.

It may be argued that the validity of such prohibitory provision in the deed of donation was not specifically put in issue
in the pleadings of the parties. That may be true, but such oversight or inaction does not prevent this Court from
passing upon and resolving the same.

It will readily be noted that the provision in the deed of donation against alienation of the land for one hundred (100)
years was the very basis for the action to nullify the deed of d donation. At the same time, it was likewise the
controverted fundament of the motion to dismiss the case a quo, which motion was sustained by the trial court and
set aside by respondent court, both on the issue of prescription. That ruling of respondent court interpreting said
provision was assigned as an error in the present petition. While the issue of the validity of the same provision was
not squarely raised, it is ineluctably related to petitioner's aforesaid assignment of error since both issues are
grounded on and refer to the very same provision.

This Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it
finds that their consideration is necessary in arriving at a just decision of the case: 16 Thus, we have held that an
unassigned error closely related to an error properly assigned, 17 or upon which the determination of the question
properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as
error.18

Additionally, we have laid down the rule that the remand of the case to the lower court for further reception of
evidence is not necessary where the Court is in a position to resolve the dispute based on the records before it. On
many occasions, the Court, in the public interest and for the expeditious administration of justice, has resolved
actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of
justice, would not be subserved by the remand of the case. 19 The aforestated considerations obtain in and apply to
the present case with respect to the matter of the validity of the resolutory condition in question.

WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby rendered
DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite.

SO ORDERED.

Melencio-Herrera and Paras, JJ., concur.


Padilla, J., took no part.
Sarmiento, J., is on leave.

70 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,


vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN
LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals
which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the
property donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a
parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for
which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following
annotations copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the establishment and use of a
medical college with all its buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber
said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under
obligation to erect a cornerstone bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building thereon. 1

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the
latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by
the latter.

In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because it never used the donated property for any other
purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it
null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in
favor of the heirs of the donor, namely, private respondents herein.

Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of
petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus
making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to
comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision

71 | P a g e
February 3, 2018 [PROPERTY]

and remanding the case to the court of origin for the determination of the time within which petitioner should comply
with the first condition annotated in the certificate of title.

Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of
title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-
compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not
deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which
petitioner would establish a medical college.2

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed
by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a
valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a
burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools,
construct a children's playground and open streets on the land was considered an onerous donation. 3 Similarly,
where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to
establish a medical college thereon, the donation must be for an onerous consideration.

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a suspensive condition but a resolutory one.4 It is not correct to
say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to
be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished.

The claim of petitioner that prescription bars the instant action of private respondents is unavailing.

The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended
upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the
donation, it bound itself to comply with the condition thereof. Since the time within which the condition should
be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance
and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the
statute of limitations from barring the action of private respondents upon the original contract which was the
deed of donation.6

Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the instant case. A cause of action arises when that which
should have been done is not done, or that which should not have been done is done. 7 In cases where there is no
special provision for such computation, recourse must be had to the rule that the period must be counted from the
day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action
which determines the starting point for the computation of the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years because of the presence of several factors and
circumstances involved in the erection of an educational institution, such as government laws and regulations
pertaining to education, building requirements and property restrictions which are beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived. 8

This general rule however cannot be applied considering the different set of circumstances existing in the instant
case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity
to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such

72 | P a g e
February 3, 2018 [PROPERTY]

procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the
time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on
its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated
property to the heirs of the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently,
petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered
by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

73 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 187056 September 20, 2010

JARABINI G. DEL ROSARIO, Petitioner,


vs.
ASUNCION G. FERRER, substituted by her heirs, VICENTE, PILAR, ANGELITO, FELIXBERTO, JR., all
surnamed G. FERRER, and MIGUELA FERRER ALTEZA, Respondents.

DECISION

ABAD, J.:

This case pertains to a gift, otherwise denominated as a donation mortis causa, which in reality is a donation inter
vivos made effective upon its execution by the donors and acceptance thereof by the donees, and immediately
transmitting ownership of the donated property to the latter, thus precluding a subsequent assignment thereof by one
of the donors.

The Facts and the Case

On August 27, 1968 the spouses Leopoldo and Guadalupe Gonzales executed a document entitled "Donation Mortis
Causa"1 in favor of their two children, Asuncion and Emiliano, and their granddaughter, Jarabini (daughter of their
predeceased son, Zoilo) covering the spouses’ 126-square meter lot and the house on it in Pandacan, Manila 2 in
equal shares. The deed of donation reads:

It is our will that this Donation Mortis Causa shall be irrevocable and shall be respected by the surviving spouse.

It is our will that Jarabini Gonzales-del Rosario and Emiliano Gonzales will continue to occupy the portions now
occupied by them.

It is further our will that this DONATION MORTIS CAUSA shall not in any way affect any other distribution of other
properties belonging to any of us donors whether testate or intestate and where ever situated.

It is our further will that any one surviving spouse reserves the right, ownership, possession and administration of this
property herein donated and accepted and this Disposition and Donation shall be operative and effective upon the
death of the DONORS.3

Although denominated as a donation mortis causa, which in law is the equivalent of a will, the deed had no attestation
clause and was witnessed by only two persons. The named donees, however, signified their acceptance of the
donation on the face of the document.

Guadalupe, the donor wife, died in September 1968. A few months later or on December 19, 1968, Leopoldo, the
donor husband, executed a deed of assignment of his rights and interests in subject property to their daughter
Asuncion. Leopoldo died in June 1972.

In 1998 Jarabini filed a "petition for the probate of the August 27, 1968 deed of donation mortis causa" before the
Regional Trial Court (RTC) of Manila in Sp. Proc. 98-90589.4 Asuncion opposed the petition, invoking his father
Leopoldo’s assignment of his rights and interests in the property to her.

After trial, the RTC rendered a decision dated June 20, 2003, 5 finding that the donation was in fact one made inter
vivos, the donors’ intention being to transfer title over the property to the donees during the donors’ lifetime, given its
irrevocability. Consequently, said the RTC, Leopoldo’s subsequent assignment of his rights and interest in the

74 | P a g e
February 3, 2018 [PROPERTY]

property was void since he had nothing to assign. The RTC thus directed the registration of the property in the name
of the donees in equal shares.6

On Asuncion’s appeal to the Court of Appeals (CA), the latter rendered a decision on December 23, 2008, 7reversing
that of the RTC. The CA held that Jarabini cannot, through her petition for the probate of the deed of donation mortis
causa, collaterally attack Leopoldo’s deed of assignment in Asuncion’s favor. The CA further held that, since no
proceeding exists for the allowance of what Jarabini claimed was actually a donation inter vivos, the RTC erred in
deciding the case the way it did. Finally, the CA held that the donation, being one given mortis causa, did not comply
with the requirements of a notarial will,8 rendering the same void. Following the CA’s denial of Jarabini’s motion for
reconsideration,9 she filed the present petition with this Court.

Issue Presented

The key issue in this case is whether or not the spouses Leopoldo and Guadalupe’s donation to Asuncion, Emiliano,
and Jarabini was a donation mortis causa, as it was denominated, or in fact a donation inter vivos.

The Court’s Ruling

That the document in question in this case was captioned "Donation Mortis Causa" is not controlling. This Court has
held that, if a donation by its terms is inter vivos, this character is not altered by the fact that the donor styles it mortis
causa.10

In Austria-Magat v. Court of Appeals,11 the Court held that "irrevocability" is a quality absolutely incompatible with the
idea of conveyances mortis causa, where "revocability" is precisely the essence of the act. A donation mortis causa
has the following characteristics:

1. It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to
the same thing, that the transferor should retain the ownership (full or naked) and control of the property
while alive;

2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability
may be provided for indirectly by means of a reserved power in the donor to dispose of the properties
conveyed; and

3. That the transfer should be void if the transferor should survive the transferee. 12 (Underscoring supplied)

The Court thus said in Austria-Magat that the express "irrevocability" of the donation is the "distinctive standard that
identifies the document as a donation inter vivos." Here, the donors plainly said that it is "our will that this Donation
Mortis Causa shall be irrevocable and shall be respected by the surviving spouse." The intent to make the donation
irrevocable becomes even clearer by the proviso that a surviving donor shall respect the irrevocability of the donation.
Consequently, the donation was in reality a donation inter vivos.

The donors in this case of course reserved the "right, ownership, possession, and administration of the property" and
made the donation operative upon their death. But this Court has consistently held that such reservation (reddendum)
in the context of an irrevocable donation simply means that the donors parted with their naked title, maintaining
only beneficial ownership of the donated property while they lived.13

Notably, the three donees signed their acceptance of the donation, which acceptance the deed required.14 This Court
has held that an acceptance clause indicates that the donation is inter vivos, since acceptance is a requirement only
for such kind of donations.1awphi1 Donations mortis causa, being in the form of a will, need not be accepted by the
donee during the donor’s lifetime.15

Finally, as Justice J. B. L. Reyes said in Puig v. Peñaflorida,16 in case of doubt, the conveyance should be deemed a
donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of the property subject
of the deed.

75 | P a g e
February 3, 2018 [PROPERTY]

Since the donation in this case was one made inter vivos, it was immediately operative and final. The reason is that
such kind of donation is deemed perfected from the moment the donor learned of the donee’s acceptance of the
donation. The acceptance makes the donee the absolute owner of the property donated. 17

Given that the donation in this case was irrevocable or one given inter vivos, Leopoldo’s subsequent assignment of
his rights and interests in the property to Asuncion should be regarded as void for, by then, he had no more rights to
assign. He could not give what he no longer had. Nemo dat quod non habet.18

The trial court cannot be faulted for passing upon, in a petition for probate of what was initially supposed to be a
donation mortis causa, the validity of the document as a donation inter vivos and the nullity of one of the donor’s
subsequent assignment of his rights and interests in the property. The Court has held before that the rule on probate
is not inflexible and absolute.19 Moreover, in opposing the petition for probate and in putting the validity of the deed of
assignment squarely in issue, Asuncion or those who substituted her may not now claim that the trial court improperly
allowed a collateral attack on such assignment.

WHEREFORE, the Court GRANTS the petition, SETS ASIDE the assailed December 23, 2008 Decision and March
6, 2009 Resolution of the Court of Appeals in CA-G.R. CV 80549, and REINSTATES in toto the June 20, 2003
Decision of the Regional Trial Court of Manila, Branch 19, in Sp. Proc. 98-90589.

SO ORDERED.

Footnotes

* Designated as additional member in lieu of Associate Justice Jose Catral Mendoza, per Special Order 886
dated September 1, 2010.

7Id. at 54-64; penned by Associate Justice Apolinario D. Bruselas, Jr. with the concurrence of Associate
Justices Bienvenido L. Reyes and Mariflor P. Punzalan Castillo.

8 Art. 728. Donations which are to take effect upon the death of the donor partake of the nature of
testamentary provisions, and shall be governed by the rules established in the Title on Succession.

Art. 805. Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself or by the testator's name written by some other person in his presence, and by his
express direction, and attested and subscribed by three or more credible witnesses in the presence
of the testator and of one another.

The testator or the person requested by him to write his name and the instrumental witnesses of
the will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin, and all the pages shall be numbered correlatively in letters placed on the upper part of
each page.

The attestation shall state the number of pages used upon which the will is written, and the fact that
the testator signed the will and every page thereof, or caused some other person to write his name,
under his express direction, in the presence of the instrumental witnesses, and that the latter
witnessed and signed the will and all the pages thereof in the presence of the testator and of one
another.

If the attestation clause is in a language not known to the witnesses, it shall be interpreted to them.

76 | P a g e
February 3, 2018 [PROPERTY]

[G.R. No. 112796. March 5, 1998]

TITO R. LAGAZO, petitioner, vs. COURT OF APPEALS and ALFREDO CABANLIT, respondents.

DECISION

PANGANIBAN, J.:
Where the acceptance of a donation was made in a separate instrument but not formally communicated to the
donor, may the donation be nonetheless considered complete, valid and subsisting? Where the deed of donation did
not expressly impose any burden -- the expressed consideration being purely one of liberality and generosity -- but
the recipient actually paid charges imposed on the property like land taxes and installment arrearages, may the
donation be deemed onerous and thus governed by the law on ordinary contracts?
The Case
The Court answers these questions in the negative as it resolves this petition for review under Rule 45 of the
Rules of Court seeking to set aside the Decision[1] of the Court of Appeals[2] in CA-GR CV No. 38050 promulgated on
November 29, 1993. The assailed Decision reversed the Regional Trial Court, Branch 30, Manila, in Civil Case No.
87-39133 which had disposed[3] of the controversy in favor of herein petitioner in the following manner: [4]

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows:

1. Ordering the defendant, or any person claiming rights under him, to surrender to plaintiff possession of the
premises known as Lot 8w, Block 6, Psd-135534 of the Monserrat Estate, and the improvement standing thereon,
located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila;

2. Ordering the defendant to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos, as and for attorneys fees;
and

3. Costs against the defendant.

The defendants counterclaims are hereby dismissed.

The Facts

Although the legal conclusions and dispositions of the trial and the appellate courts are conflicting, the factual
antecedents of the case are not substantially disputed.[5] We reproduce their narration from the assailed Decision:

Civil Case No. 83-39133 involves an action filed by plaintiff-appellee [herein petitioner] on January 22, 1987 seeking
to recover from defendant-appellant [a] parcel of land which the former claims to have acquired from his grandmother
by donation. Defendant-appellant [herein private respondent], on the other hand, put up the defense that when the
alleged donation was executed, he had already acquired the property by a Deed of Assignment from a transferee of
plaintiff-appellees grandmother.

The evidence for plaintiff-appellee [herein petitioner] is summarized as follows:

Catalina Jacob Vda. de Reyes, a widow and grandmother of plaintiff-appellee, was awarded in July 1975 a 60.10-
square meter lot which is a portion of the Monserrat Estate, more particularly described as Lot 8W, Block 6 of Psd-
135834, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila. The Monserrat Estate is a public land owned by

77 | P a g e
February 3, 2018 [PROPERTY]

the City of Manila and distributed for sale to bona fide tenants under its land-for-the-landless program. Catalina Jacob
constructed a house on the lot.

On October 3, 1977, or shortly before she left for Canada where she is now a permanent resident, Catalina Jacob
executed a special power of attorney (Exh. A) in favor of her son-in-law Eduardo B. Espaol authorizing him to execute
all documents necessary for the final adjudication of her claim as awardee of the lot.

Due to the failure of Eduardo B. Espaol to accomplish the purpose of the power of attorney granted to him, Catalina
Jacob revoked said authority in an instrument executed in Canada on April 16, 1984 (Exh. D). Simultaneous with the
revocation, Catalina Jacob executed another power of attorney of the same tenor in favor plaintiff-appellee.

On January 30, 1985, Catalina Jacob executed in Canada a Deed of Donation over a Lot 8W in favor of plaintiff-
appellee (Exh. E). Following the donation, plaintiff-appellee checked with the Register of Deeds and found out that
the property was in the delinquent list, so that he paid the installments in arrears and the remaining balance on the lot
(Exhs. F, F-1 and F-2) and declared the said property in the name of Catalina Jacob (Exhs. G, G-1, G-2 and G-3).

On January 29, 1986, plaintiff-appellee sent a demand letter to defendant-appellant asking him to vacate the
premises (Exh. H). A similar letter was sent by plaintiff-appellees counsel to defendant on September 11, 1986 (Exh.
I).However, defendant-appellant refused to vacate the premises claiming ownership thereof. Hence, plaintiff-appellee
instituted the complaint for recovery of possession and damages against defendant-appellant.

Opposing plaintiff-appellees version, defendant-appellant claimed that the house and lot in controversy were his by
virtue of the following documents:

1. Deed of Absolute Sale executed by Catalina Jacob dated October 7, 1977 in favor of Eduardo B. Espaol covering
the residential house located at the premises (Exh. 4).

2. Deed of Assignment over Lot 8W executed by Catalina Jacob in favor of Eduardo Espaol dated September 30,
1980 (Exh. 5); and

3. Deed of Assignment executed by Eduardo B. Espaol over Lot 8W and a residential house thereon in favor of
defendant-appellant dated October 2, 1982 (Exh. 6).

After trial, the lower court decided in favor of plaintiff-appellee and against defendant-appellant, rationalizing that the
version of the former is more credible than that of the latter. According to the lower court:

From the oral and documentary evidence adduced by the parties[,] it appears that the plaintiff- has a better right over
the property, subject matter of the case. The version of the plaintiff is more credible than that of the defendant. The
theory of the plaintiff is that the house and lot belong to him by virtue of the Deed of Donation in his favor executed by
his grandmother Mrs. Jacob Vda. de Reyes, the real awardee of the lot in question. The defendants theory is that he
is the owner thereof because he bought the house and lot from Eduardo Espaol, after the latter had shown and given
to him Exhibits 1, 4 and 5. He admitted that he signed the Deed of Assignment in favor of Eduardo Espaol on
September 30, 1980, but did not see awardee Catalina Jacob Vda. de Reyes signed [sic] it. In fact, the
acknowledgement in Exhibit 5 shows that the assignor/awardee did not appear before the notary public. It may be
noted that on said date, the original awardee of the lot was no longer in the Philippines, as both parties admitted that
she had not come back to the Philippines since 1977. (Exhs. K, K-1). Defendant, claiming to be the owner of the lot,
unbelievably did not take any action to have the said house and lot be registered or had them declared in his own
name. Even his Exhibit 7 was not mailed or served to the addressee. Such attitude and laxity is very unnatural for a
buyer/owner of a property, in stark contrast of [sic] the interest shown by the plaintiff who saw to it that the lot was
removed from the delinquent list for non-payment of installments and taxes due thereto [sic].[6]

Ruling of the Appellate Court

In reversing the trial courts decision,[7] Respondent Court of Appeals anchored its ruling upon the absence of
any showing that petitioner accepted his grandmothers donation of the subject land. Citing jurisprudence that the
donees failure to accept a donation whether in the same deed of donation or in a separate instrument renders the
donation null and void, Respondent Court denied petitioners claim of ownership over the disputed land. The appellate
court also struck down petitioners contention that the formalities for a donation of real property should not apply to his

78 | P a g e
February 3, 2018 [PROPERTY]

case since it was an onerous one -- he paid for the amortizations due on the land before and after the execution of
the deed of donation -- reasoning that the deed showed no burden, charge or condition imposed upon the donee;
thus, the payments made by petitioner were his voluntary acts.
Dissatisfied with the foregoing ruling, petitioner now seeks a favorable disposition from this Court.[8]

Issues

Petitioner anchors his petition on the following grounds: [9]

[I.] In reversing the decision of the trial court, the Court of Appeals decided a question of substance in a way not in
accord with the law and applicable decisions of this Honorable Court.

[II.] Even granting the correctness of the decision of the Court of Appeals, certain fact and circumstances transpired
in the meantime which would render said decision manifestly unjust, unfair and inequitable to petitioner.

We believe that the resolution of this case hinges on the issue of whether the donation was simple or onerous.
The Courts Ruling
The petition lacks merit.
Main Issue:
Simple or Onerous Donation?
At the outset, let us differentiate between a simple donation and an onerous
one. A simple or pure donation is one whose cause is pure liberality (no strings attached), while an onerous donation
is one which is subject to burdens, charges or future services equal to or more in value than the thing
donated.[10] Under Article 733 of the Civil Code, donations with an onerous cause shall be governed by the rules on
contracts; hence, the formalities required for a valid simple donation are not applicable.
Petitioner contends that the burdens, charges or conditions imposed upon a donation need not be stated on the
deed of donation itself. Thus, although the deed did not categorically impose any charge, burden or condition to be
satisfied by him, the donation was onerous since he in fact and in reality paid for the installments in arrears and for
the remaining balance of the lot in question. Being an onerous donation, his acceptance thereof may be express or
implied, as provided under Art. 1320 of the Civil Code, and need not comply with the formalities required by Art. 749
of the same code. His payment of the arrearages and balance and his assertion of his right of possession against
private respondent clearly indicate his acceptance of the donation.
We rule that the donation was simple, not onerous. Even conceding that petitioners full payment of the purchase
price of the lot might have been a burden to him, such payment was not however imposed by the donor as a
condition for the donation. Rather, the deed explicitly stated:
That for and in consideration of the love and affection which the DONEE inspires in the DONOR, and as an act
of liberality and generosity and considering further that the DONEE is a grandson of the DONOR, the DONOR hereby
voluntarily and freely gives, transfer[s] and conveys, by way of donation unto said DONEE, his heirs, executors,
administrators and assigns, all the right, title and interest which the said DONOR has in the above described real
property, together with all the buildings and improvements found therein, free from all lines [sic] and encumbrances
and charges whatsoever;[11] [underscoring supplied]
It is clear that the donor did not have any intention to burden or charge petitioner as the donee. The words in the
deed are in fact typical of a pure donation. We agree with Respondent Court that the payments made by petitioner
were merely his voluntary acts. This much can be gathered from his testimony in court, in which he never even
claimed that a burden or charge had been imposed by his grandmother.
ATTY FORONDA:
q After you have received this [sic] documents, the x x x revocation of power of attorney and the Special Power of
Attorney in your favor, what did you do?
WITNESS:

79 | P a g e
February 3, 2018 [PROPERTY]

a I went here in City Hall and verif[ied] the status of the award of my grandmother.
q When you say the award, are you referring to the award in particular [of the] lot in favor of your grandmother?
a Yes, Sir.
q What was the result of your verification?
a According to the person in the office, the papers of my grandmother is [sic] includ[ed] in the dilinquent [sic] list.
q What did you do then when you found out that the lot was includ[ed] in the dilinquent [sic] list?
a I talked to the person in charged [sic] in the office and I asked him what to do so that the lot should not [be]
included in the dilinquent [sic] list.
ATTY. FORONDA:
q And what was the anwer [sic] given to you to the inquiry which you made?
WITNESS:
a According to the person in the office, that I would pay the at least [sic] one half of the installment in order to take
[out] the document [from] the delinquent list.
q And [were] you able to pay?
a I was able to pay, sir.
q What were you able to pay, one half of the balance or the entire amounts [sic]?
a First, I paid the [sic] one half of the balance since the time the lot was awarded to us.
q What about the remaining balance, were you able to pay it?
a I was able to pay that, sir.
q So, as of now, the amount in the City of Manila of the lot has already been duly paid, is it not?
a Yes, sir.[12]
The payments even seem to have been made pursuant to the power of attorney [13]executed by Catalina Reyes
in favor of petitioner, her grandson, authorizing him to execute acts necessary for the fulfillment of her
obligations.Nothing in the records shows that such acts were meant to be a burden in the donation.
As a pure or simple donation, the following provisions of the Civil Code are applicable:

Art. 734. The donation is perfected from the moment the donor knows of the acceptance by the donee.

Art. 746. Acceptance must be made during the lifetime of the donor and the donee.

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

The acceptance may be made in the same deed of donation and in a separate public document, but it shall not take
effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in authentic form, and this step
shall be noted in both instruments.

In the words of the esteemed Mr. Justice Jose C. Vitug, [14] Like any other contract, an agreement of the parties
is essential. The donation, following the theory of cognition (Article 1319, Civil Code), is perfected only upon the
moment the donor knows of the acceptance by the donee. Furthermore, [i]f the acceptance is made in a separate
instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.[15]

80 | P a g e
February 3, 2018 [PROPERTY]

Acceptance of the donation by the donee is, therefore, indispensable; its absence makes the donation null and
void.[16] The perfection and the validity of a donation are well explained by former Sen. Arturo M. Tolentino in this
wise:

x x x Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and
unless it has been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made
in the very same instrument of donation. If the acceptance does not appear in the same document, it must be made
in another. Solemn words are not necessary; it is sufficient if it shows the intention to accept. But in this case it is
necessary that formal notice thereof be given to the donor, and the fact that due notice has been given must be noted
in both instruments (that containing the offer to donate and that showing the acceptance). Then and only then is the
donation perfected. If the instrument of donation has been recorded in the registry of property, the instrument that
shows the acceptance should also be recorded. Where the deed of donation fails to show the acceptance, or where
the formal notice of the acceptance, made in a separate instrument, is either not given to the donor or else not noted
in the deed of donation and in the separate acceptance, the donation is null and void. [17]

Exhibit E (the deed of donation) does not show any indication that petitioner-donee accepted the gift. During the
trial, he did not present any instrument evidencing such acceptance despite the fact that private respondent already
raised this allegation in his supplemental pleading [18] to which petitioner raised no objection. It was only after the
Court of Appeals had rendered its decision, when petitioner came before this Court, that he submitted an
affidavit[19]dated August 28, 1990, manifesting that he wholeheartedly accepted the lot given to him by his
grandmother, Catalina Reyes. This is too late, because arguments, evidence, causes of action and matters not raised
in the trial court may no longer be raised on appeal.[20]
True, the acceptance of a donation may be made at any time during the lifetime of the donor. And
granting arguendo that such acceptance may still be admitted in evidence on appeal, there is still need for proof that
a formal notice of such acceptance was received by the donor and noted in both the deed of donation and the
separate instrument embodying the acceptance. At the very least, this last legal requisite of annotation in both
instruments of donation and acceptance was not fulfilled by petitioner. For this reason, the subject lot cannot be
adjudicated to him.
Secondary Issue:
Supervening Events
Petitioner also contends that certain supervening events have transpired which render the assailed Decision
manifestly unjust, unfair and inequitable to him. The City of Manila has granted his request for the transfer to his
name of the lot originally awarded in favor of Catalina Reyes. A deed of sale[21] covering the subject lot has in fact
been executed between the City of Manila, as the vendor, and petitioner, as the vendee. The corresponding
certificate of title[22]has also been issued in petitioners name.
A close perusal of the city governments resolution [23] granting petitioners request reveals that the request for
and the grant of the transfer of the award were premised on the validity and perfection of the deed of donation
executed by the original awardee, petitioners grandmother. This is the same document upon which petitioner, as
against private respondent, asserts his right over the lot. But, as earlier discussed and ruled, this document has no
force and effect and, therefore, passes no title, right or interest.
Furthermore, the same resolution states:

WHEREAS, in a report submitted by Ms. [Menchu C.] Bello [, Special Investigator,] on February 7, 1990, it is stated
that x x x constructed on the lot is a make-shift structure used for residential purposes by the proposed transferee
Tito Lagazo and his family; x x x and that constructed at Lot 8, Block 6, former Monserrat Estate is a make-shift
structure used as a dwelling place by Lagazo and family because the front portion of their house which was
constructed on a road lot was demolished, and the structure was extended backward covering a portion of the old
temporary road lot. x x x

The above findings of the investigator are, however, directly contradictory to the testimonies in court of petitioner
himself and of private respondent. Petitioner claimed the following: that the house constructed on the subject lot was
owned by his grandmother Catalina Jacob; that before the latter left for Canada in 1977, Eduardo Espaol had already
been living in the same house and continued to do so until 1982; and that private respondent occupied the premises
after Espaol left.[24] On the other hand, private respondent testified that he bought the subject house and lot from
Eduardo Espaol in 1982, after which he and his family occupied the same; but sometime in 1985, they had to leave
the place due to a road-widening project which reduced the house to about three meters [in] length and one arm[]s
width.[25]

81 | P a g e
February 3, 2018 [PROPERTY]

Between the testimonies under oath of the contending parties and the report -- not subjected to cross-
examination -- which was prepared by the investigator who recommended the approval of petitioners request for
transfer, it is the former to which the Court is inclined to give more credence. The investigators report must have been
based on the misrepresentations of petitioner who arrogated unto himself the prerogatives of both Espaol and private
respondent.Further, it is on record that petitioner had required private respondent to vacate the subject premises
before he instituted this complaint. This shows he was not in actual possession of the property, contrary to the report
of the investigator.

Cabanlits Claim of Ownership

Petitioner also assails Respondent Courts conclusion that it is unnecessary to pass upon private respondents
claim over the property. Petitioner insists that the principal issue in the case, as agreed upon by the parties during
pretrial, is who between the parties is the owner of the house and lot in question.
In disposing of the principal issue of the right of petitioner over the subject property under the deed of donation,
we arrive at one definite conclusion: on the basis of the alleged donation, petitioner cannot be considered the lawful
owner of the subject property. This does not necessarily mean, however, that private respondent is automatically the
rightful owner.
In resolving private respondents claim of ownership, the examination of the genuineness of the documents
(deeds of assignment over the lot between Catalina Reyes and Eduardo Espaol and between Espaol and private
respondent) upon which he asserts his right is necessary, especially in light of petitioners allegations of
forgery. However, the respective assignors in both documents are not parties to the instant case. Not having been
impleaded in the trial court, they had no participation whatsoever in the proceedings at bar. Elementary norms of fair
play and due process bar us from making any disposition which may affect their rights. Verily, there can be no valid
judgment for or against them.[26]
Anyhow, since petitioner, who was the plaintiff below, failed to prove with clear and convincing evidence his
ownership claim over the subject property, the parties thus resume their status quo ante. The trial court should have
dismissed his complaint for his failure to prove a right superior to that of private respondent, but without prejudice to
any action that Catalina Reyes or Eduardo Espaol or both may have against said private respondent. Stating this
point otherwise, we are not ruling in this case on the rights and obligations between, on the one hand, Catalina
Reyes, her assigns and/or representatives; and, on the other, Private Respondent Cabanlit.
Not having proven any right to a valid, just and demandable claim that compelled him to litigate or to incur
expenses in order to protect his interests by reason of an unjustified act or omission of private respondent, petitioner
cannot be awarded attorneys fees.[27]
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo, Vitug and Quisumbing, JJ., concur.

82 | P a g e
February 3, 2018 [PROPERTY]

G.R. No. 199595 April 2, 2014

PHILIPPINE WOMAN'S CHRISTIAN TEMPERANCE UNION, INC., Petitioner,


vs.
TEODORO R. YANGCO 2ND AND 3RD GENERATION HEIRS FOUNDATION, INC., Respondent.

DECISION

REYES, J.:

This is a petition for certiorari and prohibition1 under Rule 65 of the Rules of Court seeking the issuance of an order
commanding the Register of Deeds of Quezon City and the Court Sheriff of the Regional Trial Court (RTC) of Quezon
City, Branch 218, to cease and desist from implementing the Court Resolutions dated July 21, 2010 2and September
15, 20103 in G.R. No. 190193 denying with finality Philippine Woman's Christian Temperance Union, Inc.'s (PWCTUI)
petition for review of the Court of Appeals (CA) Decision 4 dated November 6, 2009 in CA-G.R. CV No. 90763 which
affirmed the Decision5 dated January 24, 2008 of the RTC in LRC Case No. Q-18126(04) disposing as follows:

WHEREFORE, the Register of Deeds of Quezon City is hereby ordered to cancel TCT No. 20970 T-22702 and issue
in lieu thereof a new title in the name of Teodoro R. Yangco 2nd and 3rd Generation Heirs Foundation, Inc. free from
all liens and encumbrances.

SO ORDERED.6

PWCTUI also prays, as ancillary remedy, for the re-opening of LRC Case No. Q-18126(04) and as provisional
remedy, for the issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction.

The Antecedents

On May 19, 2004, respondent Teodoro R. Yangco (2nd and 3rd Generation Heirs) Foundation, Inc. (TRY Foundation)
filed before the RTC of Quezon City, acting as a Land Registration Court, a Petition for the Issuance of New Title in
Lieu of Transfer Certificate of Title (TCT) No. 20970 T-22702 of the Office of the Register of Deeds of Quezon City
docketed as LRC Case No. Q-18126(04).7

TRY Foundation alleged that it is composed of the 2nd and 3rd generation heirs and successors-in-interest to the first
generation testamentary heirs of the late philanthropist Teodoro R. Yangco (Yangco) who donated on May 19, 1934 a
14,073-square meter parcel of land (subject property) located at 21 Boni Serrano Avenue, Quezon City in the
following manner,8 viz:

a) the property shall be used as a site for an institution to be known as the Abierrtas House of Friendship the
purpose of which shall be to provide a Home for needy and unfortunate women and girls, including children
of both sexes and promote, foster all efforts, work and activities looking toward their protection from the
ravages of all forms of immoralities;

b) Should the property herein be used for any other purpose or purposes not herein specified, the present
gift shall become ipso facto null and void and property given shall automatically revert to the donor, his heirs
and assigns, but any improvement or improvements placed, constructed and/or maintained on said
premises by the Donee, shall remain the property of said Donee to be by it removed there[f]rom (sic) at its
expense after reasonable notice from the donor, his heirs and assigns. 9

83 | P a g e
February 3, 2018 [PROPERTY]

The property was registered in the name of PWCTUI by virtue of TCT No. 20970 at the back of which the above-
quoted conditions of the donation were annotated. PWCTUI is a non-stock, non-profit corporation originally registered
with the Securities and Exchange Commission (SEC) in 1929 under SEC Registration No. PW-959.10

PWCTUI’s corporate term expired in September 1979.11 Five years thereafter, using the same corporate name,
PWCTUI obtained SEC Registration No. 12208812 and forthwith applied for the issuance of a new owner’s duplicate
copy of TCT No. 20970 over the subject property thru LRC Case No. 22702. The application was granted and
PWCTUI was issued a new TCT No. 20970 T-2270213 which, however, bore only the first condition imposed on the
donation.

Recounting the foregoing episodes, TRY Foundation claimed that the expiration of PWCTUI’s corporate term in 1979
effectively rescinded the donation pursuant to the "unwritten resolutory condition" deemed written by Article 1315 of
the Civil Code14 prescribing that the Corporation Code, specifically Section 122 15 thereof, be read into the donation.
Interestingly the latter provision mandates dissolved corporation to wind up their affairs and dispose of their assets
within three years from the expiration of their term. Being comprised of the heirs of the donor, TRY Foundation
claimed that it is entitled to petition for the issuance of a new title in their name pursuant to Section 108 of
Presidential Decree (P.D.) No. 1529.16 TRY Foundation prayed for the issuance of a new title in its name after the
cancellation of PWCTUI’s TCT No. 20970 T-22702.

PWCTUI opposed the petition arguing that: (1) TRY Foundation has no legal personality to bring the action because
the donation has never been revoked and any right to demand for its revocation already prescribed; (2) although
PCWTUI’s corporate term was not extended upon its expiration in 1979, it nonetheless registered anew and
continued the operations, affairs and social work of the corporation; it also continued to possess the property and
exercised rights of ownership over it; (3) only the appropriate government agency and not TRY Foundation or any
other private individual can challenge the corporate life and existence of PCWTUI; (4) TRY Foundation and its
counsel are guilty of forum shopping because they have already questioned PWCTUI’s corporate personality in a
different forum but failed to obtain a favorable relief; (5) TRY Foundation is guilty of fraud for failing to include
PWCTUI as an indispensable party and to furnish it with a copy of the petition; and (6) the RTC has no jurisdiction
over the petition because PWCTUI is unaware of its publication. 17

In a Resolution dated April 4, 2005, the RTC denied the Opposition18 of PWCTUI. According to the trial court, when
the corporate life of PWCTUI expired in 1979, the property ceased to be used for the purpose for which it was
intended, hence, it automatically reverted to Yangco. As such, TRY Foundation, being composed of his heirs, is
considered "other person in interest" under Section 108 of P.D. No. 1529 with a right to file a petition for the issuance
of title over the property.

Hearings were thereafter held for the reception of evidence of TRY Foundation. On January 24, 2008, the RTC
rendered its Decision19 sustaining TRY Foundation’s petition.

The RTC ruled that PWCTUI, with SEC Registration No. PW-959 in whose name the property was registered is
separate and distinct from oppositor PWCTUI with SEC Registration No. 122088. The legal personality of PWCTUI
(PW-959) ipso facto ended when its registration expired in September 1979. The new PWCTUI (122088) has its own
personality separate and distinct from PWCTUI (PW-959) hence the latter is not the donee and thus has no claim to
the property. As such, the reversion clause in the donation came about and the property must revert to the donor or
his heirs, thus:

It is clear that Don Teodoro R. Yangco is the primary reversion owner of the property. He is succeeded as reversion
owner by the first generation heirs or those testamentary heirs named in his Last Will and Testament which will was
admitted to probate by the Supreme Court in the abovecited case. The second generation heirs are the nieces and
nephews of Don Teodoro R. Yangco and the sons/daughters of the "strangers" named in the will. The second
generation heirs succeeded the first generation/testamentary heirs in their own right. x x x. 20(Citations omitted)

The RTC granted TRY Foundation’s petition by ordering the cancellation of PWCTUI’s TCT No. 20970 T-22702 and
the issuance of a new title in the name of TRY Foundation. 21

PWCTUI appealed to the CA, arguing, among others, that it must be determined whether the condition imposed in
the donation has already occurred or deemed fulfilled. The appeal was docketed as CA-G.R. CV No. 90763. In its
Decision22 dated November 6, 2009, the CA affirmed the RTC’s findings. The CA added that the subsequent re-
registration of PWCTUI (122088) did not revive or continue the corporate existence of PWCTUI (PW-959). Hence,

84 | P a g e
February 3, 2018 [PROPERTY]

PWCTUI (122088) is not the real donee contemplated in the donation made by Yangco and as such any issue on
revocation of donation is improper. The CA Decision disposed thus:

WHEREFORE, the appeal is DENIED. The assailed Decision is AFFIRMED in toto. Costs against [PWCTUI].

SO ORDERED.23

PWCTUI sought recourse with the Court thru a petition for review on certiorari docketed as G.R. No. 190193. In a
Resolution24 dated July 21, 2010, we denied the petition for failure to sufficiently show any reversible error in the
assailed CA decision. PWCTUI moved for reconsideration but its motion was denied with finality in another
Resolution25 dated September 15, 2010. An entry of judgment was thereafter issued stating that the Court Resolution
dated July 21, 2010 became final and executory on October 20, 2010. 26

On December 23, 2011, PWCTUI filed the herein petition captioned as one for "Prohibition & Certiorari and to Re-
Open the Case with Prayer for Issuance of Temporary Restraining Order (TRO) &/or Writ of Preliminary
Injunction."27 PWCTUI prayed for the following reliefs:

a.) a TRO and/or a writ of preliminary injunction be issued preventing and/or enjoining public respondents,
Register of Deeds of Quezon City and the Sheriff of the RTC of Quezon City, Branch 218 from executing the
RTC Decision dated January 24, 2008;

b.) to make the injunction permanent by annulling and setting aside all orders, decisions, resolutions and
proceedings issued and taken in relation to LRC Case No. Q-18126(04) before the trial and appellate courts
for having been promulgated in excess of jurisdiction or with grave abuse of discretion; and

c.) LRC Case No. Q-18126(04) be re-opened, re-considered and re-studied in the interest of true and fair
justice.

In support of its pleas, PWCTUI submitted the following arguments:

a. based on the deed of donation, the expiration of PWCTUI’s corporate term is not stated as a ground for
the nullification of the donation and the operation of the reversion clause;

b. the commercial leasing of portions of the donated land did not violate the condition in the donation
because the lease contract with Jelby Acres was pursued for the generation of funds in order for PWCTUI to
carry on the charitable purposes of the Abiertas House of Friendship;

c. TRY Foundation has no legal standing or cause of action to claim the land because its members are not
the true heirs of Yangco who died single and without descendants. His only relatives are his half-siblings
who are the legitimate children of his mother, Doña Ramona Arguelles Corpus and her first husband Tomas
Corpus, hence, no right of inheritance ab intestato can take place between them pursuant to Article 992 of
the Civil Code; and d. Even assuming that TRY Foundation has a cause of action for the revocation of the
donation, the same has already prescribed because more than 40 years has lapsed from the date the
donation was made in May 19, 1934.

The Court’s Ruling

On its face, it is immediately apparent that the petition merits outright dismissal in view of the doctrine of immutability
attached to the Court’s final and executory Resolutions dated July 21, 2010 and September 15, 2010 in G.R. No.
190193.

The doctrine postulates that a decision that has acquired finality becomes immutable and unalterable, and may no
longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law,
and whether it is made by the court that rendered it or by the Highest Court of the land. Any act which violates this
principle must immediately be struck down.28

85 | P a g e
February 3, 2018 [PROPERTY]

A long and intent study, however, of the arguments raised in the present recourse vis-à-vis the proceedings taken in
LRC Case No. Q-18126(04) disclose that it is necessary, obligatory even, for the Court to accord affirmative
consideration to the supplications tendered by PWCTUI in the petition at bar.

While firmly ingrained as a basic procedural tenet in Philippine jurisprudence, immutability of final judgments was
never meant to be an inflexible tool to excuse and overlook prejudicial circumstances. The doctrine must yield to
practicality, logic, fairness and substantial justice.

Hence, it’s application admits the following exceptions: (1) the correction of clerical errors; (2) the so-called nunc pro
tunc entries which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire
after the finality of the decision rendering its execution unjust and inequitable.29

Here, the third exception is attendant. The nullity of the RTC judgment and all subsequent rulings affirming the same,
render inoperative the doctrine of immutability of judgment, and consequently justify the propriety of giving due
course to the present petition.

To expound, the RTC judgment in LRC Case No. Q-18126(04) and all proceedings taken in relation thereto were void
because the RTC did not acquire jurisdiction over the fundamental subject matter of TRY Foundation’s petition for the
issuance of a title which was in reality, a complaint for revocation of donation, an ordinary civil action outside the
ambit of Section 108 of P.D. No. 1529.

The petition filed by TRY


Foundation was a disguised
complaint for revocation of
donation.

It has been held that the jurisdiction of a court over the subject matter of a particular action is determined by the
plaintiff’s allegations in the complaint and the principal relief he seeks in the light of the law that apportions the
jurisdiction of courts.30 Jurisdiction should be determined by considering not only the status or the relationship of the
parties but also the nature of the issues or questions that is the subject of the controversy. 31

The petition is premised on allegations that the deed of donation from whence PWCTUI derived its title was
automatically revoked when the latter’s original corporate term expired in 1979. Consequently, reversion took effect in
favor of the donor and/or his heirs. As relief, TRY Foundation sought the cancellation of TCT No. 20970 T-22702 and
the issuance of a new title in its name, to wit:

WHEREFORE, in view of all the foregoing, it is respectfully prayed of the Hon. Court that after due hearing, the Hon.
Court render judgment:

Ordering the Register of Deeds of Quezon City to cancel TCT No. 20970 T-22702 and issue in lieu thereof a new title
in the name of TRY Heirs (2nd and 3rd Generation) Heirs Foundation, Inc. free from all liens and encumbrances. 32

The above contentions and plea betray the caption of the petition. Observably, TRY Foundation is actually seeking to
recover the possession and ownership of the subject property from PWCTUI and not merely the cancellation of
PWCTUI’s TCT No. 20970 T-22702. The propriety of pronouncing TRY Foundation as the absolute owner of the
subject property rests on the resolution of whether or not the donation made to PWCTUI has been effectively revoked
when its corporate term expired in 1979. Stated otherwise, no judgment proclaiming TRY Foundation as the absolute
owner of the property can be arrived at without declaring the deed of donation revoked.

The Court made a similar observation in Dolar v. Barangay Lublub (now P.D. Monfort North), Municipality of
Dumangas,33 the facts of which bear resemblance to the facts at hand. In Dolar, the petitioner filed a complaint for
quieting of title and recovery of possession with damages involving a land he had earlier donated to the respondent.
The petitioner claimed that the donation had ceased to be effective when the respondent failed to comply with the
conditions of the donation. As relief, the petitioner prayed that he be declared the absolute owner of the property. The
complaint was dismissed by the trial court on the ground that the petitioner’s cause of action for revocation has
already prescribed and as such, its claim for quieting of title is ineffective notwithstanding that the latter cause of
action is imprescriptible. In sustaining such dismissal, the Court remarked:

86 | P a g e
February 3, 2018 [PROPERTY]

As aptly observed by the trial court, the petitory portion of petitioner’s complaint in Civil Case No. 98-033 seeks for a
judgment declaring him the absolute owner of the donated property, a plea which necessarily includes the revocation
of the deed of donation in question. Verily, a declaration of petitioner’s absolute ownership appears legally possible
only when the deed of donation is contextually declared peremptorily revoked.

xxxx

It cannot be overemphasized that respondent barangay traces its claim of ownership over the disputed property to a
valid contract of donation which is yet to be effectively revoked. Such rightful claim does not constitute a cloud on the
supposed title of petitioner over the same property removable by an action to quiet title. Withal, the remedy afforded
in Article 476 of the Civil Code is unavailing until the donation shall have first been revoked in due course under
Article 764 or Article 1144 of the Code.34

An action which seeks the recovery


of property is outside the ambit of
Section 108 of P.D. No. 1529.

Whether the donation merits revocation and consequently effect reversion of the donated property to the donor
and/or his heirs cannot be settled by filing a mere petition for cancellation of title under Section 108 of P.D. No. 1529
which reads:

Sec. 108. Amendment and alteration of certificates. – No erasure, alteration, or amendment shall be made upon the
registration book after the entry of a certificate of title or of a memorandum thereon and the attestation of the same by
the Register of Deeds, except by order of the proper Court of First Instance. A registered owner or other person
having interest in the registered property, or, in proper cases, the Register of Deeds with the approval of the
Commissioner of Land Registration, may apply by petition to the court upon the ground that the registered interest of
any description, whether vested, contingent, expectant or inchoate appearing on the certificate, have terminated and
ceased; or that new interest not appearing upon the certificate have arisen or been created; or that an omission or an
error was made in entering a certificate or any memorandum thereon, or on any duplicate certificate: or that the same
or any person in the certificate has been changed or that the registered owner has married, or, if registered as
married, that the marriage has been terminated and no right or interest of heirs or creditors will thereby be affected; or
that a corporation which owned registered land and has been dissolved has not yet convened the same within three
years after its dissolution; or upon any other reasonable ground; and the court may hear and determine the petition
after notice to all parties in interest, and may order the entry or cancellation of a new certificate, the entry or
cancellation of a memorandum upon a certificate, or grant any other relief upon such terms and conditions, requiring
security and bond if necessary, as it may consider proper; Provided, however, That this section shall not be
construed to give the court authority to reopen the judgment or decree of registration, and that nothing shall be done
or ordered by the court which shall impair the title or other interest of a purchaser holding a certificate for value and in
good faith, or his heirs and assigns without his or their written consent. Where the owner’s duplicate certificate is not
presented, a similar petition may be filed as provided in the preceding section.

All petitions or motions filed under this section as well as any other provision of this decree after original registration
shall be filed and entitled in the original case in which the decree of registration was entered.

A parallel issue was encountered by the Court in Paz v. Republic of the Philippines, 35 which involved a petition for the
cancellation of title brought under the auspices of Section 108 of P.D. No. 1529. The petition sought the cancellation
of Original Certificate of Title No. 684 issued thru LRC Case No. 00-059 in favor of the Republic, Filinvest
Development Corporation and Filinvest Alabang, Inc., and the issuance of a new title in the name of the petitioner
therein. The petition was dismissed by the RTC.

The dismissal was affirmed by the CA and eventually by this Court on the following reasons:

We agree with both the CA and the RTC that the petitioner was in reality seeking the reconveyance of the property
covered by OCT No. 684, not the cancellation of a certificate of title as contemplated by Section 108 of P.D. No.
1529. Thus, his petition did not fall under any of the situations covered by Section 108, and was for that reason rightly
dismissed.

Moreover, the filing of the petition would have the effect of reopening the decree of registration, and could thereby
impair the rights of innocent purchasers in good faith and for value. To reopen the decree of registration was no

87 | P a g e
February 3, 2018 [PROPERTY]

longer permissible, considering that the one-year period to do so had long ago lapsed, and the properties covered by
OCT No. 684 had already been subdivided into smaller lots whose ownership had passed to third persons. x x x.

xxxx

Nor is it subject to dispute that the petition was not a mere continuation of a previous registration proceeding. Shorn
of the thin disguise the petitioner gave to it, the petition was exposed as a distinct and independent action to seek the
reconveyance of realty and to recover damages. Accordingly, he should perform jurisdictional acts, like paying the
correct amount of docket fees for the filing of an initiatory pleading, causing the service of summons on the adverse
parties in order to vest personal jurisdiction over them in the trial court, and attaching a certification against forum
shopping (as required for all initiatory pleadings). He ought to know that his taking such required acts for granted was
immediately fatal to his petition, warranting the granting of the respondents’ motion to dismiss. 36

By analogy, the above pronouncements may be applied to the controversy at bar considering that TRY Foundation’s
exposed action for revocation of the donation necessarily includes a claim for the recovery of the subject property.

The circumstances upon which the ruling in Paz was premised are attendant in the present case. The petition of TRY
Foundation had the effect of reopening the decree of registration in the earlier LRC Case No. 20970 which granted
PWCTUI’s application for the issuance of a new owner’s duplicate copy of TCT No. 20970. As such, it breached the
caveat in Section 108 that "this section shall not be construed to give the court authority to reopen the judgment or
decree of registration." The petition of TRY Foundation also violated that portion in Section 108 stating that "all
petitions or motions filed under this section as well as any other provision of this decree after original registration shall
be filed and entitled in the original case in which the decree of registration was entered." The petition of TRY
Foundation in LRC Case No. Q-18126(04) was clearly not a mere continuation of LRC Case No. 20970.

Further, the petition filed by TRY Foundation is not within the province of Section 108 because the relief thereunder
can only be granted if there is unanimity among the parties, or that there is no adverse claim or serious objection on
the part of any party in interest.37 Records show that in its opposition to the petition, PWCTUI maintained that it
"remains and continues to be the true and sole owner in fee simple of the property" and that TRY Foundation "has no
iota of right" thereto.38

More so, the enumerated instances for amendment or alteration of a certificate of title under Section 108 are non-
controversial in nature. They are limited to issues so patently insubstantial as not to be genuine issues. The
proceedings thereunder are summary in nature, contemplating insertions of mistakes which are only clerical, but
certainly not controversial issues.39 Undoubtedly, revocation of donation entails litigious and controversial matters
especially in this case where the condition supposedly violated by PWCTUI is not expressly stated in the deed of
donation. Thus, it is imperative to conduct an exhaustive examination of the factual and legal bases of the parties’
respective positions for a complete determination of the donor’s desires. Certainly, such objective cannot be
accomplished by the court through the abbreviated proceedings of Section 108.

In fact, even if it were specifically imposed as a ground for the revocation of the donation that will set off the automatic
reversion of the donated property to the donor and/or his heirs, court intervention is still indispensable.

As ruled in Vda. de Delgado v. CA,40 "[a]lthough automatic reversion immediately happens upon a violation of the
condition and therefore no judicial action is necessary for such purpose, still judicial intervention must be sought by
the aggrieved party if only for the purpose of determining the propriety of the rescission made." 41 In addition, where
the donee denies the rescission of the donation or challenges the propriety thereof, only the final award of the court
can conclusively settle whether the resolution is proper or not. 42 Here, PWCTUI unmistakably refuted the allegation
that the expiration of its corporate term in 1979 rescinded the donation.

Lastly, the issues embroiled in revocation of donation are litigable in an ordinary civil proceeding which demands
stricter jurisdictional requirements than that imposed in a land registration case.

Foremost of which is the requirement on the service of summons for the court to acquire jurisdiction over the persons
of the defendants. Without a valid service of summons, the court cannot acquire jurisdiction over the defendant,
unless the defendant voluntarily submits to it. Service of summons is a guarantee of one’s right to due process in that
he is properly apprised of a pending action against him and assured of the opportunity to present his defenses to the
suit.43

88 | P a g e
February 3, 2018 [PROPERTY]

In contrast, jurisdiction in a land registration cases being a proceeding in rem, is acquired by constructive seizure of
the land through publication, mailing and posting of the notice of hearing. 44 Persons named in the application are not
summoned but merely notified of the date of initial hearing on the petition. 45

The payment of docket fees is another jurisdictional requirement for an action for revocation which was absent in the
suit filed by TRY Foundation. On the other hand, Section 111 of P.D. No. 1529 merely requires the payment of filing
fees and not docket fees.

Filing fees are intended to take care of court expenses in the handling of cases in terms of cost of supplies, use of
equipment, salaries and fringe benefits of personnel, etc., computed as to man hours used in handling of each case.
Docket fees, on the other hand, vest the trial court jurisdiction over the subject matter or nature of action.46

The absence of the above jurisdictional requirements for ordinary civil actions thus prevented the RTC, acting as a
land registration court, from acquiring the power to hear and decide the underlying issue of revocation of donation in
LRC Case No. Q-18126(04). Any determination made involving such issue had no force and effect; it cannot also
bind PWCTUI over whom the RTC acquired no jurisdiction for lack of service of summons.

"Jurisdiction is the power with which courts are invested for administering justice; that is, for hearing and deciding
cases. In order for the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the
subject matter and the parties."47

Conclusion

All told, the RTC, acting as a land registration court, had no jurisdiction over the actual subject matter contained in
TRY Foundation’s petition for issuance of a new title. TRY Foundation cannot use the summary proceedings in
Section 108 of P.D. No. 1529 to rescind a contract of donation as such action should be threshed out in ordinary civil
proceedings. In the same vein, the RTC had no jurisdiction to declare the donation annulled and as a result thereof,
order the register of deeds to cancel PWCTUI’s TCT No. 20970 T-22702 and issue a new one in favor of TRY
Foundation.

The RTC, acting as a land registration court, should have dismissed the land registration case or re-docketed the
same as an ordinary civil action and thereafter ordered compliance with stricter jurisdictional requirements. Since the
RTC had no jurisdiction over the action for revocation of donation disguised as a land registration case, the judgment
in LRC Case No. Q-18126(04) is null and void. Being void, it cannot be the source of any right or the creator of any
obligation. It can never become final and any writ of execution based on it is likewise void.48 It may even be
considered as a lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and
whenever it exhibits its head.49

Resultantly, the appellate proceedings relative to LRC Case No. Q-18126(04) and all issuances made in connection
with such review are likewise of no force and effect. A void judgment cannot perpetuate even if affirmed on appeal by
the highest court of the land. All acts pursuant to it and all claims emanating from it have no legal effect. 50

The Court Resolutions dated July


21, 2010 and September 15, 2010 do
not bar the present ruling.

It is worth emphasizing that despite PWCTUI’s incessant averment of the RTC’s lack of jurisdiction over TRY
Foundation’s petition, the trial court shelved the issue, took cognizance of matters beyond those enveloped under
Section 108 and sorted out, in abridged proceedings, complex factual issues otherwise determinable in a full-blown
trial appropriate for an ordinary civil action.

PWCTUI no longer raised the jurisdiction issue before the CA and limited its appeal to the factual findings and legal
conclusions of the RTC on its corporate existence and capacity as the subject property’s uninterrupted owner. The
matter reached the Court thru a petition for review under Rule 45, but with the question of jurisdiction absent in the
appellate pleadings, the Court was constrained to review only mistakes of judgment.

89 | P a g e
February 3, 2018 [PROPERTY]

While PWCTUI could have still challenged the RTC’s jurisdiction even on appeal, its failure to do so cannot work to its
disadvantage. The issue of jurisdiction is not lost by waiver or by estoppel; no laches will even attach to a judgment
rendered without jurisdiction.51

Hence, since the Court Resolutions dated July 21, 2010 and September 15, 2010 in G.R. No. 190193 disposed the
case only insofar as the factual and legal questions brought before the CA were concerned, they cannot operate as a
procedural impediment to the present ruling which deals with mistake of jurisdiction.1âwphi1

This is not to say, however, that a certiorari before the Court is a remedy against its own final and executory
judgment. As made known in certain cases, the Court is invested with the power to suspend the application of the
rules of procedure as a necessary complement of its power to promulgate the same. 52 Barnes v. Hon. Quijano
Padilla53 discussed the rationale for this tenet, viz:

Let it be emphasized that the rules of procedure should be viewed as mere tools designed to facilitate the attainment
of justice. Their strict and rigid application, which would result in technicalities that tend to frustrate rather than
promote substantial justice, must always be eschewed. Even the Rules of Court reflect this principle. The power to
suspend or even disregard rules can be so pervasive and compelling as to alter even that which this Court itself has
already declared to be final, x x x.

The emerging trend in the rulings of this Court is to afford every party litigant the amplest opportunity for the proper
and just determination of his cause, free from the constraints of technicalities. Time and again, this Court has
consistently held that rules must not be applied rigidly so as not to override substantial justice. 54 (Citation omitted and
italics supplied)

Here, the grave error in jurisdiction permeating the proceedings taken in LRC Case No. Q-18126(04) deprived
PWCTUI of its property without the very foundation of judicial proceedings – due process. Certainly, the Court cannot
let this mistake pass without de rigueur rectification by suspending the rules of procedure and permitting the present
recourse to access auxiliary review.

If the Court, as the head and guardian of the judicial branch, must continuously merit the force of public trust and
confidence — which ultimately is the real source of its sovereign power — and if it must decisively discharge its
sacred duty as the last sanctuary of the oppressed and the weak, it must, in appropriate cases, pro-actively provide
weary litigants with immediate legal and equitable relief, free from the delays and legalistic contortions that oftentimes
result from applying purely formal and procedural approaches to judicial dispensations.55

WHEREFORE, all things studiedly viewed in the correct perspective, the petition is hereby GRANTED. All
proceedings taken, decisions, resolutions, orders and other issuances made in LRC Case No. Q-18126(04), CA-G.R.
CV No. 90763 and G.R. No. 190193 are hereby ANNULLED and SET ASIDE.

The Register of Deeds of Quezon City is hereby ORDERED to CANCEL any Transfer Certificate of Title issued in the
name of Teodoro R. Yangco 2nd and 3rd Generation Heirs Foundation, Inc. as a consequence of the execution of the
disposition in LRC Case No. Q-18126(04), and to REINSTATE Transfer Certificate of Title No. 20970 T-22702 in the
name of Philippine Woman’s Christian Temperance Union, Inc. SO ORDERED.

14 Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.

15Sec. 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it
would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but
not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, the corporation is authorized and empowered to convey all
of its property to trustees for the benefit of stockholders, members, creditors, and other persons in
interest. From and after any such conveyance by the corporation of its property in trust for the

90 | P a g e
February 3, 2018 [PROPERTY]

benefit of its stockholders, members, creditors and others in interest, all interest which the
corporation had in the property terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder
or member who is unknown or cannot be found shall be escheated to the city or municipality where
such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon lawful dissolution and after payment of all its
debts and liabilities.

16 Otherwise known as the Property Registration Decree.

G.R. No. 178906 February 18, 2009

ELVIRA T. ARANGOTE, petitioner,


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

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure
seeking to reverse and set aside the Decision 1 dated 27 October 2006 and Resolution2 dated 29 June 2007 of the
Court of Appeals in CA-G.R. SP No. 64970. In its assailed Decision, the appellate court affirmed the Decision 3dated
12 September 2000 of the Regional Trial Court (RTC), 6th Judicial Region, Branch 1, Kalibo, Aklan, in Civil Case No.
5511, which reversed the Decision4 dated 6 April 1998 of the 7th Municipal Circuit Trial Court (MCTC) of Ibajay-
Nabas, Ibajay, Aklan, in Civil Case No. 156; and declared5 the herein respondent-Spouses Martin and Lourdes
Maglunob (Spouses Maglunob) and respondent Romeo Salido (Romeo) as the lawful owners and possessors of Lot
12897 with an area of 982 square meters, more or less, located in Maloco, Ibajay, Aklan (subject property). In its
assailed Resolution, the appellate court denied herein petitioner Elvira T. Arangote’s Motion for Reconsideration.

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the registered owner of the subject property,
as evidenced by Original Certificate of Title (OCT) No. CLOA-1748.6 Respondents Martin (Martin II) and Romeo are
first cousins and the grandnephews of Esperanza Maglunob-Dailisan (Esperanza), from whom petitioner acquired the
subject property.

The Petition stems from a Complaint7 filed by petitioner and her husband against the respondents for Quieting of
Title, Declaration of Ownership and Possession, Damages with Preliminary Injunction, and Issuance of Temporary
Restraining Order before the MCTC, docketed as Civil Case No. 156.

The Complaint alleged that Esperanza inherited the subject property from her uncle Victorino Sorrosa by virtue of a
notarized Partition Agreement8 dated 29 April 1985, executed by the latter’s heirs. Thereafter, Esperanza declared
the subject property in her name for real property tax purposes, as evidenced by Tax Declaration No. 16218 (1985).9

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

In 1989, petitioner and her husband constructed a house on the subject property. On 26 March 1993, OCT No.
CLOA-1748 was issued by the Secretary of the Department of Agrarian Reform (DAR) in the name of petitioner,
married to Ray Mars E. Arangote. However, respondents, together with some hired persons, entered the subject

91 | P a g e
February 3, 2018 [PROPERTY]

property on 3 June 1994 and built a hollow block wall behind and in front of petitioner’s house, which effectively
blocked the entrance to its main door.

As a consequence thereof, petitioner and her husband were compelled to institute Civil Case No. 156.

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

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

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

WHEREFORE, judgment is hereby rendered:

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

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

C. Ordering the [respondents] to pay the [petitioner and her husband] the amount of ₱10,000.00 as
attorney’s fee. With cost against the [respondents].13

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

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

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

WHEREFORE, judgment is hereby rendered as follows:

1) The appealed [D]ecision is REVERSED;

2) [Herein respondents] and the other heirs of Martin Maglunob are declared the lawful owners and
possessors of the whole [subject property] as described in Paragraph 2 of the [C]omplaint, as against the
[herein petitioner and her husband].

92 | P a g e
February 3, 2018 [PROPERTY]

3) [Petitioner and her husband] are ordered to immediately turn over possession of the [subject property] to
the [respondents] and the other heirs of Martin Maglunob; and

4) [Petitioner and her husband] are ordered to pay [respondents] attorney’s fees of ₱5,000.00, other
litigation expenses of ₱5,000.00, moral damages of ₱10,000.00 and exemplary damages of P5,000.00. 14

Petitioner and her husband filed before the RTC, on 26 September 2000, a Motion for New Trial or
Reconsideration15 on the ground of newly discovered evidence consisting of a Deed of Acceptance 16 dated 23
September 2000, and notice17 of the same, which were both made by the petitioner, for herself and in behalf of her
husband,18 during the lifetime of Esperanza. In the RTC Order 19 dated 2 May 2001, however, the RTC denied the
aforesaid Motion for New Trial or Reconsideration.

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

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

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

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

III. It erred in declaring [OCT] No. CLOA-1748 in the name of [herein petitioner] Elvie T. Arangote as null and
void;

IV. It erred in denying [petitioner and her husband’s] [M]otion for [N]ew [T]rial or [R]econsideration dated [26
September 2000; and

V. It erred in not declaring the [petitioner and her husband] as possessors in good faith. 20

On 27 October 2006, the Court of Appeals rendered a Decision denying the Petition for Review of petitioner and her
husband and affirming the RTC Decision dated 12 September 2000. Petitioner and her husband’s subsequent Motion
for Reconsideration was similarly denied by the Court of Appeals in its Resolution dated 29 June 2007.

Hence, petitioner21 now comes before this Court raising in her Petition the following issues:

I. Whether the [RTC] acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it
declared the [petitioner and her husband’s title to the subject property] null and void;

II. Whether the [RTC] acted with grave abuse of discretion amounting to lack of jurisdiction when it declared
the Affidavit of Quitclaim null and void; and

III. Whether the [RTC] and the Honorable Court of Appeals acted with grave abuse of discretion amounting
to lack or excess of jurisdiction when it rejected petitioner’s claim as possessors (sic) in good faith, hence,
entitled to the rights provided in [Article] 448 and [Article] 546 of the Civil Code.22

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

Petitioner additionally posits that both the RTC and the Court of Appeals committed a mistake in declaring null and
void the Affidavit dated 9 June 1986 executed by Esperanza, waiving all her rights and interest over the subject

93 | P a g e
February 3, 2018 [PROPERTY]

property in favor of petitioner and her husband. Esperanza’s Affidavit is a valid and binding proof of the transfer of
ownership of the subject property in petitioner’s name, as it was also coupled with actual delivery of possession of the
subject property to petitioner and her husband. The Affidavit is also proof of good faith on the part of petitioner and
her husband.

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

This present Petition is devoid of merit.

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

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

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

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

According to the aforementioned Deed of Extrajudicial Settlement and Partition of Estate, the surviving and legal
heirs of Pantaleon and Placida agreed to have the parcel of land commonly owned by the siblings declared for real
property tax purposes in the name of Victorino Sorrosa (Victorino), Placida’s husband. Thus, Tax Declarations No.
5988 (1942),27 No. 6200 (1945)28 and No. 7233 (1953)29 were all issued in the name of Victorino.

Since Martin I already passed away when the Deed of Extrajudicial Settlement and Partition of Estate was executed,
his heirs30 were represented therein by Esperanza. By virtue of the said Deed, Martin I received as inheritance a
portion of the parcel of land measuring 897 square meters.

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

The [subject property] which is claimed by the [herein petitioner and her husband] and that which is claimed by the
[herein respondents] are one and the same, the difference in area and technical description being due to the

94 | P a g e
February 3, 2018 [PROPERTY]

repartition and re-allocation of the parcel of land originally co-owned by Pantaleon Maglunob and his sister Placida
Maglunob and subsequently declared in the name of [Victorino] under Tax Declaration No. 5988 of 1949. 32

It is clear from the records that the subject property was not Esperanza’s exclusive share, but also that of the other
heirs of her father, Martin I. Esperanza expressly affixed her thumbmark to the Deed of Extrajudicial Settlement of
July 1981 not only for herself, but also on behalf of the other heirs of Martin I. Though in the Partition Agreement
dated 29 April 1985 Esperanza affixed her thumbmark without stating that she was doing so not only for herself, but
also on behalf of the other heirs of Martin I, this does not mean that Esperanza was already the exclusive owner
thereof. The evidence shows that the subject property is the share of the heirs of Martin I. This is clear from the
sketch33 attached to the Partition Agreement dated 29 April 1985, which reveals the proportionate areas given to the
heirs of the two siblings, Pantaleon and Placida, who were the original owners of the whole parcel of land 34 from
which the subject property was taken.

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

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

That I hereby renounce, relinquish, waive and quitclaim all my rights, share, interest and participation whatsoever in
the [subject property] unto the said Sps. Ray Mars Arangote and Elvira T. Arangote, their heirs, successors, and
assigns including the improvement found thereon;35

Logically, if Esperanza fully owned the subject property, she would have simply waived her rights to and interest in
the subject property, without mentioning her "share" and "participation" in the same. By including such words in her
Affidavit, Esperanza was aware of and was limiting her waiver, renunciation, and quitclaim to her one-third share and
participation in the subject property.

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

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

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

As no onerous undertaking is required of petitioner and her husband under the said Affidavit, the donation is regarded
as a pure donation of an interest in a real property covered by Article 749 of the Civil Code. 36 Article 749 of the Civil
Code provides:

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

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take
effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this
step shall be noted in both instruments.

From the aforesaid provision, there are three requisites for the validity of a simple donation of a real property, to wit:
(1) it must be made in a public instrument; (2) it must be accepted, which acceptance may be made either in the

95 | P a g e
February 3, 2018 [PROPERTY]

same Deed of Donation or in a separate public instrument; and (3) if the acceptance is made in a separate
instrument, the donor must be notified in an authentic form, and the same must be noted in both instruments.

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

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

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

The subsequent notarized Deed of Acceptance39 dated 23 September 2000, as well as the notice 40 of such
acceptance, executed by the petitioner did not cure the defect. Moreover, it was only made by the petitioner several
years after the Complaint was filed in court, or when the RTC had already rendered its Decision dated 12 September
2000, although it was still during Esperanza’s lifetime. Evidently, its execution was a mere afterthought, a belated
attempt to cure what was a defective donation.

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

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

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

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

Section 48 of Presidential decree No. 1529 states:

SEC. 48. Certificate not subject to collateral attack. - A certificate of title shall not be subject to collateral attack. It
cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

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

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

96 | P a g e
February 3, 2018 [PROPERTY]

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

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

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

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

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

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

This claim is untenable.

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

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

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

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

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

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

In the present case, when respondents came to know that an OCT over the subject property was issued and
registered in petitioner’s name on 26 March 1993, respondents brought a Complaint on 7 August 1993 before the

97 | P a g e
February 3, 2018 [PROPERTY]

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

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

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

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

Article 448. The owner of the land on which anything has been built, sown, or planted in good faith, shall have the
right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles
546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.1avvphi1

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

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

Under the foregoing provisions, the builder in good faith can compel the landowner to make a choice between
appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The
choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory
follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead
remove it from the land. In order, however, that the builder can invoke that accruing benefit and enjoy his
corresponding right to demand that a choice be made by the landowner, he should be able to prove good faith on his
part.48

Good faith, here understood, is an intangible and abstract quality with no technical meaning or statutory definition,
and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to
defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind
and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and
freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies
in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach
another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode
of acquisition any flaw which invalidates it.49

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

98 | P a g e
February 3, 2018 [PROPERTY]

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

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

SO ORDERED.

Footnotes

5 In its Decision dated 12 September 2000, the RTC likewise declared the other heirs of Martin Maglunob
(the great-grandfather of herein respondent Martin Maglunob) as the lawful owners and possessors of the
subject property despite the fact that they are not even parties to the case.

16In the RTC Decision dated 12 September 2000, the RTC treated the Affidavit executed by Esperanza in
favor of the petitioner and her husband as a Donation because the intent of Esperanza in executing such
Affidavit is to donate the subject property to the petitioner and her husband.

18The Deed of Acceptance was signed only by the petitioner. In the said Deed of Acceptance, however,
petitioner accepted the donation not only for herself but also in behalf of her husband.

21On 21 April 1994, Ray Mars E. Arangote, herein petitioner Elvira T. Arangote’s husband, executed a
Special Power of Attorney in her favor to represent him in any proceedings involving the subject property.
The case before the lower courts, however, was still entitled Sps. Ray Mars E. Arangote and Elvira T.
Arangote v. Sps. Martin Maglunob and Lourdes S. Maglunob and Romeo Salido. But, when the case was
elevated to this Court, it was only Elvira T. Arangote who stood as petitioner.

22In petitioner’s Memorandum she stated almost the same issues she had mentioned in her Petition before
the Court of Appeals. (Rollo, p. 14.)

23Local Superior of the Servants of Charity (Guanellians), Inc. v. Jody King Construction and Development
Corporation, G.R. No. 141715, 12 October 2005, 472 SCRA 445, 451.

24Recognized exceptions to this rule are: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on misapprehension of facts; (5)
when the finding of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the appellee and the appellant;
(7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; or (11) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion. (Langkaan Realty Development, Inc. v. United
Coconut Planters Bank, 400 Phil. 1349, 1356-1357 [2000]; Nokom v. National Labor Relations Commission,
390 Phil. 1228, 1243 [2000]; Commissioner of Internal Revenue v. Embroidery and Garments Industries
[Phils.], Inc., 364 Phil. 541, 546-547 [1999]; Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283 [1998];
Almendrala v. Ngo, G.R. No. 142408, 30 September 2005, 471 SCRA 311, 322.)

99 | P a g e
February 3, 2018 [PROPERTY]

30
The heirs of Martin I other than the respondents are the other great-grandchildren of Martin I, namely:
Jerry, Benita, Feliciano, Andrew, Abdon, Gilbert, Enrique, Tomas, Donato, Felicidad, and Prescila, all
surnamed Maglunob.

31 His cousins, son, granddaughters, and grandsons.

34 It consists of 7,176 square meters.

45The basic requirements under Republic Act No. 6657 in order that the Certificate of Land Ownership may
be awarded to the applicant are: (1) he/she must be a qualified beneficiary, i.e., he/she she must be an
agricultural lessee and share tenant, regular farmworker, seasonal farmworkers, or any other farmworker,
actual tiller or occupant of a public land, collective or cooperative of the above beneficiary, or any other
person directly working on the land; and (2) he/she must have willingness, attitude, and ability to cultivate
and make the land as productive as possible (Section 22, Republic Act No. 6657).

G.R. No. L-29204 December 29, 1928


RUFINA ZAPANTA, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29205 December 29, 1928
ROSARIO PINEDA, plaintiff-appellee,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29206 December 29, 1928
OLIMPIO GUANZON, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29207 December 29, 1928
LEONCIA PINEDA, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29208 December 29, 1928
EMIGDIO DAVID, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29209 December 29, 1928
GERONIMA PINEDA, plaintiff-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

Office of the Solicitor-General Reyes for appellants.


Aurelio Pineda for appellees.

AVANCEÑA, C. J.:

Father Braulio Pineda died in January 1925 without any ascendants or descendants leaving a will in which he
instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio donated some of his property
by the instruments to the six plaintifffs, severally, with the condition that some of them would pay him a certain
amount of rice, and others of money every year, and with the express provision that failure to fulfill this condition
would revoke the donations ipso facto. These six plaintiff-donees are relatives, and some of them brothers of Father
Braulio Pineda. The donations contained another clause that they would take effect upon acceptance. They were
accepted during Father Braulio's lifetime by every one of the donees.

100 | P a g e
February 3, 2018 [PROPERTY]

Every one of the six plaintiffs filed a separate action against the Collector of Internal Revenue and his deputy for the
sums of which each of them paid, under protest, as inheritance tax on the property donated to them, in accordance
with section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835, and by section 1 of Act No.
3031. Section 1536 of the Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in anticipation of
inheritance, devise, or bequest of real property located in the Philippine Islands and real rights in such
property; . . .

The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the deceased Father
Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance tax, and ordered the defendants
to return to each of the plaintiffs the sums paid by the latter.

The defendants appealed from this judgment.

The whole quetion involved in this appeal resolves into whether the donations made by Father Braulio Pineda to each
of the plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which the Administrative Code
imposes inheritance tax. In our opinion, said donations are inter vivos. It is so expressly stated in the instruments in
which they appear. They were made in consideration of the donor's affection for the donees, and of the services they
had rendered him, but he has charged them with the obligation to pay him a certain amount of rice and money,
respectively, each year during his lifetime, the donations to become effective upon acceptance. They are therefore
not in the nature of donations mortis causa but inter vivos.

The principal characteristics of a donation mortis causa, which distinguish it essentially from a donation inter vivos,
are that in the former it is the donor's death that determines the acquisition of, or the right to, the property, and that it
is revocable at the will of the donor. In the donations in question, their effect, that is, the acquisition of, or the right to,
the property, was produced while the donor was still alive, for according to their expressed terms they were to have
this effect upon acceptance, and this took place during the donor's lifetime. The nature of these donations is not
affected by the fact that they were subject to a condition, since it was imposed as a resolutory condition, and in this
sense, it is necessarily implies that the right came into existence first as well as its effect, because otherwise there
would be nothing to resolve upon the nonfulfillment of the condition imposed. Neither does the fact that these
donations are revocable, give them the character of donations mortis causa, inasmuch as the revocation is not the
failure to fulfill the condition imposed. In relation to the donor's will alone, these donations are irrevocable. On the
other hand, this condition, in so far as it renders the donation onerous, takes it further away from the
disposition mortis causa and brings it nearer to contract. In this sense, by virtue of this condition imposed, they are
not donations throughout their full extent, but only so far as they exceed the incumbrance imposed, for so far as
concerns the portion equivalent to or less than said incumbrance, it has the nature of a real contract and is governed
by the rule on contracts (art. 622 of the Civil Code). And in the part in which it is strictly a donation, it is a
donation inter vivos, because its effect was produced by the donees' acceptance during the donor's lifetime and was
not determined by the donor's death. Upon being accepted they had full effect. If the donor's life is mentioned in
connection with this condition, it is only fix the donor's death as the end of the term within which the condition must be
fulfilled, and not because such death of the donor is the cause which determines the birth of the right to the donation.
The property donated passed to the ownership of the donees from the acceptance of the donations, and these could
not be revoked except upon the nonfulfillment of the condition imposed, or for other causes prescribed by the law, but
not by mere will of the donor.

Neither can these donations be considered as an advance on inheritance or legacy, according to the terms of section
1536 of the Administrative Code, because they are neither an inheritance nor a legacy. And it cannot be said that the
plaintiffs received such advance on inheritance or legacy, since they were not heirs or legatees of their predessor in
interest upon his death (sec. 1540 of the Administrative Code). Neither can it be said that they obtained this
inheritance or legacy by virtue of a document which does not contain the requisites of a will (sec. 618 of the Code of
Civil Pocedure).1awphi1.net

Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa, then they must be
governed by the law on testate succession (art. 620 of the Civil Code). In such a case, the documents in which these
donations appear, being instruments which do not contain the requisites of a will, are not valid to transmit the property
to the donees (sec. 618, Code of Civil Procedure.) Then the defendants are not justified in collecting from the donees
the inheritance tax, on property which has not been legally transferred to them, and in which they acquired no right.

101 | P a g e
February 3, 2018 [PROPERTY]

For these reasons the judgment appealed from is affirmed, without special pronouncement as to costs. So ordered.

Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.


Ostrand and Johns, JJ., dissent.

[G.R. No. L-2209. January 2, 1907. ]

SEGUNDO JAVIER, Plaintiff-Appellant, v. LONGINOS JAVIER, administrator of the estate of Manuel Javier
and Perfecta Tagle, Defendant-Appellee.

W. J. Rohde, for Appellant.

Chicote, Miranda & Sierra, for Appellee.

SYLLABUS

ESTATES; HEIRS; INVENTORY. — Held, That under the facts stated in the opinion the house and lot in question
should be excluded from the inventory of the property of the estate of Manuel Javier and Perfecta Tagle, and that the
heirs of the latter have the right to retain the said house after indemnifying the plaintiff in the value thereof, or to
compel the plaintiff to pay to them the value of the land occupied by the said house, the plaintiff having the right to
retain the same until the value of said land is paid.

DECISION

MAPA, J. :

This action involves the ownership of a house and lot. This property was included in the inventory of the property of
the estate of Manuel Javier and Perfecta Tagle, under which the parties to this action claim, and the plaintiff seeks to
have the property in controversy excluded from the said inventory, alleging that is belongs exclusively to him. The
defendant contends that the property belongs to the said estate, and that it has been, therefore, properly included in
the inventory. The defendant filed a counter- complaint praying that judgment be entered against the plaintiff, who is
now in possession of the property, for the return of the same, and the payment of the rent received by the said
plaintiff from the property, to the administrator of the estate.

The case was decided in the court below in favor of the defendant, the plaintiff excepted to the judgment, made a
motion for a new trial on the ground that the judgment was not justified by the weight of the evidence, and has
brought the case this court, by means of a bill of exceptions, for review.

As suggested by the appellant in his brief, the description of the property in controversy is not very clear and definite.
This, however, is of no practical importance in this case. No question has been raised upon this point. The parties in
discussing their respective rights have assumed that the description was correct.

The evidence introduced as to each of the pieces of property in question being different, we shall now proceed to
examine the same separately.

(a) Lot. — It is beyond dispute that this lot formerly belonged to Manuel Javier, under whom both parties claim.

102 | P a g e
February 3, 2018 [PROPERTY]

Manuel Javier sold this lot, with another lot, to Ceferino Joven, for the sum of 350 pesos on the 11th of September,
1862, as appears from a public document executed on the same date, and which is a part of the record in this case.
The terms of this instrument are conclusive against the assertion of some of the witnesses for the defendant to the
effect that the contract between Manuel Javier and Ceferino Joven related to a mortgage only, or perhaps to a sale
on condition of redemption. "Having agreed upon the sale," reads the text of the document, "with Ceferino Joven . . .
(Manuel Javier) declares that he actually sells and transfers the said two lots to the said Ceferino Joven for the
aforesaid sum of three hundred and fifty pesos. . . In consideration thereof he transfers to the purchaser the title and
ownership which he has to the property so that the said purchaser may dispose of and alienate the same, as he may
see fit, as his own properly acquired property ." According to this, it was a transfer and not a mortgage-an absolute
and irrevocable transfer, and not subject to redemption, for there is nothing said in the deed as to such redemption.
Such was the contract entered into between Javier and Joven with regard to the lot in question.

This fact is of capital importance in this action, because, it not appearing in any way that Manuel Javier or his wife,
Perfecta Tagle, had repurchased, or in any other manner reacquired the ownership of the said lot, it can not be
considered as a part of the estate of the said spouses, as contended by the defendant in this case. Such a conclusion
could not be arrived at even if we admitted for the sake of argument everything that the witnesses for the defendant
said upon this point. These witnesses were Gavina Javier and Romualda Javier, the sisters and coheirs of the parties
to this action. They testified that they and their brother, Martin, with their father’s consent, repurchased the lot in
question, paying therefor the sum of 350 pesos, from their own funds, such being the price formerly paid by Ceferino
Joven. If this were true, they and not the estate would be the owners of the lot, since the repurchase was made, as
they say, by themselves, on their own account, and with their own funds. In such a case, they, and not the
administrator of the estate, would have the right to contest the ownership of the property.

But the fact is that the testimony of these two witnesses was completely contradicted by other evidence in the case,
which in our opinion was more conclusive, introduced by the plaintiff. Their testimony is in open conflict with the real
facts, for they proceed upon the theory that the property had not been absolutely sold to Ceferino Joven, but simply
mortgaged to him, or at most, sold to him on condition of redemption. This theory is plainly and manifestly contrary to
the express terms of the deed executed and delivered on the 11th of September, 1862, to which prior reference had
been made.

Moreover, there is nothing other than the testimony of the said witnesses, to show that they had reacquired the
property in question from the original purchaser, Ceferino Joven. There is, however, on the other hand, sufficient
proof to show that the plaintiff and his brother, Luis, bought from the heirs of the said Joven the property in question,
and that Luis subsequently sold to the plaintiff his share in the property, the plaintiff having thus become the sole
owner of the land. Aside from the testimony of the latter, who testified as to these facts, we have the sworn statement
of the said Luis, which corroborates in its entirety the testimony of the plaintiff. Luis was one of the heirs of Manuel
Javier and Perfecta Tagle, and his testimony, in so far as it favors the plaintiff to the prejudice of the estate in which
he was interested as such heir is, and should be, above suspicion, unless it is shown that he acted in collusion with
the plaintiff, something that the defendant has no even attempted to prove. The testimony of this witness upon this
point is as impartial as the testimony of the witnesses, Gavina Javier and Romualda Javier, is improbable, for were it
true that they and their brother, Martin, repurchased the property with their own funds, as they claim, it would be
exceedingly to strange that instead of contending that the property belongs to them exclusively they should consent
to its being considered as a part of the estate, thus giving various other heirs, including the plaintiff, an interest in the
said property.

But above all this there stands the instrument executed on the 12th of March, 1884, before the gobernadorcillo of the
district of Malate and attesting witnesses, which was introduced in evidence by the plaintiff. This instrument purports
to have been executed by Ceferino Joven, jr., himself and as attorney in fact of his mother, and it appears therein that
the said Joven in his dual capacities aforesaid sold and transferred to the plaintiff and his brother Luis, the lot in
question, together with another building lot, for the sum of 350 pesos. Whatever probatory force the said document
may have itself, the fact remains that its authenticity was admitted at the trial by the vendor, Ceferino Joven. This,
taken together with the fact that the plaintiff was then in the physical possession of the property, and that such
possession was recorded in the Register of Property in the plaintiffs own name, which was admitted by the defendant
at the trial, is conclusive evidence of the fact that the plaintiff, and not the estate of Manuel Javier and Perfecta Tagle
is the legitimate owner of the property. The conclusion reached by the court below to the contrary upon this point is
manifestly erroneous.

(b) House. — This house, according to the complaint, is built upon land belonging to the estate. The question
therefore relates only to the ownership of the building, exclusive of the land upon which it stands. This house was
apparently built in 1880, and it having been almost entirely destroyed by a typhoon in 1882, it was rebuilt while
Manuel Javier, the father of the plaintiff, and the owner of the land upon which the said house, stands, was still living.
It seems that Manuel Javier died in 1885. In 1884 the house was already habitable, although it was not completely

103 | P a g e
February 3, 2018 [PROPERTY]

finished and painted until the year 1895, the work having proceeded slowly.

The plaintiff alleged in his complaint, and insisted upon it in his testimony, that he built the said house with the
knowledge and consent of his father and at his own expense. This statement of the plaintiff is supported by five
documents, three of which purport to be signed by Felix Javier on June 1, 1887, November 11, 1900 and January 15,
1903, respectively; and the other two by Martin Javier on April 1 and July 4, 1901, respectively. Felix and Martin
Javier are, like the plaintiff in this case, the children and heirs of Manuel Javier, and therefore interested in the latter’s
estate. The document above referred to represent receipts for certain sums borrowed by them from the plaintiff as
advances upon the lots left by their deceased father, Manuel Javier, "one of which lots," reads each and all the said
documents, "being the lot upon which the house of strong materials, No. 520 Calle Real or Cabanas, the exclusive
property of my brother, Segundo Javier is built." The authenticity of the documents signed by Felix Javier was
admitted by him at the trial; and the signatures of Martin Javier appearing thereon, he having died, were identified by
his son, Santos Javier, who also had an interest in the estate in question. Those documents constitute an
acknowledgment of the fact that the house in controversy belonged exclusively to the plaintiff, and such
acknowledgment on their parts is proof all the more appreciable in favor of the plaintiff since it comes from persons
who, as heirs of Manuel Javier, had an entirely adverse interest to that of the plaintiff in this case. This proof is further
strengthened by the fact that the plaintiff had been continuously in possession of the said house since it was built. Not
only the plaintiff, but Romualda Javier, a witness for the defendant as well, testified as to such uninterrupted
possession by the plaintiff. Romualda, while testifying upon this point, stated that certain actions had been brought
against the plaintiff, but that they never succeeded in taking away from him the possession of the house, the rents for
which were always received by him.

An attempt was made by Felix Javier to overcome the probatory force of the documents signed by him, he alleging
that he signed the same without first informing himself as to their contents, except that part thereof relating to the
sums of money mentioned in the same. We can not give credit to this explanation. The natural presumption is the one
does not sign a document without first informing himself of its contents, and that presumption acquires greater force
where not only, but several documents, executed at different times and at different places, as is here the case, were
signed. There is nothing in the record that can in any way overcome this presumption.

The testimony of Romualda Javier and Gavina Javier to the effect that the house in question belonged to the estate
of their deceased parents can not prevail against the evidence introduced by the plaintiff. Their testimony is obviously
interested, and is absolutely devoid of any corroboration, this aside from the fact that both witnesses have made
conflicting statements. Romualda testified that the house was constructed at the expense of herself, her father, and of
Gavina, while according to the latter, Romualda, her brother Martin, and herself paid for the construction. Of course,
the latter and not the estate would be the owners of the house if Gavina’s statement is true, for under such an
hypothesis it would appear that her parents did not contribute at all to the expenses of the construction.

The house was built, according to the plaintiff, with the knowledge and consent of his father, to whom the land upon
which it was built belonged. This testimony has not been contradicted, but on the contrary is strengthened by the
further testimony of the plaintiff to the effect that his father lived with him at that time in the house in question. This
fact conclusively shows that he, the father, consented to the construction of the house. Consequently the house was
built by the plaintiff in good faith, and article 361 of the Civil Code is perfectly applicable to this case. That articles
provides that the owner of the land on which building, sowing, or planting is done in good faith shall have a right to
appropriate as his own the work, sowing, or planting, after having paid the indemnity therefor as required by articles
453 and 454, or to compel the person who has built or planted to pay to him the value of the land, and to force the
person who sowed to pay the proper rent.

Article 453 of the same code provides:jgc:chanrobles.com.ph

"Useful expenses are paid the possessor in good faith with the same right of retention, the person who has defeated
him in his possession having the option of refunding the amount of the expenses or paying him the increase in value
the thing has acquired by reason thereof.

The property in controversy, belonging to the plaintiff as it does, the cross-complaint of the defendant must fail.

The judgment appealed from is hereby reversed and we hold (1) that the house and the lot in question should be
excluded from the inventory of the property of the estate of the deceased, Manuel Javier and Perfecta Tagle, and (2)
that the latter’s heirs have a right to retain the said house after indemnifying the plaintiff in the value thereof, or to
compel the latter to pay to them the value of the land occupied by the said house, the plaintiff having the right to
retain the same in the meantime until the value of the said land is paid. In view of the fact that there is not sufficient
evidence in the case to determine the actual value of the house and lot, the right is reserved to the parties to so
determine the value in the manner which they deem best. We make no special provisions as to costs. After the

104 | P a g e
February 3, 2018 [PROPERTY]

expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days
thereafter the case be remanded to the court below for execution. So ordered.

Arellano, C.J., Torres, and Johnson, JJ., concur.

Carson, Willard and Tracey, JJ., dissent from the second paragraph of the adjudging part of the decision.

105 | P a g e