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G.R. No.

L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,


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

PARAS, J.:

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

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula


Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the
following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces


containing a total floor area of 263 sq. meters, more or less, generally
constructed of mixed hard wood and concrete materials, under a roofing of cor.
g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE
under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with
an assessed value of P35,290.00. This building is the only improvement of the
lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right


of occupancy on the lot where the above property is erected, and more
particularly described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308,


Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac,
Olongapo City, containing an area of 465 sq. m. more or less,
declared and assessed in the name of FERNANDO MAGCALE
under Tax Duration No. 19595 issued by the Assessor of
Olongapo City with an assessed value of P1,860.00; bounded on
the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical


monuments of the Bureau of Lands as visible limits.
( Exhibit "A, " also Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestated


deed of mortgage, there appears a rider typed at the bottom of the
reverse side of the document under the lists of the properties
mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event


the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued
by the Bureau of Lands, the Mortgagors hereby
authorize the Register of Deeds to hold the
Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on the
Title upon authority from the Secretary of
Agriculture and Natural Resources, which title with
annotation, shall be released in favor of the herein
Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee


(defendant Prudential Bank) was at the outset aware of the fact
that the mortgagors (plaintiffs) have already filed a Miscellaneous
Sales Application over the lot, possessory rights over which, were
mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under the


Provisions of Act 3344 with the Registry of Deeds of Zambales on
November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from


defendant Prudential Bank in the sum of P20,000.00. To secure
payment of this additional loan, plaintiffs executed in favor of the
said defendant another deed of Real Estate Mortgage over the
same properties previously mortgaged in Exhibit "A." (Exhibit "B;"
also Exhibit "2" for defendant). This second deed of Real Estate
Mortgage was likewise registered with the Registry of Deeds, this
time in Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales


Patent No. 4776 over the parcel of land, possessory rights over which were
mortgaged to defendant Prudential Bank, in favor of plaintiffs. On the basis of the
aforesaid Patent, and upon its transcription in the Registration Book of the
Province of Zambales, Original Certificate of Title No. P-2554 was issued in the
name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of
Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became
due, and upon application of said defendant, the deeds of Real Estate Mortgage
(Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the
highest bidder in a public auction sale conducted by the defendant City Sheriff on
April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit
"D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed
by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10,
1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the
instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the
parties were required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid.,
P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE


RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972
UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554
ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE
MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted
on the building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court
ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in
said provision of law can only mean that a building is by itself an immovable property." (Lopez
vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et
al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a building by itself may be mortgaged apart from
the land on which it has been built. Such a mortgage would be still a real estate mortgage for
the building would still be considered immovable property even if dealt with separately and apart
from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this
Court has also established that possessory rights over said properties before title is vested on
the grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista
vs. Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage
deed on the 2-storey semi-concrete residential building with warehouse and on the right of
occupancy on the lot where the building was erected, was executed on November 19, 1971 and
registered under the provisions of Act 3344 with the Register of Deeds of Zambales on
November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24,
1972, on the basis of which OCT No. 2554 was issued in the name of private respondent
Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage
was executed before the issuance of the final patent and before the government was divested of
its title to the land, an event which takes effect only on the issuance of the sales patent and its
subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96
Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702,
May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing considerations, it
is evident that the mortgage executed by private respondent on his own building which was
erected on the land belonging to the government is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be
noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired
under the Public Land Act, or any improvement thereon and therefore have no application to the
assailed mortgage in the case at bar which was executed before such eventuality. Likewise,
Section 2 of Republic Act No. 730, also a restriction appearing on the face of private
respondent's title has likewise no application in the instant case, despite its reference to
encumbrance or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties
on May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of
Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage
executed after the issuance of the sales patent and of the Original Certificate of Title, falls
squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and
Section 2 of Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be
annotated, without requiring the bank to get the prior approval of the Ministry of Natural
Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of
said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118,
120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the
doctrine of estoppel give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy (19 Am.
Jur. 802). It is not within the competence of any citizen to barter away what public
policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass
upon any new contract between the parties (Ibid), as in the case at bar. It should not preclude
new contracts that may be entered into between petitioner bank and private respondents that
are in accordance with the requirements of the law. After all, private respondents themselves
declare that they are not denying the legitimacy of their debts and appear to be open to new
negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would
be subject to whatever steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is
valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is
null and void, without prejudice to any appropriate action the Government may take against
private respondents.
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-
appellees.

Booram and Mahoney for appellant.


Williams, Ferrier and SyCip for appellees.

CARSON, J.:

The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery


company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it
stood. The indebtedness secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the machinery company in satisfaction
of the mortgage was annotated in the same registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company,
but this deed of sale, although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear to have been
executed for the purpose of curing any defects which might be found to exist in the machinery
company's title to the building under the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time when this sale took place, that is to
say, the month of December, 1913, and it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compañia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on which it stood, to secure
payment of the balance of its indebtedness to the plaintiff under a contract for the construction
of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness
secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon
the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had
the sheriff's certificate of the sale duly registered in the land registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its claim
of title and demanding the release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in
reliance upon which the sheriff sold the property at public auction to the plaintiff, who was the
highest bidder at the sheriff's sale.

This action was instituted by the plaintiff to recover possession of the building from the
machinery company.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor
of the machinery company, on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

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

Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.

The registry her referred to is of course the registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real property in a chattel mortgage registry
cannot be given the legal effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compañia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It follows that neither the original
registry in the chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any effect whatever so far
as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of
sale in his favor was made in good faith, and that the machinery company must be held to be
the owner of the property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that the building
and the land were sold to the machinery company long prior to the date of the sheriff's sale to
the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry, it
must be presumed that good faith is not an essential requisite of registration in order that it may
have the effect contemplated in this article. We cannot agree with this contention. It could not
have been the intention of the legislator to base the preferential right secured under this article
of the code upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public records
cannot be converted into instruments of fraud and oppression by one who secures an inscription
therein in bad faith. The force and effect given by law to an inscription in a public record
presupposes the good faith of him who enters such inscription; and rights created by statute,
which are predicated upon an inscription in a public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in
its sentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in
accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference,
this provision must always be understood on the basis of the good faith mentioned in the
first paragraph; the legislator could not have wished to strike it out and to sanction bad
faith, just to comply with a mere formality which, in given cases, does not obtain even in
real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th edition.)

The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at
the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery
company had bought the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession at the time when the
sheriff executed his levy. The execution of an indemnity bond by the plaintiff in favor of the
sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at
the time of the levy and sale the building had already been sold to the machinery company by
the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of title must be held to have been
tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compañia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just
and righteous claims against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and in buying it at the
sheriff's sale, he considered that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he thought at that time that he
would be able to maintain his position in a contest with the machinery company. There was no
collusion on his part with the common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he
did hope, that the title of the machinery company would not stand the test of an action in a court
of law; and if later developments had confirmed his unfounded hopes, no one could question the
legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of ownership
when he executed the indemnity bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took the risk and must stand
by the consequences; and it is in this sense that we find that he was not a purchaser in good
faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land or of
an interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such notice of the defects as would have
led to its discovery had he acted with that measure of precaution which may reasonably be
acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given occasion, we
are necessarily controlled by the evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. So it is that "the honesty of intention," "the
honest lawful intent," which constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that proof of such knowledge
overcomes the presumption of good faith in which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen
or touched, but rather a state or condition of mind which can only be judged of by actual or
fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against the
appellant. So ordered.
JULIAN S. YAP, petitioner,
vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.),
INC., respondents.

Paterno P. Natinga for private respondent.

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent Judge
Tañada 1 in Civil Case No. 10984. The first, dated September 16, 1970, denied petitioner Yap's
motion to set aside execution sale and to quash alias writ of execution. The second, dated
November 21, 1970, denied Yap's motion for reconsideration. The issues concerned the
propriety of execution of a judgment claimed to be "incomplete, vague and non-final," and the
denial of petitioner's application to prove and recover damages resulting from alleged
irregularities in the process of execution.

The antecedents will take some time in the telling. The case began in the City Court of Cebu
with the filing by Goulds Pumps International (Phil.), Inc. of a complaint 2 against Yap and his
wife 3 seeking recovery of P1,459.30 representing the balance of the price and installation cost
of a water pump in the latter's premises. 4 The case resulted in a judgment by the City Court on
November 25, 1968, reading as follows:

When this case was called for trial today, Atty. Paterno Natinga appeared for the
plaintiff Goulds and informed the court that he is ready for trial. However, none of
the defendants appeared despite notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence
ex-parte.

After considering the evidence of the plaintiff, the court hereby renders judgment
in favor of the plaintiff and against the defendant (Yap), ordering the latter to pay
to the former the sum of Pl,459.30 with interest at the rate of 12% per annum
until fully paid, computed from August 12, 1968, date of the filing of the
complaint; to pay the sum of P364.80 as reasonable attorney's fees, which is
equivalent " to 25% of the unpaid principal obligation; and to pay the costs, if any.

Yap appealed to the Court of First Instance. The appeal was assigned to the sala of respondent
Judge Tañada. For failure to appear for pre-trial on August 28, 1968, this setting being
intransferable since the pre-trial had already been once postponed at his instance, 5 Yap was
declared in default by Order of Judge Tañada dated August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and counsel
appeared, but neither the defendants nor his counsel appeared despite the fact
that they were duly notified of the pre-trial set this morning. Instead he filed an
Ex-Parte Motion for Postponement which this Court received only this morning,
and on petition of counsel for the plaintiff that the Ex-Parte Motion for
Postponement was not filed in accordance with the Rules of Court he asked that
the same be denied and the defendants be declared in default; .. the motion for
the plaintiff being well- grounded, the defendants are hereby declared in default
and the Branch Clerk of Court ..is hereby authorized to receive evidence for the
plaintiff and .. submit his report within ten (10) days after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered the following day by
Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30 representing the unpaid balance of
the pump purchased by him; (2) interest of 12% per annum thereon until fully paid; and (3) a
sum equivalent to 25% of the amount due as attorney's fees and costs and other expenses in
prosecuting the action. Notice of the judgment was served on Yap on September 1, 1969. 7
On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted that his motion
for postponement should have been granted since it expressed his desire to explore the
possibility of an amicable settlement; that the court should give the parties time to arrive at an
amicable settlement failing which, he should be allowed to present evidence in support of his
defenses (discrepancy as to the price and breach of warranty). The motion was not verified or
accompanied by any separate affidavit. Goulds opposed the motion. Its opposition 9 drew
attention to the eleventh-hour motion for postponement of Yap which had resulted in the
cancellation of the prior hearing of June 30, 1969 despite Goulds' vehement objection, and the
re-setting thereof on August 28, 1969 with intransferable character; it averred that Yap had
again sought postponement of this last hearing by another eleventh-hour motion on the plea
that an amicable settlement would be explored, yet he had never up to that time ever broached
the matter, 10 and that this pattern of seeking to obtain last-minute postponements was
discernible also in the proceedings before the City Court. In its opposition, Goulds also adverted
to the examination made by it of the pump, on instructions of the City Court, with a view to
remedying the defects claimed to exist by Yap; but the examination had disclosed the pump's
perfect condition. Yap's motion for reconsideration was denied by Order dated October 10,
1969, notice of which was received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for Issuance of
Writ of Execution dated October 14, 1969, declaring the reasons therein alleged to be
meritorious. 12 Yap forthwith filed an "Urgent Motion for Reconsideration of Order" dated
October 17, 1969, 13 contending that the judgment had not yet become final, since contrary to
Goulds' view, his motion for reconsideration was not pro forma for lack of an affidavit of merit,
this not being required under Section 1 (a) of Rule 37 of the Rules of Court upon which his
motion was grounded. Goulds presented an opposition dated October 22, 1969. 14 It pointed out
that in his motion for reconsideration Yap had claimed to have a valid defense to the action, i.e.,
".. discrepancy as to price and breach of seller's warranty," in effect, that there was fraud on
Goulds' paint; Yap's motion for reconsideration should therefore have been supported by an
affidavit of merit respecting said defenses; the absence thereof rendered the motion for
reconsideration fatally defective with the result that its filing did not interrupt the running of the
period of appeal. The opposition also drew attention to the failure of the motion for
reconsideration to specify the findings or conclusions in the judgment claimed to be contrary to
law or not supported by the evidence, making it a pro forma motion also incapable of stopping
the running of the appeal period. On October 23, 1969, Judge Tañada denied Yap's motion for
reconsideration and authorized execution of the judgment.15 Yap sought reconsideration of this
order, by another motion dated October 29, 1969. 16 This motion was denied by Order dated
January 26, 1970. 17 Again Yap moved for reconsideration, and again was rebuffed, by Order
dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice dated
November 4, 1969, scheduled the execution sale thereof on November 14, 1969. 20 But in view
of the pendency of Yap's motion for reconsideration of October 29, 1969, suspension of the sale
was directed by Judge Tañada in an order dated November 6, 1969.21

Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated
October 29, 1969, from receipt of this Order and in the meantime, the Order of
October 23, 1969, insofar as it orders the sheriff to enforce the writ of execution
is hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff "through
oversight, inadvertence and pressure of work" of the Branch Clerk of Court. 22 So the Deputy
Provincial Sheriff went ahead with the scheduled auction sale and sold the property levied on to
Goulds as the highest bidder. 23 He later submitted the requisite report to the Court dated
November 17, 1969, 24 as well as the "Sheriffs Return of Service" dated February 13, 1970, 25 in
both of which it was stated that execution had been "partially satisfied." It should be observed
that up to this time, February, 1970, Yap had not bestirred himself to take an appeal from the
judgment of August 29, 1969.

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution on Gould's ex
parte motion therefor. 26 Yap received notice of the Order on June 11. Twelve (1 2) days later,
he filed a "Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution." 27 As
regards the original, partial execution of the judgment, he argued that —
1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the judgment
sought to be executed not being final and executory;" and

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules of
Court," i.e., notice by publication in case of execution sale of real property, the pump and its
accessories being immovable because attached to the ground with character of permanency
(Art. 415, Civil Code).

And with respect to the alias writ, he argued that it should not have issued because —

1) "the judgment sought to be executed is null and void" as "it deprived the defendant of his day
in court" and "of due process;"

2) "said judgment is incomplete and vague" because there is no starting point for computation of
the interest imposed, or a specification of the "other expenses incurred in prosecuting this case"
which Yap had also been ordered to pay;

3) "said judgment is defective because it contains no statement of facts but a mere recital of the
evidence; and

4) "there has been a change in the situation of the parties which makes execution unjust and
inequitable" because Yap suffered damages by reason of the illegal execution.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order dated
September 16, 1970. Judge Tañada pointed out that the motion had "become moot and
academic" since the decision of August 29, 1969, "received by the defendant on September 1,
1969 had long become final when the Order for the Issuance of a Writ of Execution was
promulgated on October 15, 1969." His Honor also stressed that —

The defendant's Motion for Reconsideration of the Courts decision was in reality
one for new trial. Regarded as motion for new trial it should allege the grounds
for new trial, provided for in the Rules of Court, to be supported by affidavit of
merits; and this the defendant failed to do. If the defendant sincerely desired for
an opportunity to submit to an amicable settlement, which he failed to do extra
judicially despite the ample time before him, he should have appeared in the pre-
trial to achieve the same purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970 granting a
motion of Goulds for completion of execution of the judgment of August 29, 1969 to be
undertaken by the City Sheriff of Cebu. Once more, Yap sought reconsideration. He submitted a
"Motion for Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the setting
aside not only of this Order of September 21, 1970 but also that dated September 16, 1970,
denying his motion to set aside execution dated June 23, 1970. He contended that the Order of
September 21, 1970 (authorizing execution by the City Sheriff) was premature, since the 30-day
period to appeal from the earlier order of September 16, 1970 (denying his motion to set aside)
had not yet expired. He also reiterated his view that his motion for reconsideration dated
September 15, 1969 did not require that it be accompanied by an affidavit of merits. This last
motion was also denied for "lack of merits," by Order dated November 21, 1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal to the
Supreme Court on certiorari only on questions of law, "from the Order ... of September 16, 1970
... and from the Order ... of November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act
No. 5440." He filed his petition for review with this Court on January 5, 1971, after obtaining an
extension therefor. 30

The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969 although the
judgment had not then become final and executory and despite its being incomplete and vague;
2) ignoring the fact that the execution sale was carried out although it (the Court) had itself
ordered suspension of execution on November 6, 1969;

3) declining to annul the execution sale of the pump and accessories subject of the action
although made without the requisite notice prescribed for the sale of immovables; and

4) refusing to allow the petitioner to prove irregularities in the process of execution which had
resulted in damages to him.

Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His motion for
reconsideration thereof was filed 15 days thereafter, on September 16, 1969. Notice of the
Order denying the motion was received by him on October 14, 1969. The question is whether or
not the motion for reconsideration — which was not verified, or accompanied by an affidavit of
merits (setting forth facts constituting his meritorious defenses to the suit) or other sworn
statement (stating facts excusing his failure to appear at the pre-trial was pro forma and
consequently had not interrupted the running of the period of appeal. It is Yap's contention that
his motion was notpro forma for lack of an affidavit of merits, such a document not being
required by Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was based.
This is incorrect.

Section 2, Rule 37 precisely requires that when the motion for new trial is founded on Section 1
(a), it should be accompanied by an affidavit of merit.

xxx xxx xxx

When the motion is made for the causes mentioned in subdivisions (a) and (b) of
the preceding section, it shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be attached to a motion for the
cause mentioned in subdivision (a) which may be rebutted by counter-affidavits.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of
Rule 37, 33 i.e., fraud, accident, mistake or excusable negligence which ordinary prudence could
not have guarded against and by reason of which ... (the) aggrieved party has probably been
impaired in his rights" — this being in any event clear from a perusal of the motion which
theorizes that he had "been impaired in his rights" because he was denied the right to present
evidence of his defenses (discrepancy as to price and breach of warranty) — it was a fatal
omission to fail to attach to his motion an affidavit of merits, i.e., an affidavit "showing the facts
(not conclusions) constituting the valid x x defense which the movant may prove in case a new
trial is granted." 34 The requirement of such an affidavit is essential because obviously "a new
trial would be a waste of the court's time if the complaint turns out to be groundless or the
defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a desire to
explore the possibility of an amicable settlement, the Court should have given him time to do so,
instead of declaring him in default and thereafter rendering judgment by default on Gould's ex
parte evidence.

The bona fides of this desire to compromise is however put in doubt by the attendant
circumstances. It was manifested in an eleventh-hour motion for postponement of the pre-trial
which had been scheduled with intransferable character since it had already been earlier
postponed at Yap's instance; it had never been mentioned at any prior time since
commencement of the litigation; such a possible compromise (at least in general or preliminary
terms) was certainly most appropriate for consideration at the pre-trial; in fact Yap was aware
that the matter was indeed a proper subject of a pre-trial agenda, yet he sought to avoid
appearance at said pre-trial which he knew to be intransferable in character. These
considerations and the dilatory tactics thus far attributable to him-seeking postponements of
hearings, or failing to appear therefor despite notice, not only in the Court of First Instance but
also in the City Court — proscribe belief in the sincerity of his avowed desire to negotiate a
compromise. Moreover, the disregard by Yap of the general requirement that "(n)otice of a
motion shall be served by the applicant to all parties concerned at least three (3) days before
the hearing thereof, together with a copy of the motion, and of any affidavits and other papers
accompanying it," 36 for which no justification whatever has been offered, also militates against
the bona fides of Yap's expressed wish for an amicable settlement. The relevant circumstances
do not therefore justify condemnation, as a grave abuse of discretion, or a serious mistake, of
the refusal of the Trial Judge to grant postponement upon this proferred ground.

The motion for reconsideration did not therefore interrupt the running of the period of appeal.
The time during which it was pending before the court — from September 16, 1969 when it was
filed with the respondent Court until October 14, 1969 when notice of the order denying the
motion was received by the movant — could not be deducted from the 30-day period of
appeal. 37 This is the inescapable conclusion from a consideration of Section 3 of Rule 41 which
in part declares that, "The "time during which a motion to set aside the judgment or order or for
a new trial has been pending shall be deducted, unless such motion fails to satisfy the
requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and the period of
appeal therefrom not having been interrupted by his motion for reconsideration filed on
September 16, 1969, the reglementary period of appeal expired thirty (30) days after September
1, 1969, or on October 1, 1969, without an appeal being taken by Yap. The judgment then
became final and executory; Yap could no longer take an appeal therefrom or from any other
subsequent orders; and execution of judgment correctly issued on October 15, 1969, "as a
matter of right." 39

The next point discussed by Yap, that the judgment is incomplete and vague, is not well taken.
It is true that the decision does not fix the starting time of the computation of interest on the
judgment debt, but this is inconsequential since that time is easily determinable from the
opinion, i.e., from the day the buyer (Yap) defaulted in the payment of his obligation, 40 on May
31, 1968. 41 The absence of any disposition regarding his counterclaim is also immaterial and
does not render the judgment incomplete. Yap's failure to appear at the pre-trial without
justification and despite notice, which caused the declaration of his default, was a waiver of his
right to controvert the plaintiff s proofs and of his right to prove the averments of his answer,
inclusive of the counterclaim therein pleaded. Moreover, the conclusion in the judgment of the
merit of the plaintiff s cause of action was necessarily and at the same time a determination of
the absence of merit of the defendant's claim of untenability of the complaint and of malicious
prosecution.

Yap's next argument that the water pump had become immovable property by its being installed
in his residence is also untenable. The Civil Code considers as immovable property, among
others, anything "attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object." 42 The pump
does not fit this description. It could be, and was in fact separated from Yap's premises without
being broken or suffering deterioration. Obviously the separation or removal of the pump
involved nothing more complicated than the loosening of bolts or dismantling of other fasteners.

Yap's last claim is that in the process of the removal of the pump from his house, Goulds' men
had trampled on the plants growing there, destroyed the shed over the pump, plugged the
exterior casings with rags and cut the electrical and conduit pipes; that he had thereby suffered
actual-damages in an amount of not less than P 2,000.00, as well as moral damages in the sum
of P 10,000.00 resulting from his deprivation of the use of his water supply; but the Court had
refused to allow him to prove these acts and recover the damages rightfully due him. Now, as to
the loss of his water supply, since this arose from acts legitimately done, the seizure on
execution of the water pump in enforcement of a final and executory judgment, Yap most
certainly is not entitled to claim moral or any other form of damages therefor.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of
September 16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs against
petitioner.
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, Jr. for plaintiff-appellee.


Renato A. Santos for defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married
to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable
6 months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776,
and Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house,
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro,
located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under
Motor Vehicle Registration Certificate No. A-171806. Both mortgages were contained in one
instrument, which was registered in both the Office of the Register of Deeds and the Motor
Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on
them, failed to pay. They, however, asked and were granted extension up to June 30, 1960,
within which to pay. Came June 30, defendants again failed to pay and, for the second time,
asked for another extension, which was given, up to July 30, 1960. In the second extension,
defendant Pineda in a document entitled "Promise", categorically stated that in the remote event
he should fail to make good the obligation on such date (July 30, 1960), the defendant would no
longer ask for further extension and there would be no need for any formal demand, and plaintiff
could proceed to take whatever action he might desire to enforce his rights, under the said
mortgage contract. In spite of said promise, defendants, failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on
the principal, effective on the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated —

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the
First Cause of Action which states that the defendants unreasonably failed and refuse to
pay their obligation to the plaintiff the truth being the defendants are hard up these days
and pleaded to the plaintiff to grant them more time within which to pay their obligation
and the plaintiff refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to
pay their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that
the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per
annum as interest was agreed, upon failure to pay the principal when due and P500.00 as
liquidated damages; that the instrument had been registered in the Registry of Property and
Motor Vehicles Office, both of the province of Tarlac; that the only issue in the case is whether
or not the residential house, subject of the mortgage therein, can be considered a Chattel and
the propriety of the attorney's fees.

On February 24, 1961, the lower court held —


... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the
copy of this decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00
with 12% compounded interest per annum from June 14, 1960, until said principal sum
and interests are fully paid, plus P500.00 as liquidated damages and the costs of this
suit, with the warning that in default of said payment of the properties mentioned in the
deed of real estate mortgage and chattel mortgage (Annex "A" to the complaint) be sold
to realize said mortgage debt, interests, liquidated damages and costs, in accordance
with the pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14 of the
Chattel Mortgage Law, Act 1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",
immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.

The above judgment was directly appealed to this Court, the defendants therein assigning only
a single error, allegedly committed by the lower court, to wit —

In holding that the deed of real estate and chattel mortgages appended to the complaint
is valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was
made the subject of the chattel mortgage, for the reason that it is erected on a land that
belongs to a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building;
the fact that the land belongs to another is immaterial, it is enough that the house adheres to the
land; that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code
does not require that the attachment or incorporation be made by the owner of the land, the only
criterion being the union or incorporation with the soil. In other words, it is claimed that "a
building is an immovable property, irrespective of whether or not said structure and the land on
which it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb.
28, 1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants
argue that since only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952)
then the mortgage in question which is the basis of the present action, cannot give rise to an
action for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v.
Adriano Valino, et al., L-10838, May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely
on the ground that the house mortgaged was erected on the land which belonged to a third
person, but also and principally on the doctrine of estoppel, in that "the parties have
so expressly agreed" in the mortgage to consider the house as chattel "for its smallness and
mixed materials of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code
(corresponding to arts. 415 and 416, N.C.C.), for purposes of the application of the Chattel
Mortgage Law, it was held that under certain conditions, "a property may have a character
different from that imputed to it in said articles. It is undeniable that the parties to a contract
may by agreement, treat as personal property that which by nature would be real property"
(Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a
building of mixed materials may be the subject of a chattel mortgage, in which case, it is
considered as between the parties as personal property. ... The matter depends on the
circumstances and the intention of the parties". "Personal property may retain its character as
such where it is so agreed by the parties interested even though annexed to the realty ...". (42
Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52
O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to
consider a house as personal property for the purposes of said contract, "is good only insofar as
the contracting parties are concerned. It is based partly, upon the principles of estoppel ..."
(Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on
a rented land, was held to be a personal property, not only because the deed of mortgage
considered it as such, but also because it did not form part of the land (Evangelista v. Abad
[CA];36 O.G. 2913), for it is now well settled that an object placed on land by one who has only
a temporary right to the same, such as a lessee or usufructuary, does not become immobilized
by attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v.
Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property is so stipulated in the
document of mortgage. (Evangelista v. Abad, supra.) It should be noted, however, that the
principle is predicated on statements by the owner declaring his house to be a chattel, a
conduct that may conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v.
C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been considered as a chattel
between them, has been recognized, it has been a constant criterion nevertheless that, with
respect to third persons, who are not parties to the contract, and specially in execution
proceedings, the house is considered as an immovable property (Art. 1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts;
built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached
permanently to the soil. In these cases and in the Leung Yee case, supra, third persons
assailed the validity of the deed of chattel mortgages; in the present case, it was one of the
parties to the contract of mortgages who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.
JOSE A. LUNA, petitioner,
vs.
DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and
THE PROVINCIAL SHERIFF OF RIZAL, respondents.

Jose S. Fineza for petitioner.

BAUTISTA ANGELO, J.:

On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna
in favor of Trinidad Reyes whereby the former conveyed by way of first mortgage to the latter a
certain house of mixed materials stated in barrio San Nicolas, municipality of Pasig, Province of
Rizal, to secure the payment of a promissory note in the amount of P1,500, with interest at 12
per cent per annum. The document was registered in the office of the register of deeds for the
Province of Rizal. The mortgagor having filed to pay the promissory note when it fell due, the
mortgage requested the sheriff of said province to sell the house at public auction so that with
its proceeds the amount indebted may be paid notifying the mortgagor in writing of the time and
place of the sale as required by law. The sheriff acceded to the request and sold the property to
the mortgagee for the amount covering the whole indebtedness with interest and costs. The
certificate of sale was issued by the sheriff on May 28, 1949. After the period for the redemption
of the property had expired without the mortgagor having exercised his right to repurchase, the
mortgagee demanded from the mortgagor the surrender of the possession of the property, but
the later refused and so on October 13, 1950, she filed a petition in the Court of First Instance of
Rizal praying that the provincial sheriff be authorized to place her in possession of the property
invoking in her favor the provisions of Act No. 3135, as amended by Act No. 4118.

When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, the
mortgagor, opposed the petition on the following grounds: (1) that Act No. 3135 as amended by
Act No. 4118 is applicable only to a real estate mortgage; (2) that the mortgage involved herein
is a chattel mortgage; and (3) that even if the mortgage executed by the parties herein be
considered as real estate mortgage, the extra-judicial sale made by the sheriff of the property in
question was valid because the mortgage does not contain an express stipulation authorizing
the extra-judicial sale of the property. After hearing, at which both parties have expressed their
views in support of their respective contentions, respondent judge, then presiding the court,
overruled the opposition and granted the petition ordering the provincial sheriff of Rizal, or any
of this disputives, to immediately place petitioner in possession of the property in question while
at the same time directing the mortgagor Jose A. Luna to vacate it and relinquish it in favor of
petitioner. It is from this order that Jose A. Luna desires now to obtain relief by filing this petition
for certioraricontending that the respondent judge has acted in excess of his jurisdiction.

The first question which petitioner poses in his petition for certiorari is that which relates to the
validity of the extra-judicial sale made by the provincial sheriff of Rizal of the property in
question in line with the request of the mortgagee Trinidad Reyes. It is contended that said
extra-judicial sale having been conducted under the provisions of Act No. 3135, as amended by
Act No. 4118, is invalid because the mortgage in question is not a real estate mortgage and,
besides, it does not contain an express stipulation authorizing the mortgagee to foreclose the
mortgage extra-judicially.

There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties
(Annex "C"), the understanding executed by them is a chattel mortgage, as the parties have so
expressly designated, and not a real estate mortgage, specially when it is considered that the
property given as security is a house of mixed materials which by its very nature is considered
as personal property. Such being the case, it is indeed a mistake for the mortgagee to consider
this transaction in the light of Act No. 3135, as amended by Act No. 4118, as was so considered
by her when she requested to provincial sheriff to sell it extra-judicially in order to secure full
satisfaction of the indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as
amended, only covers real estate mortgages and is intended merely to regulate the extra-
judicial sale of the property mortgaged if and when the mortgagee is given a special power or
express authority to do so in the deed itself, or in a document annexed thereto. These
conditions do not here obtain. The mortgage before us is not a real estate mortgage nor does it
contain an express authority or power to sell the property extra-judicially.
But regardless of what we have heretofore stated, we find that the validity of the sale in question
may be maintained, it appearing that the mortgage in question is a chattel mortgage and as
such it is covered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of this
Act allows the mortgagee through a public officer in almost the same manner as that allowed by
Act No. 3135, as amended by Act No. 4118, provided that the requirements of the law relative to
notice and registration are complied with. We are not prepared to state if these requirements of
the law had been complied with in the case for the record before us is not complete and there is
no showing to that effect. At any rate, this issue is not how important because the same can be
treshed out when the opportunity comes for its determination, nor is it necessary for us to
consider it in reaching a decision in the present case. Suffice it to state that for the present we
are not expressing any opinion on this matter which concerns the validity of the sale in question
for the reason that this opinion will only be limited to a matter of procedure relative to the step
taken by the mortgagee in securing the possession of the property involved.

In the supposition that the sale of the property made by the sheriff has been made in
accordance with law, and the question he is confronted is how to deliver the possession of the
property to the purchaser in case of refusal to surrender its possession on the part of the debtor
or mortgagor, the remedy of the purchaser according to the authorities, is to bring an ordinary
action for recovery of possession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14
C.J.S., pp. 1027, 1028). The purchaser cannot take possession of the property by force either
directly or through the sheriff. And the reason for this is "that the creditor's right of possession is
conditioned upon the fact of default, and the existence of this fact may naturally be the subject
of controversy" (Bachrah Motor Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file
a petition for a writ of possession as was done by Trinidad Reyes in this case. Her remedy is to
file an ordinary action for recovery of possession in ordered that the debtor may be given an
opportunity to be heard not only in regarding possession but also regarding the obligation
covered by the mortgage. The petition she has filed in the lower court, which was not even
docketed, is therefore improper and should be regarded.

Wherefore, the order subject of the present petition for certiorari is hereby set aside, with costs
against respondent Trinidad Reyes.
G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,


vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.

AQUINO, J.:

This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by
Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex
(Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total capacity of
566,000 barrels. They are used for storing fuel oil for Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on the
spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a
sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum as the top
layer. The bottom of each tank is in contact with the asphalt layer,

The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to Meralco,
the tank is not attached to its foundation. It is not anchored or welded to the concrete circular
wall. Its bottom plate is not attached to any part of the foundation by bolts, screws or similar
devices. The tank merely sits on its foundation. Each empty tank can be floated by flooding its
dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is enclosed with earthen dikes with electric
steel poles on top thereof and is divided into two parts as the site of each tank. The foundation
of the tanks is elevated from the remaining area. On both sides of the earthen dikes are two
separate concrete steps leading to the foundation of each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick.
Pipelines were installed on the sides of each tank and are connected to the pipelines of the
Manila Enterprises Industrial Corporation whose buildings and pumping station are near Tank
No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and
the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the
pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of
Bauan, Batangas, on the basis of an assessment made by the provincial assessor, required
Meralco to pay realty taxes on the two tanks. For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the
tax and penalties as a condition for entertaining its appeal from the adverse decision of the
Batangas board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local
Government and Community Development Jose Roño as members) in its decision dated
November 5, 1976 ruled that the tanks together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a
motion for reconsideration which the Board denied in its resolution of November 25, 1977, a
copy of which was received by Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's
decision and resolution. It contends that the Board acted without jurisdiction and committed a
grave error of law in holding that its storage tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized
as realty by nature, by incorporation, by destination nor by analogy. Stress is laid on the fact
that the tanks are not attached to the land and that they were placed on leased land, not on the
land owned by Meralco.

This is one of those highly controversial, borderline or penumbral cases on the classification of
property where strong divergent opinions are inevitable. The issue raised by Meralco has to be
resolved in the light of the provisions of the Assessment Law, Commonwealth Act No. 470, and
the Real Property Tax Code, Presidential Decree No. 464 which took effect on June 1, 1974.

Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in the Real Property Tax Code
which provides:

Sec. 38. Incidence of Real Property Tax. — They shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements affixed
or attached to real property not hereinafter specifically exempted.

The Code contains the following definition in its section 3:

k) Improvements — is a valuable addition made to property or an amelioration in


its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adapt it for new or further purposes.

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless,
be considered as improvements on the land, enhancing its utility and rendering it useful to the
oil industry. It is undeniable that the two tanks have been installed with some degree of
permanence as receptacles for the considerable quantities of oil needed by Meralco for its
operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic
City, 15 Atl. 2nd 271.

For purposes of taxation, the term "real property" may include things which should generally be
regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein
Meralco's steel towers were held not to be subject to realty tax, is not in point because in that
case the steel towers were regarded as poles and under its franchise Meralco's poles are
exempt from taxation. Moreover, the steel towers were not attached to any land or building.
They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116
Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a
transportation company were held not subject to realty tax because they were personal
property.

WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are
affirmed. No costs.

SO ORDERED.
G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,


vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court
and as set forth by counsel for the parties on appeal, involves the determination of the nature of
the properties described in the complaint. The trial judge found that those properties were
personal in nature, and as a consequence absolved the defendants from the complaint, with
costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted
belonged to another person. On the land the sawmill company erected a building which housed
the machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any
amount for said improvements and buildings; also, in the event the party of the second
part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the
properties now in question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out by the record made
by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant
herein having consummated the sale, proceeded to take possession of the machinery and other
properties described in the corresponding certificates of sale executed in its favor by the sheriff
of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from
the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any


building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that while
not conclusive, the characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo (
[1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the expiration or abandonment
of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless such
person acted as the agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of the property from
the point of view of the rights of Valdes and its nature and character from the point of
view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on the machinery placed by the
corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as
immovable (real) property, not only land and buildings, but also attributes immovability in
some cases to property of a movable nature, that is, personal property, because of the
destination to which it is applied. "Things," says section 334 of the Porto Rican Code,
"may be immovable either by their own nature or by their destination or the object to
which they are applicable." Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: "Machinery, vessels, instruments or implements
intended by the owner of the tenements for the industrial or works that they may carry on
in any building or upon any land and which tend directly to meet the needs of the said
industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of
article 534, recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing — machinery
placed in the plant — it is plain, both under the provisions of the Porto Rican Law and of
the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result
would not be accomplished, therefore, by the placing of machinery in a plant by a tenant
or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions
quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction
rests, as pointed out by Demolombe, upon the fact that one only having a temporary
right to the possession or enjoyment of property is not presumed by the law to have
applied movable property belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It follows that abstractly
speaking the machinery put by the Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable
property, it follows that they had the right to levy on it under the execution upon the
judgment in their favor, and the exercise of that right did not in a legal sense conflict with
the claim of Valdes, since as to him the property was a part of the realty which, as the
result of his obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.
G.R. No. L-17898 October 31, 1962

PASTOR D. AGO, petitioner,


vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First
Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.


Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No.
26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the
records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in
rendering the execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs.
Martin, G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement


is not appealable and is immediately executory, unless a motion is filed on the ground
fraud, mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R.
No. L-10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable.
The judgment on the compromise agreement rendered by the court below dated January
28, 1959, was given in open court. This alone is a substantial compliance as to notice.
(De los Reyes vs. Ugarte, supra)

IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its
jurisdiction in ordering the execution of the judgment. The petition for certiorari is hereby
dismissed and the writ of preliminary injunction heretofore dissolved, with costs against
the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,
executing a chattel mortgage over said machineries and equipments to secure the payment of
balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on
installment basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering,
Inc. instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure,
petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance of Agusan.
The parties to the case arrived at a compromise agreement and submitted the same in court in
writing, signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A.
Ortiz, Judge of the Court of First Instance of Agusan, then presiding, dictated a decision in open
court on January 28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so


Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was
granted by the court on August 15, 1959. A writ of execution, dated September 23, 1959, later
followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by
the lower court, levied upon and ordered the sale of the sawmill machineries and equipments in
question. These machineries and equipments had been taken to and installed in a sawmill
building located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to
whom, petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of
the lower court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with preliminary
injunction with respondent Court of Appeals, alleging that a copy of the aforementioned
judgment given in open court on January 28, 1959 was served upon counsel for petitioner only
on September 25, 1959 (writ of execution is dated September 23, 1959); that the order and writ
of execution having been issued by the lower court before counsel for petitioner received a copy
of the judgment, its resultant last order that the "sheriff may now proceed with the sale of the
properties levied constituted a grave abuse of discretion and was in excess of its jurisdiction;
and that the respondent Provincial Sheriff of Surigao was acting illegally upon the allegedly void
writ of execution by levying the same upon the sawmill machineries and equipments which have
become real properties of the Golden Pacific sawmill, Inc., and is about to proceed in selling the
same without prior publication of the notice of sale thereof in some newspaper of general
circulation as required by the Rules of Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in
question, on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc.
was the only bidder for P15,000.00, although the certificate sale was not yet executed. The
Court of Appeals constructed the sheriff to suspend the issuance of a certificate of sale of the
said sawmill machineries and equipment sold by him on December 4, 1959 until the final
decision of the case. On November 9, 1960 the Court of Appeals rendered the aforequoted
decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the
rendition of judgment on compromise in open court on January 1959 was a sufficient notice; and
(2) in not resolving the other issues raised before it, namely, (a) the legality of the public auction
sale made by the sheriff, and (b) the nature of the machineries in question, whether they are
movables or immovables.

The Court of Appeals held that as a judgment was entered by the court below in open court
upon the submission of the compromise agreement, the parties may be considered as having
been notified of said judgment and this fact constitutes due notice of said judgment. This raises
the following legal question: Is the order dictated in open court of the judgment of the court, and
is the fact the petitioner herein was present in open court was the judgment was dictated,
sufficient notice thereof? The provisions of the Rules of Court decree otherwise. Section 1 of
Rule 35 describes the manner in which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases
shall be in writing personally and directly prepared by the judge, and signed by him,
stating clearly and distinctly the facts and the law on which it is based, filed with the clerk
of the court.

The court of first instance being a court of record, in order that a judgment may be considered
as rendered, must not only be in writing, signed by the judge, but it must also be filed with the
clerk of court. The mere pronouncement of the judgment in open court with the stenographer
taking note thereof does not, therefore, constitute a rendition of the judgment. It is the filing of
the signed decision with the clerk of court that constitutes rendition. While it is to be presumed
that the judgment that was dictated in open court will be the judgment of the court, the court
may still modify said order as the same is being put into writing. And even if the order or
judgment has already been put into writing and signed, while it has not yet been delivered to the
clerk for filing it is still subject to amendment or change by the judge. It is only when the
judgment signed by the judge is actually filed with the clerk of court that it becomes a valid and
binding judgment. Prior thereto, it could still be subject to amendment and change and may not,
therefore, constitute the real judgment of the court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the
judgment in open court, is not a valid notice of said judgment. If rendition thereof is constituted
by the filing with the clerk of court of a signed copy (of the judgment), it is evident that the fact
that a party or an attorney heard the order or judgment being dictated in court cannot be
considered as notice of the real judgment. No judgment can be notified to the parties unless it
has previously been rendered. The notice, therefore, that a party has of a judgment that was
being dictated is of no effect because at the time no judgment has as yet been signed by the
judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be


served either personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the
judgment merely because he heard the judgment dictating the said judgment in open court; it is
necessary that he be served with a copy of the signed judgment that has been filed with the
clerk in order that he may legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the
judgment in open court, is not sufficient to constitute the service of judgement as required by the
above-quoted section 7 of Rule 2 the signed judgment not having been served upon the
petitioner, said judgment could not be effective upon him (petitioner) who had not received it. It
follows as a consequence that the issuance of the writ of execution null and void, having been
issued before petitioner her was served, personally or by registered mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of
Appeals, concerns the validity of the proceedings of the sheriff in selling the sawmill
machineries and equipments at public auction with a notice of the sale having been previously
published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill
machineries and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in
payment of his subscription to the shares of stock of said corporation. Thereafter the sawmill
machinery and equipments were installed in a building and permanently attached to the ground.
By reason of such installment in a building, the said sawmill machineries and equipment
became real estate properties in accordance with the provision of Art. 415 (5) of the Civil Code,
thus:

ART. 415. The following are immovable property:

xxx xxx xxx

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


tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu
Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the
central of the Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the
company, converted the said machinery and equipment into real estate by reason of their
purpose. Paraphrasing language of said decision we hold that by the installment of the sawmill
machineries in the building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried
on in said building, the same became a necessary and permanent part of the building or real
estate on which the same was constructed, converting the said machineries and equipments
into real estate within the meaning of Article 415(5) above-quoted of the Civil Code of the
Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00
appear to have been sold without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on
execution, notice thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice particularly describing the
property for twenty days in three public places in the municipality or city where the
property is situated, and also where the property is to be sold, and, if the assessed value
of the property exceeds four hundred pesos, by publishing a copy of the notice once a
week, for the same period, in some newspaper published or having general circulation in
the province, if there be one. If there are newspapers published in the province in both
the English and Spanish languages, then a like publication for a like period shall be
made in one newspaper published in the English language, and in one published in the
Spanish language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside
and We declare that the issuance of the writ of execution in this case against the sawmill
machineries and equipments purchased by petitioner Pastor D. Ago from the Grace Park
Engineering, Inc., as well as the sale of the same by the Sheriff of Surigao, are null and void.
Costs shall be against the respondent Grace Park Engineering, Inc.
G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF


QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.


Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric
street railway and electric light, heat and power system in the City of Manila and its suburbs to
the person or persons making the most favorable bid. Charles M. Swift was awarded the said
franchise on March 1903, the terms and conditions of which were embodied in Ordinance No.
44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became
the transferee and owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls,
Laguna and is transmitted to the City of Manila by means of electric transmission wires, running
from the province of Laguna to the said City. These electric transmission wires which carry high
voltage current, are fastened to insulators attached on steel towers constructed by respondent
at intervals, from its hydro-electric plant in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel towers within Quezon City, on land
belonging to it. A photograph of one of these steel towers is attached to the petition for review,
marked Annex A. Three steel towers were inspected by the lower court and parties and the
following were the descriptions given there of by said court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a
depth of about eight (8) feet, with an opening of about one (1) meter in diameter,
decreased to about a quarter of a meter as it we deeper until it reached the bottom of the
post; at the bottom of the post were two parallel steel bars attached to the leg means of
bolts; the tower proper was attached to the leg three bolts; with two cross metals to
prevent mobility; there was no concrete foundation but there was adobe stone
underneath; as the bottom of the excavation was covered with water about three inches
high, it could not be determined with certainty to whether said adobe stone was placed
purposely or not, as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in
the first tower, the ground around one of the four legs was excavate from seven to eight
(8) feet deep and one and a half (1-½) meters wide. There being very little water at the
bottom, it was seen that there was no concrete foundation, but there soft adobe beneath.
The leg was likewise provided with two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the second tower is made up of metal rods
joined together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled.

The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to
a depth about two or three inches beyond the outside level of the steel bar foundation. It
was found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably
due to high humidity, looks like mud or clay. It was also found that the square metal
frame supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the
Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
Respondent paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on December 29, 1958, ordering the
cancellation of the said tax declarations and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The motion for reconsideration having been
denied, on April 22, 1959, the instant petition for review was filed.

In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the
term "poles" which are declared exempt from taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the refund of the amount paid.
These are assigned as errors by the petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said
percentage shall be due and payable at the time stated in paragraph nineteen of Part
One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever nature
and by whatsoever authority upon the privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or
timber, as typically the stem of a small tree stripped of its branches; also by extension, a similar
typically cylindrical piece or object of metal or the like". The term also refers to "an upright
standard to the top of which something is affixed or by which something is supported; as a
dovecote set on a pole; telegraph poles; a tent pole; sometimes, specifically a vessel's master
(Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of
Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co.
which are made of two steel bars joined together by an interlacing metal rod. They are called
"poles" notwithstanding the fact that they are no made of wood. It must be noted from paragraph
9, above quoted, that the concept of the "poles" for which exemption is granted, is not
determined by their place or location, nor by the character of the electric current it carries, nor
the material or form of which it is made, but the use to which they are dedicated. In accordance
with the definitions, pole is not restricted to a long cylindrical piece of wood or metal, but
includes "upright standards to the top of which something is affixed or by which something is
supported. As heretofore described, respondent's steel supports consists of a framework of four
steel bars or strips which are bound by steel cross-arms atop of which are cross-arms
supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles"
is not a novelty. Several courts of last resort in the United States have called these steel
supports "steel towers", and they denominated these supports or towers, as electric poles. In
their decisions the words "towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided
that wires shall be constructed upon suitable poles, this term was construed to mean either
wood or metal poles and in view of the land being subject to overflow, and the necessary
carrying of numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words
and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires alongside
public highways. The steel supports or towers were made of iron or other metals consisting of
two pieces running from the ground up some thirty feet high, being wider at the bottom than at
the top, the said two metal pieces being connected with criss-cross iron running from the bottom
to the top, constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n v. Compton,
8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top
of which extends above the surface of the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death
was built for the purpose of supporting a transmission wire used for carrying high-tension
electric power, but claimed that the steel towers on which it is carried were so large that their
wire took their structure out of the definition of a pole line. It was held that in defining the word
pole, one should not be governed by the wire or material of the support used, but was
considering the danger from any elevated wire carrying electric current, and that regardless of
the size or material wire of its individual members, any continuous series of structures intended
and used solely or primarily for the purpose of supporting wires carrying electric currents is a
pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat
the very object for which the franchise was granted. The poles as contemplated thereon, should
be understood and taken as a part of the electric power system of the respondent Meralco, for
the conveyance of electric current from the source thereof to its consumers. If the respondent
would be required to employ "wooden poles", or "rounded poles" as it used to do fifty years
back, then one should admit that the Philippines is one century behind the age of space. It
should also be conceded by now that steel towers, like the ones in question, for obvious
reasons, can better effectuate the purpose for which the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not
embraced within the termpoles, the logical question posited is whether they
constitute real properties, so that they can be subject to a real property tax. The tax law does
not provide for a definition of real property; but Article 415 of the Civil Code does, by stating the
following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object;

xxx xxx xxx

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


tenement for an industry or works which may be carried in a building or on a piece of
land, and which tends directly to meet the needs of the said industry or works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the soil. They
are not construction analogous to buildings nor adhering to the soil. As per description, given by
the lower court, they are removable and merely attached to a square metal frame by means of
bolts, which when unscrewed could easily be dismantled and moved from place to place. They
can not be included under paragraph 3, as they are not attached to an immovable in a fixed
manner, and they can be separated without breaking the material or causing deterioration upon
the object to which they are attached. Each of these steel towers or supports consists of steel
bars or metal strips, joined together by means of bolts, which can be disassembled by
unscrewing the bolts and reassembled by screwing the same. These steel towers or supports
do not also fall under paragraph 5, for they are not machineries, receptacles, instruments or
implements, and even if they were, they are not intended for industry or works on the land.
Petitioner is not engaged in an industry or works in the land in which the steel supports or
towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund
the sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued
that as the City Treasurer is not the real party in interest, but Quezon City, which was not a
party to the suit, notwithstanding its capacity to sue and be sued, he should not be ordered to
effect the refund. This question has not been raised in the court below, and, therefore, it cannot
be properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City Treasurer)
whom had insisted that respondent herein pay the real estate taxes, which respondent paid
under protest. Having acted in his official capacity as City Treasurer of Quezon City, he would
surely know what to do, under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.
G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,


vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate
Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside
certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the
Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for
reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc.,
discounted and assigned several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a machinery described as an
Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure
failed to gain entry into private respondent's premises and was not able to effect the seizure of
the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with
the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case
before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of
a motion for reconsideration. After several incidents, the lower court finally issued on February
11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an
order to break open the premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein
private respondent, set aside the Orders of the lower court and ordered the return of the drive
motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot
be the subject of replevin, much less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same being attached to the ground by means
of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main
drive motor of said machinery. The appellate court rejected petitioner's argument that private
respondent is estopped from claiming that the machine is real property by constituting a chattel
mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied,
petitioner has brought the case to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's machinery after the Court of
Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the subject
motor drive, it made itself unequivocably clear that said action was without prejudice to a motion
for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition
has been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery
in suit is real or personal property from the point of view of the parties, with petitioner arguing
that it is a personality, while the respondent claiming the contrary, and was sustained by the
appellate court, which accordingly held that the chattel mortgage constituted thereon is null and
void, as contended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes, ruled:

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


property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not
now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely
had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors
to sustain the interpretation that the parties, particularly the mortgagors, intended
to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it
is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated
the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out,
as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from denying the existence of
the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of
Appeals lays stress on the fact that the house involved therein was built on a land that did not
belong to the owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down distinctions not
contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined
by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as personal property that
which by nature would be real property, as long as no interest of third parties would be
prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but was
merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage
which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the subject machinery
as movable or immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in the appellate
court. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again
not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates
that one should not benefit at the expense of another. Private respondent could not now
therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited
therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case
of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court
is not applicable to the case at bar, the nature of the machinery and equipment involved therein
as real properties never having been disputed nor in issue, and they were not the subject of a
Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the
instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs
against the private respondent.
G.R. No. 137705 August 22, 2000

SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners,


vs.
PCI LEASING AND FINANCE, INC., respondent.

DECISION

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be considered as


personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the
Court of Appeals (CA)2in CA-GR SP No. 47332 and its February 26, 1999 Resolution3 denying
reconsideration. The decretal portion of the CA Decision reads as follows:

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

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch
218)6 issued a Writ of Seizure.7 The March 18, 1998 Resolution8 denied petitioners’ Motion for
Special Protective Order, praying that the deputy sheriff be enjoined "from seizing immobilized
or other real properties in (petitioners’) factory in Cainta, Rizal and to return to their original
place whatever immobilized machineries or equipments he may have removed."9

The Facts

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

"On February 13, 1998, respondent PCI Leasing and Finance, Inc. ("PCI Leasing" for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex ‘E’), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.

"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex ‘B’) directing its sheriff to seize and deliver the machineries and equipment to
PCI Leasing after 5 days and upon the payment of the necessary expenses.

"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner’s factory,
seized one machinery with [the] word that he [would] return for the other machineries.

"On March 25, 1998, petitioners filed a motion for special protective order (Annex ‘C’), invoking
the power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.

"This motion was opposed by PCI Leasing (Annex ‘F’), on the ground that the properties [were]
still personal and therefore still subject to seizure and a writ of replevin.

"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties’ agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were] embodied [were] totally
sham and farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.

"On April 7, 1998, they went to [the CA] via an original action for certiorari."

Ruling of the Court of Appeals

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

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

Hence, this Petition.11

The Issues

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

"A. Whether or not the machineries purchased and imported by SERG’S became real property
by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease."12

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

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed
under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support in
the very title of the Petition, which is "Petition for Review on Certiorari."13

While Judge Laqui should not have been impleaded as a respondent,14 substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In this
light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from the
caption of the present case.

Main Issue: Nature of the Subject Machinery


Petitioners contend that the subject machines used in their factory were not proper subjects of
the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.15Section 3 thereof reads:

"SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody."

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:

"ART. 415. The following are immovable property:

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works;

xxx xxx x x x"

In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become "immobilized by destination because
they are essential and principal elements in the industry."16 In that sense, petitioners are correct
in arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of
the Civil Code.17

Be that as it may, we disagree with the submission of the petitioners that the said machines are
not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.18After agreeing to such stipulation, they are consequently estopped
from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as
a personal property because it had been made the subject of a chattel mortgage. The Court
ruled:

"x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise."

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills20 also held that the machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Court’s ruling are reproduced hereunder:

"x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long
as the parties to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel
mortgage."

In the present case, the Lease Agreement clearly provides that the machines in question are to
be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:21

"12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in
any manner affixed or attached to or embedded in, or permanently resting upon, real property or
any building thereon, or attached in any manner to what is permanent."

Clearly then, petitioners are estopped from denying the characterization of the subject machines
as personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement – is good only insofar as the contracting
parties are concerned.22 Hence, while the parties are bound by the Agreement, third persons
acting in good faith are not affected by its stipulation characterizing the subject machinery as
personal.23 In any event, there is no showing that any specific third party would be adversely
affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.24 Submitting documents supposedly showing that they own the subject machines,
petitioners also argue in their Petition that the Agreement suffers from "intrinsic ambiguity which
places in serious doubt the intention of the parties and the validity of the lease agreement
itself."25 In their Reply to respondent’s Comment, they further allege that the Agreement is
invalid.26

These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the case. Hence, they should be threshed out in the trial,
not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondeña Distillers v. CA,27 the Court explained that the policy under Rule 60 was
that questions involving title to the subject property – questions which petitioners are now
raising -- should be determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the
plaintiff’s bond. They were not allowed, however, to invoke the title to the subject property. The
Court ruled:

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

Besides, these questions require a determination of facts and a presentation of evidence, both
of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for
review in this Court under Rule 45.29

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first
only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it
must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed
of Chattel Mortgage, which characterized the subject machinery as personal property, was also
assailed because respondent had allegedly been required "to sign a printed form of chattel
mortgage which was in a blank form at the time of signing." The Court rejected the argument
and relied on the Deed, ruling as follows:

"x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. x x x"

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that "if the Court allows these machineries to be seized, then its workers
would be out of work and thrown into the streets."31 They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.

Petitioners’ arguments do not preclude the implementation of the Writ.1âwphi1 As earlier


discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:

"SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicant’s
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a
bond executed to the applicant, in double the value of the property as stated in the applicant’s
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant."

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.

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

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,


vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

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

Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that
only questions of law are involved.

This case was originally commenced by defendants-appellants in the municipal court of Manila
in Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to
the court a quo (Civil Case No. 30993) which also rendered a decision against them, the
dispositive portion of which follows:

WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and
against the defendants, ordering the latter to pay jointly and severally the former
a monthly rent of P200.00 on the house, subject-matter of this action, from March
27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956,
the filing of the complaint, until fully paid, plus attorney's fees in the sum of
P300.00 and to pay the costs.

It appears on the records that on 1 September 1955 defendants-appellants executed a chattel


mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550
Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which
were being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry
of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a
loan of P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum.
The mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and
the lump sum of P3,150 was payable on or before August, 1956. It was also agreed that default
in the payment of any of the amortizations, would cause the remaining unpaid balance to
becomeimmediately due and Payable and —

the Chattel Mortgage will be enforceable in accordance with the provisions of


Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or
any of his deputies is hereby empowered and authorized to sell all the
Mortgagor's property after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed,


and on 27 March 1956, the house was sold at public auction pursuant to the said contract. As
highest bidder, plaintiffs-appellees were issued the corresponding certificate of
sale.3 Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the house be vacated and its
possession surrendered to them, and for defendants-appellants to pay rent of P200.00 monthly
from 27 March 1956 up to the time the possession is surrendered.4 On 21 September 1956, the
municipal court rendered its decision —

... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the municipal court and court a quo impugned
the legality of the chattel mortgage, claiming that they are still the owners of the house; but they
waived the right to introduce evidence, oral or documentary. Instead, they relied on their
memoranda in support of their motion to dismiss, predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and decide the case because (1) the issue
involved, is ownership, and (2) there was no allegation of prior possession; and (b) failure to
prove prior demand pursuant to Section 2, Rule 72, of the Rules of Court.6

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in
the decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because the subject
house had been already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.

The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was
disclaimed and was still being litigated, and under Section 8, Rule 72, rentals deposited had to
be held until final disposition of the appeal.7

On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive
portion of which is quoted earlier. The said decision was appealed by defendants to the Court of
Appeals which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief
and this appeal was submitted for decision without it.

Defendants-appellants submitted numerous assignments of error which can be condensed into


two questions, namely: .

(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;

(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of
the extrajudicially foreclosed house.

We will consider these questions seriatim.

(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which
the case originated, and consequently, the appellate jurisdiction of the Court of First Instance a
quo, on the theory that the chattel mortgage is void ab initio; whence it would follow that the
extrajudicial foreclosure, and necessarily the consequent auction sale, are also void. Thus, the
ownership of the house still remained with defendants-appellants who are entitled to possession
and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of
ownership will have to be adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First Instance which has jurisdiction and
not the municipal court.

Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds,
which are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit,
or trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and,
being an immovable, it can only be the subject of a real estate mortgage and not a chattel
mortgage.

On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-
appellants' contentions as not supported by evidence and accordingly dismissed the
charge,8 confirming the earlier finding of the municipal court that "the defense of ownership as
well as the allegations of fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere
statement of the facts which the party filing it expects to prove, but it is not evidence;11 and
further, that when the question to be determined is one of title, the Court is given the authority to
proceed with the hearing of the cause until this fact is clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful bidder in an auction sale, it was
likewise held by this Court that in detainer cases the aim of ownership "is a matter of defense
and raises an issue of fact which should be determined from the evidence at the trial." What
determines jurisdiction are the allegations or averments in the complaint and the relief asked
for. 13

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

It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab initio because only personal properties
can be subject of a chattel mortgage. The rule about the status of buildings as immovable
property is stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15cited in Associated Insurance
Surety Co., Inc. vs. Iya, et al. 16 to the effect that —

... it is obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties (art. 415, New
Civil Code) could only mean one thing — that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.

Certain deviations, however, have been allowed for various reasons. In the case of Manarang
and Manarang vs. Ofilada,17 this Court stated that "it is undeniable that the parties to a contract
may by agreement treat as personal property that which by nature would be real property",
citing Standard Oil Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor
conveyed and transferred to the mortgagee by way of mortgage "the following
described personal property." 19 The "personal property" consisted of leasehold rights and a
building. Again, in the case of Luna vs. Encarnacion,20 the subject of the contract designated as
Chattel Mortgage was a house of mixed materials, and this Court hold therein that it was a valid
Chattel mortgage because it was so expressly designated and specifically that the property
given as security "is a house of mixed materials, which by its very nature is considered personal
property." In the later case of Navarro vs. Pineda,21 this Court stated that —

The view that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based, partly, upon the
principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In
a case, a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as such, but also
because it did not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G.
2913), for it is now settled that an object placed on land by one who had only a
temporary right to the same, such as the lessee or usufructuary, does not
become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58,
cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property as so stipulated in the
document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted,
however that the principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G.
5374): 22
In the contract now before Us, the house on rented land is not only expressly designated as
Chattel Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the property together with its leasehold rights over
the lot on which it is constructed and participation ..." 24 Although there is no specific statement
referring to the subject house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they should not now be
allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendats-appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs.
Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the chattel mortgage,27 it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personalty.

(b) Turning to the question of possession and rentals of the premises in question. The Court of
First Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged
house had been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the
lessor of the land on which the house stood. For this reason, the said court limited itself to
sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March
1956 (when the chattel mortgage was foreclosed and the house sold) until 14 January 1957
(when it was torn down by the Sheriff), plus P300.00 attorney's fees.

Appellants mortgagors question this award, claiming that they were entitled to remain in
possession without any obligation to pay rent during the one year redemption period after the
foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the appellants.

Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508.28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at
public auction through a public officer in almost the same manner as that allowed by Act No.
3135, as amended by Act No. 4118, provided that the requirements of the law relative to notice
and registration are complied with. 29 In the instant case, the parties specifically stipulated that
"the chattel mortgage will be enforceable in accordance with the provisions of Special Act No.
3135 ... ." 30(Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants


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

In other words, before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the purchaser thereof is
not entitled, as a matter of right, to possession of the same. Thus, while it is true
that the Rules of Court allow the purchaser to receive the rentals if the purchased
property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received
and the same will be duly credited against the redemption price when the said
debtor or mortgagor effects the redemption. Differently stated, the rentals
receivable from tenants, although they may be collected by the purchaser during
the redemption period, do not belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to secure for the benefit of the
debtor or mortgagor, the payment of the redemption amount and the consequent
return to him of his properties sold at public auction. (Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe.36

Since the defendants-appellants were occupying the house at the time of the auction sale, they
are entitled to remain in possession during the period of redemption or within one year from and
after 27 March 1956, the date of the auction sale, and to collect the rents or profits during the
said period.

It will be noted further that in the case at bar the period of redemption had not yet expired when
action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties
to govern the extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation
to that effect. Since plaintiffs-appellees' right to possess was not yet born at the filing of the
complaint, there could be no violation or breach thereof. Wherefore, the original complaint
stated no cause of action and was prematurely filed. For this reason, the same should be
ordered dismissed, even if there was no assignment of error to that effect. The Supreme Court
is clothed with ample authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for the year
following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.
G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,


vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.


Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay
for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of
Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same
province, dropped at Lopez' house and invited him to make an investment in the theatre
business. It was intimated that Orosa, his family and close friends were organizing a corporation
to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez
expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for
the construction of the proposed theatre, and at Orosa's behest and assurance that the latter
would be personally liable for any account that the said construction might incur, Lopez further
agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to
said verbal agreement, Lopez delivered the lumber which was used for the construction of the
Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the
materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of
P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an
area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the
corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of
the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the
corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre.,
out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to
accede. Unknown to him, however, as early as November, 1946, the corporation already got a
loan for P30,000 from the Philippine National Bank with the Luzon Surety Company as surety,
and the corporation in turn executed a mortgage on the land and building in favor of said
company as counter-security. As the land at that time was not yet brought under the operation
of the Torrens System, the mortgage on the same was registered on November 16, 1946, under
Act No. 3344. Subsequently, when the corporation applied for the registration of the land under
Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa,
Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of
the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the
creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later became
R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced
to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the
action; that in case defendants fail to pay the same, that the building and the land covered by
OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be
applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza Theatre,
Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same
purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff also
caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying
that the materials were delivered to him as a promoter and later treasurer of the corporation,
because he had purchased and received the same on his personal account; that the land on
which the movie house was constructed was not charged with a lien to secure the payment of
the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre,
Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his
indebtedness. As special defense, this defendant contended that as the 420 shares of stock
assigned and conveyed by the assignor and accepted by Lopez as direct security for the
payment of the amount of P41,771.35 were personal properties, plaintiff was barred from
recovering any deficiency if the proceeds of the sale thereof at public auction would not be
sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted
from the payment of any deficiency in case the proceeds from the sale of said personal
properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by
alleging that the building materials delivered to Orosa were on the latter's personal account; and
that there was no understanding that said materials would be paid jointly and severally by Orosa
and the corporation, nor was a lien charged on the properties of the latter to secure payment of
the same obligation. As special defense, defendant corporation averred that while it was true
that the materials purchased by Orosa were sold by the latter to the corporation, such
transactions were in good faith and for valuable consideration thus when plaintiff failed to claim
said materials within 30 days from the time of removal thereof from Orosa, lumber became a
different and distinct specie and plaintiff lost whatever rights he might have in the same and
consequently had no recourse against the Plaza Theatre, Inc., that the claim could not have
been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the
repair or reconstruction of something already existing and this concept did not include an
entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14,
1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that
the complaint be dismissed; that said defendant be awarded the sum P 5,000 for damages, and
such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered
under the Torrens System and that there was a notice of lis pendens thereon, filed on August
17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for
review of the decree of the land registration court dated October 18, 1947, which was made the
basis of OCT No. O-319, in order to annotate the rights and interests of the surety company
over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto
was offered by Enrique Lopez, asserting that the amount demanded by him constituted a
preferred lien over the properties of the obligors; that the surety company was guilty of
negligence when it failed to present an opposition to the application for registration of the
property; and that if any violation of the rights and interest of said surety would ever be made,
same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court,
after making an exhaustive and detailed analysis of the respective stands of the parties and the
evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre,
Inc., were jointly liable for the unpaid balance of the cost of lumber used in the construction of
the building and the plaintiff thus acquired the materialman's lien over the same. In making the
pronouncement that the lien was merely confined to the building and did not extend to the land
on which the construction was made, the trial judge took into consideration the fact that when
plaintiff started the delivery of lumber in May, 1946, the land was not yet owned by the
corporation; that the mortgage in favor of Luzon Surety Company was previously registered
under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying
that refection credits are preferred could refer only to buildings which are also classified as real
properties, upon which said refection was made. It was, however, declared that plaintiff's lien on
the building was superior to the right of the surety company. And finding that the Plaza Theatre,
Inc., had no objection to the review of the decree issued in its favor by the land registration court
and the inclusion in the title of the encumbrance in favor of the surety company, the court a
quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre,
Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs
within 90 days from notice of said decision; that in case of default, the 420 shares of stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to
the payment of the amount due the plaintiff, plus interest and costs; and that the encumbrance
in favor of the surety company be endorsed at the back of OCT No. O-391, with notation I that
with respect to the building, said mortgage was subject to the materialman's lien in favor of
Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of
therein defendants was joint instead of solidary, and that the lien did not extend to the land, but
same was denied by order the court of December 23, 1952. The matter was thus appealed to
the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this
instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the
materials used in the construction of a building attaches to said structure alone and does not
extend to the land on which the building is adhered to; and (2) whether the lower court and the
Court of Appeals erred in not providing that the material mans liens is superior to the mortgage
executed in favor surety company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of
the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of
P41,771.35, so We will not take up or consider anything on that point. Appellant, however,
contends that the lien created in favor of the furnisher of the materials used for the construction,
repair or refection of a building, is also extended to the land which the construction was made,
and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the
matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:

xxx xxx xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which
the refection was made, and only with respect to other credits different from those
mentioned in four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building,
said article must be construed as to embrace both the land and the building or structure
adhering thereto. We cannot subscribe to this view, for while it is true that generally, real estate
connotes the land and the building constructed thereon, it is obvious that the inclusion of the
building, separate and distinct from the land, in the enumeration of what may constitute real
properties1 could mean only one thing — that a building is by itself an immovable property, a
doctrine already pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co.,
37 Phil., 644. Moreover, and in view of the absence of any specific provision of law to the
contrary, a building is an immovable property, irrespective of whether or not said structure and
the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that the law
gives preference to unregistered refectionary credits only with respect to the real estate upon
which the refection or work was made. This being so, the inevitable conclusion must be that the
lien so created attaches merely to the immovable property for the construction or repair of which
the obligation was incurred. Evidently, therefore, the lien in favor of appellant for the unpaid
value of the lumber used in the construction of the building attaches only to said structure and to
no other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged
only to the building for which the credit was made or which received the benefit of refection, the
lower court was right in, holding at the interest of the mortgagee over the land is superior and
cannot be made subject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is
hereby affirmed, with costs against appellant. It is so ordered.
G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,


vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

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

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,


vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June
20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005
Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both
petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW
diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years.
Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of
the Philippines or any agency or instrumentality thereof to which POLAR may be or become
subject to or in relation to the performance of their obligations under this agreement (other than
(i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income
Taxes of its employees and (ii) construction permit fees, environmental permit fees and other
similar fees and charges) and (b) all real estate taxes and assessments, rates and other
charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC
initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges
from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise
covered those due for 1994, amounted to ₱56,184,088.40 per annum. FELS referred the matter
to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then
gave NPC the full power and authority to represent it in any conference regarding the real
property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor’s
decision to assess real property taxes on the power barges. However, the motion was denied
on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the
setting aside of the assessment and the declaration of the barges as non-taxable items; it also
prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to
make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property
for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that
the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is
clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount of ₱56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes because
they are installed at a specific location with a character of permanency. The LBAA also pointed
out that the owner of the barges–FELS, a private corporation–is the one being taxed, not NPC.
A mere agreement making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC
and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of
time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals
(CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and
Warrant by Distraint13over the power barges, seeking to collect real property taxes amounting to
₱232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings
before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event
that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of
Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958
from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of
Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC;
since they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the
CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption
in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19,
2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No.
67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for
consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who
should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of
the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the
ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of
the appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed
as G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No. 67490. The
petition was, however, denied in this Court’s Resolution25 of November 8, 2004, for NPC’s
failure to sufficiently show that the CA committed any reversible error in the challenged decision.
NPC filed a motion for reconsideration, which the Court denied with finality in a
Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the
right to question the assessment of the Provincial Assessor had already prescribed upon the
failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by
law. Since FELS had lost the right to question the assessment, the right of the Provincial
Government to collect the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the
February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied
for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,
raising the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore,
not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").

C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or not
it should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the same
is subject to depreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioner’s personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE
LBAA WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER
BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT
ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit
their respective Memoranda within 30 days from notice. Almost a year passed but the parties
had not submitted their respective memoranda. Considering that taxes—the lifeblood of our
economy—are involved in the present controversy, the Court was prompted to dispense with
the said pleadings, with the end view of advancing the interests of justice and avoiding further
delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7,
1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC
posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of
the denial of its motion for reconsideration.

Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment Appeals of the province
or city by filing a petition under oath in the form prescribed for the purpose, together with copies
of the tax declarations and such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of
receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition
under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration
and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted
to file a motion for reconsideration of the Provincial Assessor’s decision, a remedy not
sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial,
city or municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the taxability of the
subject real properties falls within its power to assess properties for taxation purposes subject to
appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP
No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the
local assessor on a particular assessment shall be the notice of assessment; it is this last action
which gives the owner of the property the right to appeal to the LBAA. The procedure likewise
does not permit the property owner the remedy of filing a motion for reconsideration before the
local assessor. The pertinent holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their
appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this
procedure would indeed invite corruption in the system of appraisal and assessment. It
conveniently courts a graft-prone situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the request of a property owner. In the
latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be prevented and excised from our
system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the
owner or lawful possessor of real property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by
law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without
interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to
collect the taxes due with respect to the taxpayer’s property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that the taxpayer’s failure to question
the assessment in the LBAA renders the assessment of the local assessor final, executory and
demandable, thus, precluding the taxpayer from questioning the correctness of the assessment,
or from invoking any defense that would reopen the question of its liability on the merits. 39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having been filed
out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both
mandatory and jurisdictional, and failure in this regard renders the decision final and
executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred
by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a
final determination on the issue of prescription), effectively precludes the claims herein; and that
the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum
shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it
was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it
did not participate in the aforesaid proceeding, and the Supreme Court never acquired
jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping
could have been committed since the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and necessity,
which makes it to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on
the individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa.
A conflicting doctrine would subject the public peace and quiet to the will and dereliction of
individuals and prefer the regalement of the litigious disposition on the part of suitors to the
preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon
Vda. de Roxas v. Court of Appeals:42

x x x An existing final judgment or decree – rendered upon the merits, without fraud or collusion,
by a court of competent jurisdiction acting upon a matter within its authority – is conclusive on
the rights of the parties and their privies. This ruling holds in all other actions or suits, in the
same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in
issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same parties
or their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party
should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed
by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject
matter and the parties; (3) the judgment must be on the merits; and (4) there must be between
the first and the second actions, identity of parties, subject matter and causes of action. The
application of the doctrine of res judicata does not require absolute identity of parties but merely
substantial identity of parties. There is substantial identity of parties when there is community of
interest or privity of interest between a party in the first and a party in the second case even if
the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for review
docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS.
Moreover, the assailed decision in the earlier petition for review filed in this Court was the
decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner.
Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity
of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the
application of res judicata. FELS’s argument that it is not bound by the erroneous petition filed
by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists
when, as a result of an adverse judgment in one forum, a party seeks another and possibly
favorable judgment in another forum other than by appeal or special civil action or certiorari.
There is also forum shopping when a party institutes two or more actions or proceedings
grounded on the same cause, on the gamble that one or the other court would make a favorable
disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are
not present in the cases at bar; however, as already discussed, res judicata may be properly
applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and
170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court
to another trying to get a favorable decision from one of the tribunals which allowed them to
pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is
the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not
be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily
burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts, and (c) the identity of the two preceding particulars
is such that any judgment rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for
the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are
thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No.
165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by
tax examiners are presumed correct and made in good faith, with the taxpayer having the
burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have
acquired expertise in their field, are generally binding and conclusive upon the Court; we will not
assume to interfere with the sensible exercise of the judgment of men especially trained in
appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the
assessment undisturbed.49 We find no reason to depart from this rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., 50 a
power company brought an action to review property tax assessment. On the city’s motion to
dismiss, the Supreme Court of New York held that the barges on which were mounted gas
turbine power plants designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted on the barges were
subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a river,
lake, or coast" are considered immovable property. Thus, power barges are categorized as
immovable property by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply,
generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated
under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which
have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power
Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:

xxx

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find
solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of
the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the
Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek
to be thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions,
and the rule that doubts should be resolved in favor of provincial corporations, we hold that
FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant
is between FELS and NPC and does not bind a third person not privy thereto, in this case, the
Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the
local government’s deprivation of revenues. The power to tax is an incident of sovereignty and
is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security
against its abuse is to be found only in the responsibility of the legislature which imposes the tax
on the constituency who are to pay for it.57 The right of local government units to collect taxes
due must always be upheld to avoid severe tax erosion. This consideration is consistent with the
State policy to guarantee the autonomy of local governments58 and the objective of the Local
Government Code that they enjoy genuine and meaningful local autonomy to empower them to
achieve their fullest development as self-reliant communities and make them effective partners
in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.

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

FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA,


RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners,
vs.
HON. MARIANO CASTAÑEDA, JR., Presiding Judge of the Court of First Instance of
Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor,
San Fernando, Pampanga, respondents.

CRUZ, J.:

There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street,
a strip of land measuring 12 by 77 meters on which stands a conglomeration of vendors stalls
together forming what is commonly known as a talipapa. This is the subject of the herein
petition. The petitioners claim they have a right to remain in and conduct business in this area
by virtue of a previous authorization granted to them by the municipal government. The
respondents deny this and justify the demolition of their stalls as illegal constructions on public
property. At the petitioners' behest, we have issued a temporary restraining order to preserve
the status quo between the parties pending our decision. 1 Now we shall rule on the merits.

This dispute goes back to November 7, 1961, when the municipal council of San Fernando
adopted Resolution No. 218 authorizing some 24 members of the Fernandino United Merchants
and Traders Association to construct permanent stags and sell in the above-mentioned
place. 2 The action was protested on November 10, 1961, in Civil Case No. 2040, where the
Court of First Instance of Pampanga, Branch 2, issued a writ of preliminary injunction that
prevented the defendants from constructing the said stalls until final resolution of the
controversy. 3 On January 18, 1964, while this case was pending, the municipal council of San
Fernando adopted Resolution G.R. No. 29, which declared the subject area as "the parking
place and as the public plaza of the municipality, 4 thereby impliedly revoking Resolution No.
218, series of 1961. Four years later, on November 2, 1968, Judge Andres C. Aguilar decided
the aforesaid case and held that the land occupied by the petitioners, being public in nature,
was beyond the commerce of man and therefore could not be the subject of private
occupancy. 5 The writ of preliminary injunction was made permanent. 6

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

Acting thereon after an investigation conducted by the municipal attorney, 9 respondent Vicente
A. Macalino, as officer-in-charge of the office of the mayor of San Fernando, issued on June 14,
1982, a resolution requiring the municipal treasurer and the municipal engineer to demolish the
stalls in the subject place beginning July 1, 1982. 10The reaction of the petitioners was to file a
petition for prohibition with the Court of First Instance of Pampanga, docketed as Civil Case No.
6470, on June 26, 1982. The respondent judge denied the petition on July 19, 1982, 11 and the
motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court
on certiorari to challenge his decision. 13

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

There is no question that the place occupied by the petitioners and from which they are sought
to be evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This finding
was made after consideration of the antecedent facts as especially established by the testimony
of former San Fernando Mayor Rodolfo Hizon, who later became governor of Pampanga, that
the National Planning Commission had reserved the area for a public plaza as early as 1951.
This intention was reiterated in 1964 through the adoption of Resolution No. 29. 19

It does not appear that the decision in this case was appealed or has been reversed. In Civil
Case G.R. No. 6740, which is the subject of this petition, the respondent judge saw no reason to
disturb the finding in Civil Case No. 2040 and indeed used it as a basis for his own decision
sustaining the questioned order. 20

The basic contention of the petitioners is that the disputed area is under lease to them by virtue
of contracts they had entered into with the municipal government, first in 1961 insofar as the
original occupants were concerned, and later with them and the other petitioners by virtue of the
space allocations made in their favor in 1971 for which they saw they are paying daily
fees. 21 The municipal government has denied making such agreements. In any case, they
argue, since the fees were collected daily, the leases, assuming their validity, could be
terminated at will, or any day, as the claimed rentals indicated that the period of the leases was
from day to day. 22

The parties belabor this argument needlessly.

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

Justice Torres said in that case:

According to article 344 of the Civil Code: "Property for public use in provinces
and in towns comprises the provincial and town roads, the squares, streets,
fountains, and public waters, the promenades, and public works of general
service supported by said towns or provinces.

The said Plaza Soledad being a promenade for public use, the municipal council
of Cavite could not in 1907 withdraw or exclude from public use a portion thereof
in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are
outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: "communal things that cannot be sold
because they are by their very nature outside of commerce are those for public
use, such as the plazas, streets, common lands, rivers, fountains, etc."

Therefore, it must be concluded that the contract, Exhibit C, whereby the


municipality of Cavite leased to Hilaria Rojas a portion of the Plaza Soledad is
null and void and of no force or effect, because it is contrary to the law and the
thing leased cannot be the object of a was held that the City of contract.

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

Echoing Rojas, the decision said:


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

Exactly in point is Espiritu vs. Municipal Council of Pozorrubio, 25 where the Supreme Court
declared:

There is absolutely no question that the town plaza cannot be used for the
construction of market stalls, specially of residences, and that such structures
constitute a nuisance subject to abatement according to law. Town plazas are
properties of public dominion, to be devoted to public use and to be made
available to the public in general They are outside the common of man and
cannot be disposed of or even leased by the municipality to private parties.

Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to
occupy the disputed premises and cannot insist in remaining there now on the strength of their
alleged lease contracts. They should have realized and accepted this earlier, considering that
even before Civil Case No. 2040 was decided, the municipalcouncil of San Fernando had
already adopted Resolution No. 29, series of 1964, declaring the area as the parking place and
public plaza of the municipality.

It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San
Fernando that respondent Macalino was seeking to enforce when he ordered the demolition of
the stags constructed in the disputed area. As officer-in-charge of the office of the mayor, he
had the duty to clear the area and restore it to its intended use as a parking place and public
plaza of the municipality of San Fernando, conformably to the aforementioned orders from the
court and the council. It is, therefore, not correct to say that he had acted without authority or
taken the law into his hands in issuing his order.

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

The Court observes that even without such investigation and recommendation, the respondent
mayor was justified in ordering the area cleared on the strength alone of its status as a public
plaza as declared by the judicial and legislative authorities. In calling first for the investigation
(which the petitioner saw fit to boycott), he was just scrupulously paying deference to the
requirements of due process, to remove an taint of arbitrariness in the action he was caged
upon to take.
Since the occupation of the place in question in 1961 by the original 24 stallholders (whose
number later ballooned to almost 200), it has deteriorated increasingly to the great prejudice of
the community in general. The proliferation of stags therein, most of them makeshift and of
flammable materials, has converted it into a veritable fire trap, which, added to the fact that it
obstructs access to and from the public market itself, has seriously endangered public safety.
The filthy condition of the talipapa, where fish and other wet items are sold, has aggravated
health and sanitation problems, besides pervading the place with a foul odor that has spread
into the surrounding areas. The entire place is unsightly, to the dismay and embarrassment of
the inhabitants, who want it converted into a showcase of the town of which they can all be
proud. The vendors in the talipapa have also spilled into the street and obstruct the flow of
traffic, thereby impairing the convenience of motorists and pedestrians alike. The regular
stallholders in the public market, who pay substantial rentals to the municipality, are deprived of
a sizable volume of business from prospective customers who are intercepted by
the talipapa vendors before they can reach the market proper. On top of all these, the people
are denied the proper use of the place as a public plaza, where they may spend their leisure in
a relaxed and even beautiful environment and civic and other communal activities of the town
can be held.

The problems caused by the usurpation of the place by the petitioners are covered by the police
power as delegated to the municipality under the general welfare clause. 29 This authorizes the
municipal council "to enact such ordinances and make such regulations, not repugnant to law,
as may be necessary to carry into effect and discharge the powers and duties conferred upon it
by law and such as shall seem necessary and proper to provide for the health and safety,
promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the
municipality and the inhabitants thereof, and for the protection of property therein." This
authority was validly exercised in this casethrough the adoption of Resolution No. 29, series of
1964, by the municipal council of San Fernando.

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

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

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

WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-
dated August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982,
is LIFTED. This decision is immediately executory. Costs against the petitioners.
G.R. No. L-66575 September 30, 1986

ADRIANO MANECLANG, JULIETA, RAMONA, VICTOR, ANTONINA, LOURDES, TEODORO


and MYRNA, all surnamed MANECLANG, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ALFREDO MAZA, CORLETO CASTRO,
SALOME RODRIGUEZ, EDUCARDO CUISON, FERNANDO ZARCILLA, MARIANO
GABRIEL, NICOMEDES CORDERO, CLETO PEDROZO, FELIX SALARY and JOSE
PANLILIO, respondents.

Loreto Novisteros for petitioners.

Corleto R. Castro for respondents.

FERNAN, J.:

Petitioners Adriano Maneclang, et. al. filed before the then Court of First Instance of
Pangasinan, Branch XI a complaint for quieting of title over a certain fishpond located within the
four [41 parcels of land belonging to them situated in Barrio Salomague, Bugallon, Pangasinan,
and the annulment of Resolutions Nos. 38 and 95 of the Municipal Council of Bugallon
Pangasinan. The trial court dismissed the complaint in a decision dated August 15, 1975 upon a
finding that the body of water traversing the titled properties of petitioners is a creek constituting
a tributary of the Agno River; therefore public in nature and not subject to private appropriation.
The lower court likewise held that Resolution No. 38, ordering an ocular inspection of the
Cayangan Creek situated between Barrios Salomague Sur and Salomague Norte, and
Resolution No. 95 authorizing public bidding for the lease of all municipal ferries and fisheries,
including the fishpond under consideration, were passed by respondents herein as members of
the Municipal Council of Bugallon, Pangasinan in the exercise of their legislative powers.

Petitioners appealed said decision to the Intermediate Appellate Court, which affirmed the same
on April 29, 1983. Hence, this petition for review on certiorari.

Acting on the petition, the Court required the respondents to comment thereon. However, before
respondents could do so, petitioners manifested that for lack of interest on the part of
respondent Alfredo Maza, the awardee in the public bidding of the fishpond, the parties desire to
amicably settle the case by submitting to the Court a Compromise Agreement praying that
judgment be rendered recognizing the ownership of petitioners over the land the body of water
found within their titled properties, stating therein, among other things, that "to pursue the case,
the same will not amount to any benefit of the parties, on the other hand it is to the advantage
and benefit of the municipality if the ownership of the land and the water found therein belonging
to petitioners be recognized in their favor as it is now clear that after the National Irrigation
Administration [NIA] had built the dike around the land, no water gets in or out of the land. 1

The stipulations contained in the Compromise Agreement partake of the nature of an


adjudication of ownership in favor of herein petitioners of the fishpond in dispute, which, as
clearly found by the lower and appellate courts, was originally a creek forming a tributary of the
Agno River. Considering that as held in the case of Mercado vs. Municipal President of
Macabebe, 59 Phil. 592 [1934], a creek, defined as a recess or arm extending from a river and
participating in the ebb and flow of the sea, is a property belonging to the public domain which is
not susceptible to private appropriation and acquisitive prescription, and as a public water, it
cannot be registered under the Torrens System in the name of any individual [Diego v. Court of
Appeals, 102 Phil. 494; Mangaldan v. Manaoag, 38 Phil. 4551; and considering further that
neither the mere construction of irrigation dikes by the National Irrigation Administration which
prevented the water from flowing in and out of the subject fishpond, nor its conversion into a
fishpond, alter or change the nature of the creek as a property of the public domain, the Court
finds the Compromise Agreement null and void and of no legal effect, the same being contrary
to law and public policy.
The finding that the subject body of water is a creek belonging to the public domain is a factual
determination binding upon this Court. The Municipality of Bugallon, acting thru its duly-
constituted municipal council is clothed with authority to pass, as it did the two resolutions
dealing with its municipal waters, and it cannot be said that petitioners were deprived of their
right to due process as mere publication of the notice of the public bidding suffices as a
constructive notice to the whole world.

IN VIEW OF THE FOREGOING, the Court Resolved to set aside the Compromise Agreement
and declare the same null and void for being contrary to law and public policy. The Court further
resolved to DISMISS the instant petition for lack of merit.

SO ORDERED.
GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their
representatives and agents from proceeding with the bidding for the sale of the 3,179
square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on
February 21, 1990. We granted the prayer for a temporary restraining order effective
February 20, 1990. One of the petitioners (in G.R. No. 92047) likewise prayes for a writ of
mandamus to compel the respondents to fully disclose to the public the basis of their
decision to push through with the sale of the Roppongi property inspire of strong public
opposition and to explain the proceedings which effectively prevent the participation of
Filipino citizens and entities in the bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on
March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the
respondents were required to file a comment by the Court's resolution dated February
22, 1990. The two petitions were consolidated on March 27, 1990 when the memoranda of
the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a
motion for an extension of thirty (30) days to file comment in G.R. No. 92047, followed by
a second motion for an extension of another thirty (30) days which we granted on May 8,
1990, a third motion for extension of time granted on May 24, 1990 and a fourth motion
for extension of time which we granted on June 5, 1990 but calling the attention of the
respondents to the length of time the petitions have been pending. After the comment
was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a reply. We
noted his motion and resolved to decide the two (2) cases.

The subject property in this case is one of the four (4) properties in Japan acquired by
the Philippine government under the Reparations Agreement entered into with Japan on
May 9, 1956, the other lots being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an
area of approximately 2,489.96 square meters, and is at present the site of the Philippine
Embassy Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72
square meters and categorized as a commercial lot now being used as a warehouse and
parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe,
a residential lot which is now vacant.

The properties and the capital goods and services procured from the Japanese
government for national development projects are part of the indemnification to the
Filipino people for their losses in life and property and their suffering during World War
II.

The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to be
fixed by the Philippine and Japanese governments (Article 2, Reparations Agreement).
Rep. Act No. 1789, the Reparations Law, prescribes the national policy on procurement
and utilization of reparations and development loans. The procurements are divided into
those for use by the government sector and those for private parties in projects as the
then National Economic Council shall determine. Those intended for the private sector
shall be made available by sale to Filipino citizens or to one hundred (100%) percent
Filipino-owned entities in national development projects.
The Roppongi property was acquired from the Japanese government under the Second
Year Schedule and listed under the heading "Government Sector", through Reparations
Contract No. 300 dated June 27, 1958. The Roppongi property consists of the land and
building "for the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for
Petitioner, p. 503). As intended, it became the site of the Philippine Embassy until the
latter was transferred to Nampeidai on July 22, 1976 when the Roppongi building needed
major repairs. Due to the failure of our government to provide necessary funds, the
Roppongi property has remained undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine


Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a lease
agreement with a Japanese firm - Kajima Corporation — which shall construct two (2)
buildings in Roppongi and one (1) building in Nampeidai and renovate the present
Philippine Chancery in Nampeidai. The consideration of the construction would be the
lease to the foreign corporation of one (1) of the buildings to be constructed in Roppongi
and the two (2) buildings in Nampeidai. The other building in Roppongi shall then be
used as the Philippine Embassy Chancery. At the end of the lease period, all the three
leased buildings shall be occupied and used by the Philippine government. No change of
ownership or title shall occur. (See Annex "B" to Reply to Comment) The Philippine
government retains the title all throughout the lease period and thereafter. However, the
government has not acted favorably on this proposal which is pending approval and
ratification between the parties. Instead, on August 11, 1986, President Aquino created a
committee to study the disposition/utilization of Philippine government properties in
Tokyo and Kobe, Japan through Administrative Order No. 3, followed by Administrative
Orders Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino
citizens or entities to avail of separations' capital goods and services in the event of sale,
lease or disposition. The four properties in Japan including the Roppongi were
specifically mentioned in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with the
Roppongi lot. The property has twice been set for bidding at a minimum floor price of
$225 million. The first bidding was a failure since only one bidder qualified. The second
one, after postponements, has not yet materialized. The last scheduled bidding on
February 21, 1990 was restrained by his Court. Later, the rules on bidding were changed
such that the $225 million floor price became merely a suggested floor price.

The Court finds that each of the herein petitions raises distinct issues. The petitioner in
G.R. No. 92013 objects to the alienation of the Roppongi property to anyone while the
petitioner in G.R. No. 92047 adds as a principal objection the alleged unjustified bias of
the Philippine government in favor of selling the property to non-Filipino citizens and
entities. These petitions have been consolidated and are resolved at the same time for
the objective is the same - to stop the sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the Philippine
Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction,
to sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive
Order No. 296 in making the property available for sale to non-Filipino citizens and
entities. He also questions the bidding procedures of the Committee on the Utilization or
Disposition of Philippine Government Properties in Japan for being discriminatory
against Filipino citizens and Filipino-owned entities by denying them the right to be
informed about the bidding requirements.
II

In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related
lots were acquired as part of the reparations from the Japanese government for
diplomatic and consular use by the Philippine government. Vice-President Laurel states
that the Roppongi property is classified as one of public dominion, and not of private
ownership under Article 420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for
public service" in paragraph 2 of the above provision. He states that being one of public
dominion, no ownership by any one can attach to it, not even by the State. The Roppongi
and related properties were acquired for "sites for chancery, diplomatic, and consular
quarters, buildings and other improvements" (Second Year Reparations Schedule). The
petitioner states that they continue to be intended for a necessary service. They are held
by the State in anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it
cannot be appropriated, is outside the commerce of man, or to put it in more simple
terms, it cannot be alienated nor be the subject matter of contracts (Citing Municipality of
Cavite v. Rojas, 30 Phil. 20 [1915]). Noting the non-use of the Roppongi property at the
moment, the petitioner avers that the same remains property of public dominion so long
as the government has not used it for other purposes nor adopted any measure
constituting a removal of its original purpose or use.

The respondents, for their part, refute the petitioner's contention by saying that the
subject property is not governed by our Civil Code but by the laws of Japan where the
property is located. They rely upon the rule of lex situs which is used in determining the
applicable law regarding the acquisition, transfer and devolution of the title to a property.
They also invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary
of Justice which used the lex situs in explaining the inapplicability of Philippine law
regarding a property situated in Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It
has become patrimonial property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and
because the intention by the Executive Department and the Congress to convert it to
private use has been manifested by overt acts, such as, among others: (1) the transfer of
the Philippine Embassy to Nampeidai (2) the issuance of administrative orders for the
possibility of alienating the four government properties in Japan; (3) the issuance of
Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a provision
stating that funds may be taken from the sale of Philippine properties in foreign
countries; (5) the holding of the public bidding of the Roppongi property but which
failed; (6) the deferment by the Senate in Resolution No. 55 of the bidding to a future
date; thus an acknowledgment by the Senate of the government's intention to remove the
Roppongi property from the public service purpose; and (7) the resolution of this Court
dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which
sought to enjoin the second bidding of the Roppongi property scheduled on March 30,
1989.

III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the
constitutionality of Executive Order No. 296. He had earlier filed a petition in G.R. No.
87478 which the Court dismissed on August 1, 1989. He now avers that the executive
order contravenes the constitutional mandate to conserve and develop the national
patrimony stated in the Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of the public
domain to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and
23 of Commonwealth Act 141).i•t•c-aüsl
(2) The preference for Filipino citizens in the grant of rights, privileges and concessions
covering the national economy and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade
practices;

(4) The guarantee of the right of the people to information on all matters of public
concern (Section 7, Article III, Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned
by Filipino citizens of capital goods received by the Philippines under the Reparations
Act (Sections 2 and 12 of Rep. Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all transactions
involving public interest (Section 28, Article III, Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an
unconstitutional executive order is a misapplication of public funds He states that since
the details of the bidding for the Roppongi property were never publicly disclosed until
February 15, 1990 (or a few days before the scheduled bidding), the bidding guidelines
are available only in Tokyo, and the accomplishment of requirements and the selection of
qualified bidders should be done in Tokyo, interested Filipino citizens or entities owned
by them did not have the chance to comply with Purchase Offer Requirements on the
Roppongi. Worse, the Roppongi shall be sold for a minimum price of $225 million from
which price capital gains tax under Japanese law of about 50 to 70% of the floor price
would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi
site and the three related properties were through reparations agreements, that these
were assigned to the government sector and that the Roppongi property itself was
specifically designated under the Reparations Agreement to house the Philippine
Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It
is dictated by the terms of the Reparations Agreement and the corresponding contract of
procurement which bind both the Philippine government and the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly shown that
the property has become patrimonial. This, the respondents have failed to do.

As property of public dominion, the Roppongi lot is outside the commerce of man. It
cannot be alienated. Its ownership is a special collective ownership for general use and
enjoyment, an application to the satisfaction of collective needs, and resides in the social
group. The purpose is not to serve the State as a juridical person, but the citizens; it is
intended for the common and public welfare and cannot be the object of appropration.
(Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the Civil Code of the
Philippines, 1963 Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

ART. 419. Property is either of public dominion or of private ownership.

ART. 420. The following things are property of public dominion

(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks shores roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth.

ART. 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.

The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil
Code as property belonging to the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed
because the lot has been Idle for some years? Has it become patrimonial?

The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part of the public
domain, not available for private appropriation or ownership until there is a formal
declaration on the part of the government to withdraw it from being such (Ignacio v.
Director of Lands, 108 Phil. 335 [1960]).

The respondents enumerate various pronouncements by concerned public officials


insinuating a change of intention. We emphasize, however, that an abandonment of the
intention to use the Roppongi property for public service and to make it patrimonial
property under Article 422 of the Civil Code must be definiteAbandonment cannot be
inferred from the non-use alone specially if the non-use was attributable not to the
government's own deliberate and indubitable will but to a lack of financial support to
repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368
[1988]). Abandonment must be a certain and positive act based on correct legal
premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of


the Roppongi property's original purpose. Even the failure by the government to repair
the building in Roppongi is not abandonment since as earlier stated, there simply was a
shortage of government funds. The recent Administrative Orders authorizing a study of
the status and conditions of government properties in Japan were merely directives for
investigation but did not in any way signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in its text expressly authorizing the sale of the four properties procured from
Japan for the government sector. The executive order does not declare that the
properties lost their public character. It merely intends to make the
properties available to foreigners and not to Filipinos alone in case of a sale, lease or
other disposition. It merely eliminates the restriction under Rep. Act No. 1789 that
reparations goods may be sold only to Filipino citizens and one hundred (100%) percent
Filipino-owned entities. The text of Executive Order No. 296 provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of


other laws to the contrary notwithstanding, the above-mentioned
properties can be made available for sale, lease or any other manner of
disposition to non-Filipino citizens or to entities owned by non-Filipino
citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi
and the three other properties were earlier converted into alienable real properties. As
earlier stated, Rep. Act No. 1789 differentiates the procurements for the government
sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private
sector properties can be sold to end-users who must be Filipinos or entities owned by
Filipinos. It is this nationality provision which was amended by Executive Order No. 296.
Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources
of funds for its implementation, the proceeds of the disposition of the properties of the
Government in foreign countries, did not withdraw the Roppongi property from being
classified as one of public dominion when it mentions Philippine properties abroad.
Section 63 (c) refers to properties which are alienable and not to those reserved for
public use or service. Rep Act No. 6657, therefore, does not authorize the Executive
Department to sell the Roppongi property. It merely enumerates possible sources of
future funding to augment (as and when needed) the Agrarian Reform Fund created
under Executive Order No. 299. Obviously any property outside of the commerce of man
cannot be tapped as a source of funds.

The respondents try to get around the public dominion character of the Roppongi
property by insisting that Japanese law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the
ones to insist that in the sale of extremely valuable government property, Japanese law
and not Philippine law should prevail. The Japanese law - its coverage and effects, when
enacted, and exceptions to its provision — is not presented to the Court It is simply
asserted that the lex loci rei sitae or Japanese law should apply without stating what that
law provides. It is a ed on faith that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law
situation exists. A conflict of law situation arises only when: (1) There is a dispute over
the title or ownership of an immovable, such that the capacity to take and transfer
immovables, the formalities of conveyance, the essential validity and effect of the
transfer, or the interpretation and effect of a conveyance, are to be determined (See
Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A foreign law on land
ownership and its conveyance is asserted to conflict with a domestic law on the same
matters. Hence, the need to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question that
the property belongs to the Philippines. The issue is the authority of the respondent
officials to validly dispose of property belonging to the State. And the validity of the
procedures adopted to effect its sale. This is governed by Philippine Law. The rule of lex
situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situs rule is misplaced. The opinion does not tackle the alienability of the real
properties procured through reparations nor the existence in what body of the authority
to sell them. In discussing who are capable of acquiring the lots, the Secretary merely
explains that it is the foreign law which should determine who can acquire the
properties so that the constitutional limitation on acquisition of lands of the public
domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see
no point in belaboring whether or not this opinion is correct. Why should we discuss
who can acquire the Roppongi lot when there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the


recommendation by the investigating committee to sell the Roppongi property was
premature or, at the very least, conditioned on a valid change in the public character of
the Roppongi property. Moreover, the approval does not have the force and effect of law
since the President already lost her legislative powers. The Congress had already
convened for more than a year.

Assuming for the sake of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides


Section 79 (f ) Conveyances and contracts to which the Government is a
party. — In cases in which the Government of the Republic of the
Philippines is a party to any deed or other instrument conveying the title to
real estate or to any other property the value of which is in excess of one
hundred thousand pesos, the respective Department Secretary shall
prepare the necessary papers which, together with the proper
recommendations, shall be submitted to the Congress of the Philippines
for approval by the same. Such deed, instrument, or contract shall be
executed and signed by the President of the Philippines on behalf of the
Government of the Philippines unless the Government of the Philippines
unless the authority therefor be expressly vested by law in another officer.
(Emphasis supplied)

The requirement has been retained in Section 48, Book I of the Administrative Code of
1987 (Executive Order No. 292).

SEC. 48. Official Authorized to Convey Real Property. — Whenever real


property of the Government is authorized by law to be conveyed, the deed
of conveyance shall be executed in behalf of the government by the
following:

(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly
vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in
the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)

It is not for the President to convey valuable real property of the government on his or
her own sole will. Any such conveyance must be authorized and approved by a law
enacted by the Congress. It requires executive and legislative concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale
of the Roppongi property does not withdraw the property from public domain much less
authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the
public character of the Roppongi property. In fact, the Senate Committee on Foreign
Relations is conducting hearings on Senate Resolution No. 734 which raises serious
policy considerations and calls for a fact-finding investigation of the circumstances
behind the decision to sell the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass
upon the constitutionality of Executive Order No. 296. Contrary to respondents'
assertion, we did not uphold the authority of the President to sell the Roppongi property.
The Court stated that the constitutionality of the executive order was not the real issue
and that resolving the constitutional question was "neither necessary nor finally
determinative of the case." The Court noted that "[W]hat petitioner ultimately questions
is the use of the proceeds of the disposition of the Roppongi property." In emphasizing
that "the decision of the Executive to dispose of the Roppongi property to finance the
CARP ... cannot be questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court
did not acknowledge the fact that the property became alienable nor did it indicate that
the President was authorized to dispose of the Roppongi property. The resolution should
be read to mean that in case the Roppongi property is re-classified to be patrimonial and
alienable by authority of law, the proceeds of a sale may be used for national economic
development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the
proposed 1990 sale of the Roppongi property. We are resolving the issues raised in
these petitions, not the issues raised in 1989.
Having declared a need for a law or formal declaration to withdraw the Roppongi
property from public domain to make it alienable and a need for legislative authority to
allow the sale of the property, we see no compelling reason to tackle the constitutional
issues raised by petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions
are properly raised in appropriate cases and their resolution is necessary for the
determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass
upon a constitutional question although properly presented by the record if the case can
be disposed of on some other ground such as the application of a statute or general law
(Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v.
Pullman Co., 312 U.S. 496 [1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:

The Roppongi property is not just like any piece of property. It was given to
the Filipino people in reparation for the lives and blood of Filipinos who
died and suffered during the Japanese military occupation, for the
suffering of widows and orphans who lost their loved ones and kindred, for
the homes and other properties lost by countless Filipinos during the war.
The Tokyo properties are a monument to the bravery and sacrifice of the
Filipino people in the face of an invader; like the monuments of Rizal,
Quezon, and other Filipino heroes, we do not expect economic or financial
benefits from them. But who would think of selling these monuments?
Filipino honor and national dignity dictate that we keep our properties in
Japan as memorials to the countless Filipinos who died and suffered. Even
if we should become paupers we should not think of selling them. For it
would be as if we sold the lives and blood and tears of our countrymen.
(Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the Japanese


government in atonement for its past belligerence for the valiant sacrifice
of life and limb and for deaths, physical dislocation and economic
devastation the whole Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring back to life, that
its significance today remains undimmed, inspire of the lapse of 45 years
since the war ended, inspire of the passage of 32 years since the property
passed on to the Philippine government.

Roppongi is a reminder that cannot — should not — be dissipated ...


(Rollo-92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much because of the
inflated prices fetched by real property in Tokyo but more so because of its symbolic
value to all Filipinos — veterans and civilians alike. Whether or not the Roppongi and
related properties will eventually be sold is a policy determination where both the
President and Congress must concur. Considering the properties' importance and value,
the laws on conversion and disposition of property of public dominion must be faithfully
followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of


prohibition is issued enjoining the respondents from proceeding with the sale of the
Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order
is made PERMANENT.

SO ORDERED.
G.R. No. L40474 August 29, 1975

CEBU OXYGEN & ACETYLENE CO., INC., petitioner,


vs.
HON. PASCUAL A. BERCILLES Presiding Judge, Branch XV, 14th Judicial District, and
JOSE L. ESPELETA, Assistant Provincial Fiscal, Province of Cebu, representing the
Solicitor General's Office and the Bureau of Lands, respondents.

Jose Antonio R Conde for petitioner.

Office of the Acting Solicitor General Hugo E. Gutierrez, Jr., Assistant Solicitor General Octavio
R. Ramirez and Trial Attorney David R. Hilario for respondents. .

CONCEPCION, Jr., J.:

This is a petition for the review of the order of the Court of First Instance of Cebu dismissing
petitioner's application for registration of title over a parcel of land situated in the City of Cebu.

The parcel of land sought to be registered was only a portion of M. Borces Street, Mabolo, Cebu
City. On September 23, 1968, the City Council of Cebu, through Resolution No. 2193, approved
on October 3, 1968, declared the terminal portion of M. Borces Street, Mabolo, Cebu City, as an
abandoned road, the same not being included in the City Development Plan.1 Subsequently, on
December 19, 1968, the City Council of Cebu passed Resolution No. 2755, authorizing the
Acting City Mayor to sell the land through a public bidding.2 Pursuant thereto, the lot was
awarded to the herein petitioner being the highest bidder and on March 3, 1969, the City of
Cebu, through the Acting City Mayor, executed a deed of absolute sale to the herein petitioner
for a total consideration of P10,800.00.3 By virtue of the aforesaid deed of absolute sale, the
petitioner filed an application with the Court of First instance of Cebu to have its title to the land
registered.4

On June 26, 1974, the Assistant Provincial Fiscal of Cebu filed a motion to dismiss the
application on the ground that the property sought to be registered being a public road intended
for public use is considered part of the public domain and therefore outside the commerce of
man. Consequently, it cannot be subject to registration by any private individual.5

After hearing the parties, on October 11, 1974 the trial court issued an order dismissing the
petitioner's application for registration of title.6 Hence, the instant petition for review.

For the resolution of this case, the petitioner poses the following questions:

(1) Does the City Charter of Cebu City (Republic Act No. 3857) under Section 31,
paragraph 34, give the City of Cebu the valid right to declare a road as
abandoned? and

(2) Does the declaration of the road, as abandoned, make it the patrimonial
property of the City of Cebu which may be the object of a common contract?

(1) The pertinent portions of the Revised Charter of Cebu City provides:

Section 31. Legislative Powers. Any provision of law and executive order to the
contrary notwithstanding, the City Council shall have the following legislative
powers:

xxx xxx xxx

(34) ...; to close any city road, street or alley, boulevard, avenue, park or square.
Property thus withdrawn from public servitude may be used or conveyed for any
purpose for which other real property belonging to the City may be lawfully used
or conveyed.

From the foregoing, it is undoubtedly clear that the City of Cebu is empowered to close a city
road or street. In the case of Favis vs. City of Baguio,7 where the power of the city Council of
Baguio City to close city streets and to vacate or withdraw the same from public use was
similarly assailed, this court said:

5. So it is, that appellant may not challenge the city council's act of withdrawing a
strip of Lapu-Lapu Street at its dead end from public use and converting the
remainder thereof into an alley. These are acts well within the ambit of the power
to close a city street. The city council, it would seem to us, is the authority
competent to determine whether or not a certain property is still necessary for
public use.

Such power to vacate a street or alley is discretionary. And the discretion will not
ordinarily be controlled or interfered with by the courts, absent a plain case of
abuse or fraud or collusion. Faithfulness to the public trust will be presumed. So
the fact that some private interests may be served incidentally will not invalidate
the vacation ordinance.

(2) Since that portion of the city street subject of petitioner's application for registration of title
was withdrawn from public use, it follows that such withdrawn portion becomes patrimonial
property which can be the object of an ordinary contract.

Article 422 of the Civil Code expressly provides that "Property of public dominion, when no
longer intended for public use or for public service, shall form part of the patrimonial property of
the State."

Besides, the Revised Charter of the City of Cebu heretofore quoted, in very clear and
unequivocal terms, states that: "Property thus withdrawn from public servitude may be used or
conveyed for any purpose for which other real property belonging to the City may be lawfully
used or conveyed."

Accordingly, the withdrawal of the property in question from public use and its subsequent sale
to the petitioner is valid. Hence, the petitioner has a registerable title over the lot in question.

WHEREFORE, the order dated October 11, 1974, rendered by the respondent court in Land
Reg. Case No. N-948, LRC Rec. No. N-44531 is hereby set aside, and the respondent court is
hereby ordered to proceed with the hearing of the petitioner's application for registration of title.

SO ORDERED.
[G.R. No. 105912. June 28, 1999]

SPOUSES TEOFILO C. VILLARICO and MAXIMA A. FAUSTINO, Petitioners, v.HONORABLE


COURT OF APPEALS, REPUBLIC OF THE PHILIPPINES and MARCOS
CAMARGO, Respondents.

DECISION

PURISIMA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals1 in CA-G.R. CV
No. 22608, affirming the decision of Branch 22 of the Regional Trial Court, Malolos, Bulacan,
which dismissed the application for confirmation of title in LRC Case No. 604-V-77.

The facts that matter are as follows:

On May 31, 1977, an application for confirmation of title was filed by the spouses, Teofilo
Villarico and Maxima Villarico, over a 1,834 square meter parcel of land in Ubihan,
Meycauayan, Bulacan, docketed as LRC Case No. 604-V-77 before the then court of First
Instance of Bulacan. Among others, applicants alleged that they are the absolute owners of
subject property, having bought the same from the spouses, Segundo Villarico (Teofilo's
father) and Mercedes Cardenas, that they and their predecessors-in-interest have been in
actual, open, adverse and continuous possession thereof for more than thirty (30) years, that
they are not aware of any mortgage or encumbrance thereon nor of any person having an
estate or interest therein, and that the land involve is not within the forest zone or government
reservation.

The application for land registration at bar was opposed by Marcos Camargo, who claims to be
the real owner thereof.2 The Government interposed its opposition, through the Director of
Forestry (now Director of Forest Management), averring that the land in question is part of the
public domain, within the unclassified area in Meycauayan, Bulacan per LC Map No. 637 dated
March 1, 1927 of the Bureau of Forest Management and consequently, not available for private
appropriation.

On May 23, 1989, the trial court of origin dismissed the case, ratiocinating thus:

"It is well settled in this jurisdiction that a certificate of title is void when it covers property of the
public domain classified as forest or timber and mineral lands. Any title thus issued on non-
disposable lots, even in the hands of an innocent purchaser for value, should be cancelled
(Lepanto Consolidated Mining vs. Dumyang, L-31666, April 30, 1979). There being no concrete
evidence presented in this case that the property in question was ever acquired by the
applicants or by the private oppositor (as attested to by the proceedings of B.L. Claim No. 38
(N) before the Bureau of Lands) or by their respective predecessors-in-interest either by
composition of title or by any other means for the acquisition of public lands, the property in
question must be held to be part of the public domain, especially so that the private parties had
not presented any Certification from the Bureau of Forestry attesting to the fact that the subject
property is no longer within the unclassified region of Meycauayan, Bulacan. Thus, if the land in
question still forms part of the public forest, then, possession thereof, however long, cannot
convert it into private property as it is within the exclusive jurisdiction of the Bureau of Forestry
and beyond the power and jurisdiction of the cadastral court to register under the Torrens
System (Republic vs. Court of Appeals, 89 SCRA 648).

WHEREFORE, premises considered, let this case be, as it is hereby DISMISSED.

No pronouncement as to costs.

SO ORDERED."3

Therefrom, petitioners appealed to the Court of Appeals, which came out with a judgment of
affirmance on June 26, 1992. Respondent court affirmed the findings of facts below, holding that
subject parcel of land is within the public domain not available for private appropriation.
Undaunted, petitioners found their way to this court via the present petition for review
on certiorari; placing reliance on the assignment of errors, that:

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE FINDINGS OF THE


TRIAL COURT THAT BEFORE 1948 THERE WAS NO DOCUMENTATION IN FAVOR OF
EITHER PARTIES.

II

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE FINDING OF THE


TRIAL COURT THAT BUENAVENTURA VILLARICO APPARENTLY DIED PRIOR TO 1914.

III

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE FINDING OF THE


TRIAL COURT THAT TAX DECLARATION NO. 3912 IN THE NAME OF BUENAVENTURA
VILLARICO COULD HAVE BEEN CONTRIVED SENSING THAT A CONFLICT OVER THE
PROPERTY IN THE NEAR FUTURE WAS INEVITABLE.

IV

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE FINDING OF THE


TRIAL COURT THAT THERE IS NO CONCRETE EVIDENCE PRESENTED TO THE EFFECT
THAT THE PROPERTY IN QUESTION WAS EVER ACQUIRED BY THE APPLICANT OR BY
THE PRIVATE OPPOSITOR OR BY THEIR RESPECTIVE PREDECESSORS-IN-INTEREST
THROUGH LAWFUL MEANS FOR THE ACQUISITION OF PUBLIC LANDS.

THE HONORABLE COURT OF APPEALS AND THE TRIAL COURT ERRED IN DISMISSING
THE CASE AT BAR.

The appeal is without merit and cannot prosper.

It bears stressing that the first, second, and third assigned errors relate to factual and
evidentiary matters which the Supreme Court does not inquire into in an appeal on certiorari.4 It
is well-settled that in a petition for review on certiorarias a mode of appeal under Rule 45 of the
Rules of Court, only questions of law may be raised.5The Supreme Court is not a trier of
facts.6Findings of fact by the trial court and the Court of Appeals are binding on the Supreme
Court.7cräläwvirtualibräry

In the case under consideration, the Court discerns no compelling reason to reverse such
findings arrived at by the trial court and affirmed by the respondent court, absent any showing of
any error, mistake, or misappreciation of facts. Records on hand indicate that the decisions
under attack accord with the law and the evidence.

As aptly observed by the respondent court, the primordial issue here is the character or
classification of the property applied for registration -- whether or not the same still forms part of
the public domain. On this crucial question, the trial court a quo and the Court of Appeals
correctly adjudged the area at stake as within the unclassified forest zone incapable of private
appropriation. Accordingly, the Court of Appeals held:

"xxx In the case at bar, as found by the court a quo, there has been no showing that a
declassification has been made by the Director of Forestry declaring the land in question as
disposable or alienable. And the record indeed discloses that applicants have not introduced
any evidence which would have led the court a quo to find or rule otherwise. xxx
And so, considering the foregoing, possession of the land in question by the applicants and/or
their predecessors-in-interest even for more than 30 years, as they allege, cannot convert the
land into private property capable of private appropriation." (Court of Appeals' Decision, pp. 4-5)

Indeed, forest lands cannot be owned by private persons.8 Possession thereof, no matter how
long, does not ripen into a registrable title. The adverse possession which may be the basis of a
grant of title or confirmation of an imperfect title refers only to alienable or disposable portions of
the public domain.9cräläwvirtualibräry

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 22608 AFFIRMED in toto. No pronouncements as to costs.

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

THE DIRECTOR OF LANDS, petitioner,


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

CORTES, J.:

This is an appeal by certiorari of a decision of the respondent Judge in Land Registration Case
No. N-10317 LRC Record No. N-54803 entitled "In Re: Application for Registration of Title,
Manila Electric Company, applicant," dated May 29, 1981.

The facts are not disputed. Manila Electric Company filed an amended application for
registration of a parcel of land located in Taguig, Metro Manila on December 4, 1979. On
August 17, 1976, applicant acquired the land applied for registration by purchase from Ricardo
Natividad (Exhibit E) who in turn acquired the same from his father Gregorio Natividad as
evidenced by a Deed of Original Absolute Sale executed on December 28, 1970 (Exhibit E).
Applicant's predecessors-in-interest have possessed the property under the concept of an
owner for more than 30 years. The property was declared for taxation purposes under the name
of the applicant (Exhibit 1) and the taxes due thereon have been paid (Exhibits J and J-1).

On May 29, 1981 respondent Judge rendered a decision ordering the registration of the
property in the name of the private respondent. The Director of Lands interposed this petition
raising the issue of whether or not a corporation may apply for registration of title to land. After
comments were filed by the respondents, the Court gave the petition due course. The legal
issue raised by the petitioner Director of Lands has been squarely dealt with in two recent cases
(The Director of Lands v. Intermediate Appellate Court and Acme Plywood & Veneer Co., Inc.,
etc., No. L-73002 (December 29, 1986), 146 SCRA 509. The Director of Lands v. Hon. Bengzon
and Dynamarine Corporation, etc., No. 54045 (July 28, 1987)], and resolved in the affirmative.
There can be no different answer in the case at bar.

In the Acme decision, this Court upheld the doctrine that open, exclusive and undisputed
possession of alienable public land for the period prescribed by law creates the legal fiction
whereby the land, upon completion of the requisite period ipso jure and without the need of
judicial or other sanction, ceases to be public land and becomes private property.

As the Court said in that case:

Nothing can more clearly demonstrate the logical inevitability of considering


possession of public land which is of the character and duration prescribed by
statute as the equivalent of an express grant from the State than the dictum of
the statute itself that the possessor(s) "... shall be conclusively presumed to have
performed all the conditions essential to a Government grant and shall be entitled
to a certificate of title .... " No proof being admissible to overcome a conclusive
presumption, confirmation proceedings would in truth be little more than a
formality, at the most limited to ascertaining whether the possession claimed is of
the required character and length of time; and registration thereunder would not
confer title, but simply recognize a title already vested. The proceedings would
not originallyconvert the land from public to private land, but only confirm such a
conversion already affected (sic) from the moment the required period of
possession became complete.

Coming to the case at bar, if the land was already private at the time Meralco bought it from
Natividad, then the prohibition in the 1973 Constitution against corporations holding alienable
lands of the public domain except by lease (1973 Const., Art. XIV, See. 11) does not apply.

Petitioner, however, contends that a corporation is not among those that may apply for
confirmation of title under Section 48 of Commonwealth Act No. 141, the Public Land Act.
As ruled in the Acme case, the fact that the confirmation proceedings were instituted by a
corporation is simply another accidental circumstance, "productive of a defect hardly more than
procedural and in nowise affecting the substance and merits of the right of ownership sought to
be confirmed in said proceedings." Considering that it is not disputed that the Natividads could
have had their title confirmed, only a rigid subservience to the letter of the law would deny
private respondent the right to register its property which was validly acquired.

WHEREFORE, the petition is DENIED. The questioned decision of the respondent Judge is
AFFIRMED.
G.R. No. L-12958 May 30, 1960

FAUSTINO IGNACIO, applicant-appellant,


vs.
THE DIRECTOR OF LANDS and LAUREANO VALERIANO, oppositors-appellees.

Acting Assistant Solicitor General Pacifico P. de Castro and Solicitor Crispin V. Bautista for
appellee Director of Lands.
Benjamin H. Aquino for appellee Laureano Veleriano.

MONTEMAYOR, J.:

Faustino Ignacio is appealing the decision of the Court of First Instance of Rizal, dismissing his
application for the registration of a parcel of land.

On January 25, 1950, Ignacio filed an application for the registration of a parcel of land
(mangrove), situated in barrio Gasac, Navotas, Rizal, with an area of 37,877 square meters.
Later, he amended his application by alleging among others that he owned the parcel applied
for by right of accretion. To the application, the Director of Lands, Laureano Valeriano and
Domingo Gutierrez filed oppositions. Gutierrez later withdrew his opposition. The Director of
Lands claimed the parcel applied for as a portion of the public domain, for the reason that
neither the applicant nor his predecessor-in-interest possessed sufficient title thereto, not having
acquired it either by composition title from the Spanish government or by possessory
information title under the Royal Decree of February 13, 1894, and that he had not possessed
the same openly, continuously and adversely under a bona fide claim of ownership since July
26, 1894. In his turn, Valeriano alleged he was holding the land by virtue of a permit granted him
by the Bureau of Fisheries, issued on January 13, 1947, and approved by the President.

It is not disputed that the land applied for adjoins a parcel owned by the applicant which he had
acquired from the Government by virtue of a free patent title in 1936. It has also been
established that the parcel in question was formed by accretion and alluvial deposits caused by
the action of the Manila Bay which boarders it on the southwest. Applicant Ignacio claims that
he had occupied the land since 1935, planting it with api-api trees, and that his possession
thereof had been continuous, adverse and public for a period of twenty years until said
possession was distributed by oppositor Valeriano.

On the other hand, the Director of Lands sought to prove that the parcel is foreshore land,
covered by the ebb and flow of the tide and, therefore, formed part of the public domain.

After hearing, the trial court dismissed the application, holding that the parcel formed part of the
public domain. In his appeal, Ignacio assigns the following errors:

I. The lower court erred in holding that the land in question, altho an accretion to the land
of the applicant-appellant, does not belong to him but forms part of the public domain.

II. Granting that the land in question forms part of the public domain, the lower court
nevertheless erred in not declaring the same to be the necessary for any public use or
purpose and in not ordering in the present registration proceedings.

III. The lower court erred in not holding that the land in question now belongs to the
applicant-appellant by virtue of acquisitive prescription, the said land having ceased to
be of the public domain and became the private or patrimonial property of the State.

IV. The lower court erred in not holding that the oppositor Director of Lands is now in
estoppel from claiming the land in question as a land of the public domain.

Appellant contends that the parcel belongs to him by the law of accretion, having been formed
by gradual deposit by action of the Manila Bay, and he cites Article 457 of the New Civil Code
(Article 366, Old Civil Code), which provides that:
To the owners of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters.

The article cited is clearly inapplicable because it refers to accretion or deposits on the banks of
rivers, while the accretion in the present case was caused by action of the Manila Bay.

Appellant next contends that Articles 1, 4 and 5 of the Law of Waters are not applicable
because they refer to accretions formed by the sea, and that Manila Bay cannot be considered
as a sea. We find said contention untenable. A bay is a part of the sea, being a mere
indentation of the same:

Bay. — An opening into the land where the water is shut in on all sides except at the
entrance; an inlet of the sea; an arm of the sea, distinct from a river, a bending or
curbing of the shore of the sea or of a lake. 7 C.J. 1013-1014 (Cited in Francisco,
Philippine Law of Waters and Water Rights p. 6)

Moreover, this Tribunal has some cases applied the Law of Waters on Lands bordering Manila
Bay. (See the cases of Ker & Co. vs. Cauden, 6 Phil., 732, involving a parcel of land bounded
on the sides by Manila Bay, where it was held that such land formed by the action of the sea is
property of the State; Francisco vs. Government of the P.I., 28 Phil., 505, involving a land
claimed by a private person and subject to the ebb and flow of the tides of the Manila Bay).

Then the applicant argues that granting that the land in question formed part of the public
domain, having been gained from the sea, the trial court should have declared the same no
longer necessary for any public use or purpose, and therefore, became disposable and
available for private ownership. Article 4 of the Law of Waters of 1866 reads thus:

ART. 4. Lands added to the shores by accretions and alluvial deposits caused by the
action of the sea, form part of the public domain. When they are no longer washed by
the waters of the sea and are not necessary for purposes of public utility, or for the
establishment of special industries, or for the coastguard service, the Government shall
declare them to be the property of the owners of the estates adjacent thereto and as
increment thereof.

Interpreting Article 4 of the Law of Waters of 1866, in the case of Natividad vs. Director of
Lands, (CA) 37 Off. Gaz., 2905, it was there held that:

Article 4 of the Law of Waters of 1866 provides that when a portion of the shore is no
longer washed by the waters of the sea and is not necessary for purposes of public
utility, or for the establishment of special industries, or for coastguard service, the
government shall declare it to be the property of the owners of the estates adjacent
thereto and as an increment thereof. We believe that only the executive and possibly the
legislative departments have the authority and the power to make the declaration that
any land so gained by the sea, is not necessary for purposes of public utility, or for the
establishment of special industries, on for coast-guard service. If no such declaration
has been made by said departments, the lot in question forms part of the public domain.
(Natividad vs. Director of Lands, supra.)

The reason for this pronouncement, according to this Tribunal in the case of Vicente Joven y
Monteverde vs. Director of Lands, 93 Phil., 134, (cited in Velayo's Digest, VI. I, p. 52).

. . . is undoubtedly that the courts are neither primarily called upon, nor indeed in a
position to determine whether any public land are to be used for the purposes specified
in Article 4 of the Law of Waters.

Consequently, until a formal declaration on the part of the Government, through the executive
department or the Legislature, to the effect that the land in question is no longer needed for
coast guard service, for public use or for special industries, they continue to be part of the public
domain, not available for private appropriation or ownership.
Appellant next contends that he had acquired the parcel in question through acquisitive
prescription, having possessed the same for over ten years. In answer, suffice it to say that land
of the public domain is not subject to ordinary prescription. In the case of Insular Government
vs. Aldecoa & Co., 19 Phil., 505 this Court said:

The occupation or material possession of any land formed upon the shore by accretion,
without previous permission from the proper authorities, although the occupant may
have held the same as owner for seventeen years and constructed a wharf on the land,
is illegal and is a mere detainer, inasmuch as such land is outside of the sphere of
commerce; it pertains to the national domain; it is intended for public uses and for the
benefit of those who live nearby.

We deem it unnecessary to discuss the other points raised in the appeal.

In view of the foregoing, the appealed decision is hereby affirmed, with costs.
G.R. No. L-19570 April 27, 1967

JOSE V. HILARIO, JR., plaintiff-appellant,


vs.
THE CITY OF MANILA, defendant-appellee,
DIRECTOR OF PUBLIC WORKS, CITY ENGINEER OF MANILA, FERNANDO BUSUEGO
and EUGENIO SESE,defendants-appellants,
MAXIMO CALALANG, intervenor;
DIRECTOR OF MINES, intervenor.

Maximo Calalang for plaintiff and appellant.


Gregorio Ejercito and Leandro L. Arguelles for defendant-appellee City of Manila.
Office of the Solicitor General for other defendants and appellants.

BENGZON, J.P., J.:

Dr. Jose Hilario was the registered owner of a large tract of land — around 49 hectares in area
— located at Barrio Guinayang, in San Mateo, Rizal.1 Upon his death, this property was
inherited by his son, herein plaintiff-appellant Jose Hilario, Jr., to whom a new certificate of
title2 was issued.

During the lifetime of plaintiff's father, the Hilario estate was bounded on the western side by the
San Mateo River.3To prevent its entry into the land, a bamboo and lumber post dike or ditch was
constructed on the northwestern side. This was further fortified by a stonewall built on the
northern side. For years, these safeguards served their purpose. However, in 1937, a great and
extraordinary flood occurred which inundated the entire place including the neighboring barrios
and municipalities. The river destroyed the dike on the northwest, left its original bed and
meandered into the Hilario estate, segregating from the rest thereof a lenticular place of land.
The disputed area is on the eastern side of this lenticular strip which now stands between the
old riverbed site and the new course.4

In 1945 the U.S. Army opened a sand and gravel plant within the premises5 and started
scraping, excavating and extracting soil, gravel and sand from the nearby areas the River. The
operations eventually extended northward into this strip of land. Consequently, a claim for
damages was filed with the U.S. War Department by Luis Hilario, the then administrator of Dr.
Hilario's estate. The U.S. Army paid.6 In 1947, the plant was turned over to herein defendants-
appellants and appellee who took over its operations and continued the extractions and
excavations of gravel and sand from the strip of land along an area near the River.

On October 22, 1949, plaintiff filed his complaint7 for injunction and damages against the
defendants City Engineer of Manila, District Engineer of Rizal, the Director of Public Works, and
Engr. Busuego, the Engineer-in-charge of the plant. It was prayed that the latter be restrained
from excavating, bulldozing and extracting gravel, sand and soil from his property and that they
solidarily pay to him P5,000.00 as damages. Defendants' answer alleged, in affirmative
defense, that the extractions were made from the riverbed while counterclaiming with a prayer
for injunction against plaintiff—who, it was claimed, was preventing them from their operations.

Subsequently, the Bureau of Mines and Atty. Maximo Calalang were respectively allowed to join
the litigation as intervenors. The former complained that the disputed area was within the bed of
the river so that plaintiff should not only be enjoined from making extractions therefrom but
should also be ordered to pay the fees and penalties for the materials taken by him. On the
other hand, the latter claimed that he was authorized by plaintiff to extract materials from the
disputed area but this notwithstanding, the Provincial Treasurer of Rizal collected from him a
sand and gravel fee which would be an illegal exaction if the disputed area turns out to be of
private ownership. Answers to the two complaints in intervention were duly filed by the affected
parties.

On March 14, 1954, defendants filed a petition for injunction against plaintiff and intervenor
Calalang in the same case, alleging that the latter have fenced off the disputed area in
contravention of an agreement8 had between the latter and the Director of Public Works wherein
he defendants were allowed to continue their operations but subject to the final outcome of the
pending suit. It was prayed that plaintiff and intervenor Calalang be ordered to remove the fence
and allow defendants' men to continue their operations unhampered. Opposition to this petition
was filed by the other side, with a prayer for counter injunction. On March 23, 1954, the lower
court issued an order maintaining the status quo and allowing the defendants to continue their
extractions from the disputed area provided a receipt9 in plaintiff's favor be issued for all the
materials taken.

On May 13, 1954, plaintiff amended his complaint. Impleaded as additional defendants were the
City of Manila,10the Provincial Treasurer of Rizal,11 and Engr. Eugenio Sese, the new Engineer-
in-charge of the plant. Plaintiff also converted his claim to one purely for damages directed
against the City of Manila and the Director of Public Works, solidarily, in the amount of
P1,000,000.00, as the cost of materials taken since 1949, as well as those to be extracted
therefrom until defendants stop their operations.

Came the separate amended answers of the several defendants. Manila City denied ownership
of the plant and claimed that the City Engineer, acted merely as a deputy of the Public Works
Director. The other defendants12 put up, as special defense, the agreement between plaintiff
and the Public Works Director, and asserted a P1.2 million counterclaim for damages against
plaintiff. The rest13 renewed the same defense; that the disputed area was part of the public
domain, since it was situated on the riverbanks.

On November 3, 1954, the defendant City Engineer of Manila filed a petition to delimit the area
of excavation and asked the lower court to authorize his men to extend their operations west of
the camachile tree in the disputed area. This met vigorous opposition from plaintiff and
intervenor Calalang. On May 27, 1955, the petition was denied.

Finally, on December 21, 1956, the lower court rendered its decision on the merits. The
dispositive portion provided:14

WHEREFORE, judgment is hereby rendered against the defendants City of Manila and
the Director of Public Works, to pay solidarily the herein plaintiff the sum of P376,989.60,
as the cost of gravel and sand extracted from plaintiff's land, plus costs. Judgment is
likewise hereby rendered against the defendant Provincial Treasurer of Rizal, ordering
him to reimburse to intervenor Maximo Calalang the amount of P236.80 representing
gravel fees illegally collected. Finally, defendants herein are perpetually enjoined from
extracting any sand or gravel from plaintiff's property which is two-fifths northern portion
of the disputed area.

It is so ordered.

None of the parties litigants seemed satisfied with this decision and they all sought a
reconsideration of the same. On August 30, 1957, the lower court resolved the motions to
reconsider with an order, the dispositive portion of which provided:15

WHEREFORE, the court hereby denies the motion for reconsideration filed by plaintiff
and intervenor Calalang; dismisses the complaint with respect to defendant City of
Manila; holds that the northern two-fifths portion of the area in controversy belongs to the
plaintiff with right to the immediate possession thereof and hereby enjoins the
defendants and intervenor Bureau of Mines to vacate the same and to stop from
extracting gravel thereon. The Court however hereby dismisses the case against the
defendant Bureau of Public Works and its agents and employees insofar as the claim for
money is concerned without prejudice to plaintiffs taking such action as he may deem
proper to enforce said claim against the proper party in accordance with law.

It is so ordered.

Still unsatisfied, plaintiff and intervenor Calalang filed a second motion for reconsideration. The
lower court stood firm on its ruling of August 30, 1957.16
Hence, this appeal.17 The defendants Director of Public Works, City Engineer of Manila, and
Engrs. Busuego and Sese have also appealed from the declaration made by the lower court
that the northern two-fifths of the disputed area belongs to plaintiff Hilario.

The parties herein have presented before this Court mixed questions of law and fact for
resolution and adjudication. Foremost among them is this legal query; when a river, leaving its
old bed, changes its original course and opens a new one through private property, would the
new riverbanks lining said course be of public ownership also?18

The defendants answer in the affirmative. They claim that under the Law of Waters of August 3,
1866, the riverbanks are, by definition, considered part of the riverbed which is always of public
ownership. On the other hand, plaintiff would have the question resolved in the negative. He
maintains that not all riverbanks are of public ownership because: (1) Art. 372 of the old Civil
Code, which governs this particular case, speaks only of the new bed; nothing is said about the
new banks; (2) Art. 73 of the Law of Waters which defines the phrase "banks of a river" cannot
be applied in the case at bar in conjunction with the other articles cited by defendants since that
article applies only to banks of natural riverbeds and the present, River is not in its natural bed;
and (3) if all banks were of public ownership, then Art. 553 of the old Civil Code and the second
sentence, first paragraph of Art. 73 of the Law of Waters can never have any application.

Since the change in the course of the River took place in 1937, long before the present Civil
Code took effect,19 the question before Us should be determined in accordance with the
provisions of the old Civil Code and those of the Law of Waters of August 3, 1866.

We agree with defendants that under the cited laws, all riverbanks are of public ownership —
including those formed when a river leaves its old bed and opens a new course through a
private estate. Art. 339 of the old Civil Code is very clear. Without any qualifications, it provides:

Property of public ownership is —

1. That devoted to public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;
(Emphasis supplied)

Moreover, as correctly contended by defendants, the riverbank is part of the riverbed. Art. 73 of
the Law of Waters which defines the phrase "banks of a river" provides:

By the phrase "banks of a river" is understood those lateral strips or zones of its
bed which are washed by the stream only during such high floods as do not cause
inundations. ... (Emphasis supplied)

The use the of words "of its bed [de sus alveos]" clearly indicates the intent of the law to
consider the banks — for all legal purposes — as part of the riverbed. The lower court
also ruled — correctly — that the banks of the River are paint of its bed.20 Since
undeniably all beds of rivers are of public ownership,21 it follows that the banks, which
form part of them, are also of public ownership.

Plaintiff's contention that Arts. 70 and 73 of the Law of Waters cannot apply because Art. 312 of
the old Civil Code mentions only the new bed but omits the banks, and that said articles only
apply to natural — meaning original — bed and banks is untenable. Art. 70, which defines beds
of rivers and creeks, provides:

The natural bed or channel of a creek or river is the ground covered by its waters during
the highest [ordinary] floods.22 (Emphasis supplied)

Art. 372 of the old Civil Code which provides that —

Whenever a navigable or floatable river changes its course from natural causes and
opens a new bed through a private estate, the new bed shall be of public ownership, but
the owner of the estate shall recover it in the event that the waters leave it dry again
either naturally or as the result of any work legally authorized for this purpose.
(Emphasis supplied)

did not have to mention the banks because it was unnecessary. The nature of the banks
always follows that of the bed and the running waters of the river. A river is a compound
concept consisting of three elements: (1) the running waters, (2) the bed and (3) the
banks. 23 All these constitute the river. American authorities are in accord with this view:

'River' consists of water, a bed and banks.24

A "river" consists of water, a bed and banks, these several parts constituting the river,
the whole river. It is a compound idea; it cannot exist without all its paints. Evaporate the
water, and you have a dry hollow. If you could sink the bed, instead of a river, you would
have a fathomless gulf. Remove the banks, and you have a boundless flood.25

Since a river is but one compound concept, it should have only one nature, i.e., it should either
be totally public or completely private. And since rivers are of public ownership,26 it is implicit
that all the three component elements be of the same nature also. As Manresa commented:

Realmente no puede imaginarse un rio sin alveo y sin ribera; de suerte que al decir el
Codigo Civil que los rios son de dominio publico, parece que debe ir implicito el dominio
publico de anquellos tres elementos que integran el rio.27

However, to dispel all possible doubts, the law expressly makes all three elements public. Thus,
riverbanks and beds are public under Arts. 339 and 407, respectively, of the Code, while the
flowing waters are declared so under Art. 33, par. 2 of the Law of Waters of 1866.

Articles 70, 72 and 73 of the Law of Waters speak of natural beds and their banks. Plaintiff now
equates the term "natural" with the word "original" so that a change in the course of a river
would render those articles inapplicable. However, the premise is incorrect. Diccionario De La
Real Academia Española defines the word "natural" as follows:

NATURAL — perteneciente a la naturaleza o conforme a la calidad o propriedad de las


cosas; nativo, originario de un pueblo o nacion; hecho con verdad, ni artificio, mezcla ni
composicion alguna; ingenuo y sin doblez en su modo de proceder; diceze tambien de
las cosas que imitar a la naturaleza con propiedad; regular y que comunmente sucede,
y por eso, facilmente creible; que se produce por solas las fuerzas de la naturaleza,
como contrapuesto a sobre natural y milagroso, (Emphasis supplied)

"Natural" is not made synonymous to "original" or "prior condition". On the contrary, even if a
river should leave its original bed so long as it is due to the force of nature, the new course
would still fall within the scope of the definition provided above. Hence, the law must have used
the word "natural" only because it is in keeping with the ordinary nature and concept of a river
always to have a bed and banks.

Plaintiff's third point is not lightly to be taken. Indeed, it would seem possible to acquire private
ownership of banks under Art. 553 of the old Civil Code which provides:

Las riberas de los rios, aun cuando sean de dominio privado, estan sujetas en toda su
extension y en sus margenes, en una zona de tres metros, a la servidumbre de uso
publico en interes general de la navegacion, la flotacion, la pesca y el salvamento.
(Emphasis supplied) .

And plaintiff is not without jurisprudential backing for in Commonwealth vs. Gungun,28 it
was said that the private ownership of the banks was not prohibited. His point is then
neatly brought home with the proposition that it is precisely when a river changes its
course and opens a new bed through a private estate that there can be private
ownership of the banks.

A study of the history of Art. 553 will however reveal that it was never intended to authorize the
private acquisition of riverbanks. That could not have been legally possible in view of the
legislative policy clearly enunciated in Art. 339 of the Code that all riverbanks were of public
ownership. The article merely recognized and preserved the vested rights of riparian owners
who, because of prior law or custom, were able to acquire ownership over the banks. This was
possible under the Siete Partidas which was promulgated in 1834 yet.29 Under Law 6, Title 28,
Partidas 3, the banks of rivers belonged to the riparian owners, following the Roman Law
rule.30 In other words, they were privately owned then. But subsequent legislation radically
changed this rule. By the Law of Waters of August 3, 1866, riverbanks became of public
ownership, albeit impliedly only because considered part of the bed — which was public — by
statutory definition.31 But this law, while expressly repealing all prior inconsistent laws, left
undisturbed all vested rights then existing.32 So privately owned banks then continued to be so
under the new law, but they were subjected by the latter to an easement for public use. As Art.
73 provides:

Se entienden por riberas de un rio las fajas o zonis laterales de sus alveos que
solamente sor bañadas por las aguas en las crecidas que no causan inundacion. El
dominio privado de las riberas esta suieto a la survidumbre de tres metros de zona para
uso publico, en el interest general de la navegacion, la flotacion, la pesca y el
salvamento. ... (Emphasis supplied).1äwphï1.ñët

This was perhaps the reconciliation effected between the private ownership of the banks, on the
one hand, and the policy of the law on the other hand, to devote all banks to public use.33 The
easement would preserve the private ownership of the banks and still effectuate the policy of
the law. So, the easement in Art. 73 only recognized and preserved existing privately owned
banks; it did not authorize future private appropriation of riverbanks.

The foregoing observation is confirmed by the still subsequent Law of Waters of June 13, 1879,
which was principally based on the Law of August 3, 1865.34 Art. 36 of the new law, which was a
substantial reenactment of Art. 73 of the Law of Waters of August 3, 1866, reads:

Las riberas, aun cuando sean de dominio privado en virtud de antigue ley o de
costumbre, estan sujetas en toda su extension las margenes en una zona de tres
metros, a la servidumbre de uso publico en interes general de la navegacion, la flotacion
la pesca y el salvamento. ... (Emphasis supplied)

The new law also affirmed the public ownership of rivers and their beds, and the treatment of
the banks as part of the bed.35 But nowhere in the law was there any provision authorizing the
private appropriation of the banks. What it merely did was to recognize the fact that at that time
there were privately owned banks pursuant to the SietePartidas, and to encumber these with an
easement for public use.

However, the public nature of riverbanks still obtained only by implication. But with the
promulgation of the Civil Code of 1889, this fact was finally made explicit in Art. 339 thereof.
Riverbanks were declared as public property since they were destined for public use. And the
first paragraph of Art. 36 of the Law of Waters of 1879 was substantially reenacted in Art. 553 of
the Code.36 Hence, this article must also be understood not as authorizing the private
acquisition of riverbanks but only as recognizing the vested titles of riparian owners who already
owned the banks.

The authority, then, for the private ownership of the banks is neither the old Civil Code nor the
Law of Waters of 1866 but the Siete Partidas. Unfortunately, plaintiff cannot invoke it. Law 6,
Title 28, Partida 3, which provides for private ownership of banks, ceased to be of force in this
jurisdiction as of 1871 yet when the Law of Waters of August 3, 1866, took effect.37 Since the
change in the course of the River took place in 1937, the new banks which were formed could
not have been subjected to the provisions of the Siete Partidas which had already been
superseded by then.

Coming to the factual issues: both parties assail the conclusion made by the lower court that
only the northern two-fifths of the disputed area remained as plaintiff's private property. This
conclusion was apparently based on the findings that the portion where rice and corn were
found38 in the ocular inspection of June 15, 1951, was on the northern two-fifths of the disputed
area; that this cannot be a part of the bed because of the existence of vegetation which could
not have grown underwater, and that this portion is man-made. However, there is no evidentiary
basis for these findings. The area indicated by Nos. 1 and 2 in Exh. D-1 where no excavations
had been made, appears to be more on the south-western one-fourth of the disputed area. The
American cases39 cited by the lower court cannot apply here. Our Law of Waters, in defining
"beds" and considers the latter is part of the former. Those cited cases did not involve a similar
statutory provision. That plants can and do grow on the banks which otherwise could not have
grown in the bed which is constantly subjected to the flow of the waters proves the distinction
between "beds" and "banks" in the physical order. However, We are dealing with the legal order
where legal definitions prevail. And apart from these considerations, We also note the
considerable difficulty which would attend the execution of the ruling of the lower court. The
latter failed to indicate fixed markers from which an exact delimitation of the boundaries of the
portion could be made. This flaw is conducive to future litigations.

Plaintiff's theory is that the disputed area, although covered at times by flood waters, cannot be
considered as within the banks of the River because: (1) such floods are only accidental, and
(2) even if they are regular, the flooding of the area is due to the excavations and extractions
made by defendants which have caused the widening of the channel.40 Defendants claim,
however, that the area is always covered by the normal yearly floods and that the widening of
the channel is due to natural causes.

There is a gravel pit41 located along the west side of the River. This is about 500 meters
long.42 A greater part of this pit occupies a portion of the strip of land that was sliced by the
River from the rest of the Hilario estate. As shown in Exhs. D and D-1, this strip of land is that
western segment of the Hilario estate bounded on the west by the same lines connecting stakes
23 through 27, which form part of the western boundary of the estate, and on the east, bounded
by the western waterline of the River.

Now, the disputed area, generally speaking,43 is only that part of the gravel pit which is within
the strip of land. Its northern tip is that point where the so-called "secondary bank" line
intersects the west River waterline up north; its southern boundary is along the line connecting
stakes 23 and 24. From these two ends, the disputed area measures approximately 250 meters
long. The eastern boundary is the western River waterline at low tide and the western boundary
is the "secondary bank" line, a line passing near stake 24 and running almost parallel to the line
connecting stakes 25 and 26. Around the later part of 1949, the disputed area was about 150 to
160 meters wide.44This increased to about 175 to 180 meters by the later part of 1950. And by
January, 1953, the distance from the "secondary bank" line to the west waterline was about 230
meters.45

This increasing width of the disputed area could be attributed to the gradual movement of the
River to the east. Since it entered into the Hilario estate, the River has not stayed put.46 Vicente
Vicente, plaintiff's witness declared47that after the River changed its course in 1937, the
distance between the old and the new river sites was about 100 meters. Exh. D-2 shows that in
1943, the south end of the River was about 5 meters southeast of stake 24.48Honorato Sta.
Maria, another witness for plaintiff, indicated the flow of this course with a blue line in Exh. D-
1.49 This blue line is about 100 meters from the line connecting stakes 25 and 26, which was
also the east boundary of the old River.50 Around 1945 to 1949, the River was about 193
meters51 east of this line. This measurement is based on the testimonies of two defense
witnesses52 and stated that during that period, the River passed along the Excavated Area and
the New Accretion Area53 sites, as shown in Exh. 54. By the later part of 1949 up to November
1950, the west waterline was from 248 to 270 meters54 east of the aforesaid boundary line. And
finally in January, 1953, based on the scale in Exh. 3-Calalang, the west waterline was from 300
to 305 meters away already. Hence, from 100 meters in 1937, the River had moved to 305
meters eastward in 1953.

There are two questions to be resolved here. First, where on the strip of land are the lateral
borders of the western riverbank? And second, where have defendants made their extractions?

Anent the first question, the key is supplied by Art. 73 of the Law of Waters which defines the
limits of banks of rivers —
By the phrase "banks of a river" is understood those lateral strips or zones of its bed
which are washed by the stream only during such high floods as do not cause in
inundations. ... (Emphasis supplied)

The farthest extremity of the bank on the west side would, therefore, be that lateral line
or strip which is reached by the waters during those high floods that do not cause
inundations. In other words, the extent reached by the waters when the River is at high
tide.

However, there is a difference between the topography of the two sides immediately adjoining
the River. The line indicated as "primary bank"55 in Exh. 3-Calalang, which is on the east, is
about 3 meters high and has a steep grade right at the edge where it drops almost vertically to
the watercourse level. The precipice here, which is near the east waterline, is very easily
detectible. But the opposite side has no such steep activity. In fact, it is almost flat with the bed
of the River, especially near the water edge, where it is about 30 to 50 cms. high only. But it
gradually slopes up to a height of about 2 to 2-½ meters along the line indicated as "secondary
bank", which is quite far from the waterline. This "bank" line is about 1-½ meters higher than the
level of the gravel pit and there are erosions here. This is about 175 meters west from the
November 1950 waterline, and about 100 meters west from the camachile tree.56

During the dry season, the waterlevel of the River is quite low — about knee-deep only.
However, during the rainy season, the River generally becomes swollen, and the waterlevel
rises, reaching up to the neck.57 However, considering the peculiar characteristics of the two
sides banking the river, the rise in the waterlevel would not have the same effect on the two
sides. Thus, on the east, the water would rise vertically, until the top of the "primary bank" is
reached, but on the west, there would be a low-angled inclined rise, the water covering more
ground until the "secondary bank" line is reached. In other words, while the water expansion on
the east is vertical, that on the west is more or less lateral, or horizontal.

The evidence also shows that there are two types of floods in the area during the rainy
season.58 One is the so-called "ordinary" flood, when the river is swollen but the flowing water is
kept within the confines, of the "primary" and "secondary" banks. This occurs annually, about
three to four times during the period. Then there is the "extraordinary" flood, when the waters
overflow beyond the said banks, and even inundate the surrounding areas. However, this flood
does not happen regularly. From 1947 to 1955, there were only three such floods.59 Now,
considering that the "ordinary" flood easily cover the west side — since any vertical rise of the
waterlevel on the east would necessarily be accompanied by a lateral water expansion on the
west — the "inundations" which the law mentions must be those caused by the "extraordinary"
floods which reach and overflow beyond both "primary" and "secondary" banks. And since the
"primary" bank is higher than the "secondary" bank, it is only when the former is reached and
overflowed that there can be an inundation of the banks — the two banks. The question
therefore, may be stated thus: up to what extent on the west side do the highest flood waters
reach when the "primary" bank is not overflowed?

Defendants have presented several witnesses who testified on the extent reached by the
ordinary flood waters. David Ross, a bulldozer operator at the plant since 1945, testified60 that
from 1945 to 1949, when the River was still passing along the site where the camachile tree is
located, the annual flood waters reached up to the "secondary bank" line. These floods usually
took from 3 to 5 days to recede, during which time their work was suspended. Corroboration is
supplied by Macario Suiza, a crane operator in the plant since 1945, and by Fidel Villafuerte, a
plant employee since 1946. Suiza stated61 that from 1947 to 1949, the area enclosed within the
blue lines and marked as Exh. 54-B — which includes the New Accretion Area was always
covered by water when it rained hard and they had to stop work temporarily. The western
extremity of this area reaches up to the "secondary bank" line. Villafuerte stated62 that in the
ordinary floods when the water was just 50 cm. below the top of the "primary bank", the waters
would go beyond the camachile tree by as much as 100 meters westward and just about reach
the "secondary bank" line. Further corroboration is supplied by plaintiff's own evidence. Exh. 1-
Calalang states that from 1947 to 1949, based on the casual observations made by geologist
David Cruz, the area between the "primary" and "secondary" banks were always covered by the
non-inundating ordinary floods.
From 1950 to 1952, We have the testimony of Ross who stated63 that there were still floods but
they were not as big anymore, except one flood in 1952, since the River had already moved to
the east. Engr. Ricardo Pacheco, who made a survey of the disputed area in November 1952,
and who conducted actual observations of the extent of the water reach when the river was
swollen, testified64 that the non-inundating flood regularly reached up to the blue zigzag line
along the disputed area, as shown in Exh. I-City Engineer Manila. This blue line, at the point
where it intersects line BB,65 is about 140 meters west of the waterline and about 20 meters
west of the camachile tree. His testimony was based on three floods66 which he and his men
actually recorded. Corroboration is again supplied by Exh. 1-Calalang. According to Cruz'
report, the floods in 1950 and 1951 barely covered the disputed area. During the normal days of
the rainy season, the waters of the swollen river did not reach the higher portions of the gravel
pit which used to be submerged. One cause for this was the lesser amount of rainfall from 1949
to 1951. But two floods occurred from October 16 to 28, 1952, which overflowed the whole area
and inundated the banks. From 1953 to 1955, when the River was farther away to the east, the
flood waters still covered the west side.67 Testifying on the extent reached by the water during
the rainy season in 1954, Ross stated68 that it reached up to the camachile tree only. The last
and latest data comes from Engr. Magbayani Leaño, the Engineer-in-charge of the plant from
August 1954. He testified69 that as of December 1955, when the disputed area was underwater,
the water reach was about 20 meters or less to the east from the camachile tree.

From all the foregoing, it can be safely concluded: (1) that from 1945 to 1949, the west bank of
the River extended westward up to the "secondary bank" line; (2) that from 1950 to 1952, this
bank had moved, with the River, to the east its lateral borders running along a line just 20
meters west of the camachile tree; and (3) that from 1953 to 1955, the extremities of the west
bank further receded eastward beyond the camachile tree, until they lay just about 20 meters
east of said tree.

To counteract the testimonies of the defense witnesses, plaintiff presented two rebuttal
witnesses70 who told a somewhat different story. However, their testimonies are not convincing
enough to offset the dovetailing testimonies of the defense witnesses who were much better
qualified and acquainted with the actual situs of the floods. And said defense witnesses were
corroborated by plaintiffs' own evidence which contradicts the aforesaid rebuttal witnesses.

However, plaintiff maintains that the floods which cover the area in question are merely
accidental and hence, under Art. 77 of the Law of Waters,71 and following the ruling
in Government vs. Colegio de San Jose,72 he is deemed not to have lost the inundated area.
This is untenable. Plaintiff's own evidence73 shows that the river floods with annual regularity
during the rainy season. These floods can hardly be called "accidental." The Colegio de San
Jose case is not exactly in point. What was mainly considered there was Art. 74 of the Law of
Waters relating to lakes, ponds and pools. In the case at bar, none of these is involved.

Also untenable is plaintiff's contention that the regular flooding of the disputed area was due to
the continuous extraction of materials by defendants which had lowered the level of said area
and caused the consequent widening of the channel and the river itself. The excavations and
extractions of materials, even from the American period, have been made only on the strip of
land west of the River.74 Under the "following-the-nature-of-things" argument advanced by
plaintiff, the River should have moved westward, where the level of the ground had been
lowered. But the movement has been in the opposite direction instead. Therefore, it cannot be
attributed to defendants' operation. Moreover, plaintiff's own evidence indicates that the
movement eastward was all due to natural causes. Thus, Exh. 1-Calalang shows that the
movement eastward of the channel by as much as 31 meters, from 1950 to 1953, was due to
two typhoons which caused the erosion of the east bank and the depositing of materials on the
west side which increased its level from as much as .93 to 2 meters.

Plaintiff's assertion that the defendants also caused the unnatural widening of the River is
unfounded. Reliance is made on the finding by the lower court that in 1943, the River was only
60 meters wide as shown in Exh. D-2, whereas in 1950, it was already 140 meters wide as
shown in Exh. D. However, Exh. D-2 only shows the width of the River near the southwestern
boundary of the Hilario estate. It does not indicate how wide it was in the other parts, especially
up north. And Eligio Lorenzo, plaintiff's own witness, admitted75 on cross-examination that the
width of the new river was not uniform. This is confirmed by Exhs. D and D-1 which show that
the new river was wider by as much as 50% up north than it was down south. The 140-meter
distance in Exh. D was at the widest part up north whereas down south, near the mouth of the
Bulobok River, it was only 70 meters wide. Lastly, the scale in Exh. 3-Calalang will show that in
January 1953, the River, near the same point also, was less than 50 meters wide.

The only remaining question now is to determine if the defendants have really confined their
operations within the banks of the River as alleged by them. To resolve this, We have to find out
from what precise portion in the disputed area the defendants have extracted gravel and sand
since they did not extract indiscriminately from within the entire area. None of the parties' briefs
were very helpful but the evidence on record discloses that defendants made their extractions
only within specified areas during definite periods.

From 1947 to the early part of 1949, the defendants conducted their operations only in the New
Accretion Area along a narrow longitudinal zone contiguous to the watercourse then. This zone,
marked as Exh. 2-City Engineer Manila, is about one (1) km. long and extends northward up to
pt. 50.35 in Exh. 54. However, no extractions nor excavations were undertaken west of this
zone, i.e., above the "temporary bank" line.76 These facts are corroborated by plaintiff's
witnesses. That the extractions were near the river then finds support in Vicente's
testimony77 while Leon Angeles and Mrs. Salud Hilario confirm the fact that defendants have not
gone westward beyond the "temporary bank" line.78 This line is located east of the "secondary
bank" line, the lateral extremity of the west bank then.

In the later part of 1949, plaintiff prohibited the defendants from extracting along the New
Accretion Area and constructed a fence across the same. This forced the defendants to go
below southeast of — the "Excavated Area" and the New Accretion Area sites in Exh.
54.79 Engr. Busuego, testifying80 in 1952, indicated their are of extraction as that enclosed within
the red dotted line in Exh. D-1 which lies on the south end of the strip of land. Only a small
portion of the southeastern boundary of the disputed area is included. The ocular inspection
conducted on June 15, 1951, confirms this.81 Exh. 4-Calalang shows the total amount of
materials taken from within the area from 1949 to 1951.82 Thus, from 1950 up to 1953, although
the defendants were able to continue their operations because of the agreement between the
plaintiff and the Director of Public Works,83 they were confined only to the southeastern portion
of the disputed area. On the other hand, the lateral extremities of the west bank then ran along
a line about 20 meters west of the camachile tree in the New Accretion Area.

From 1954 to 1955, defendants' area of operation was still farther near of the New Accretion
Area. They were working within a confined area along the west waterline, the northern and
western boundaries of which were 20 meters away east from the camachile tree.84 Ross
indicated85 this zone in Exh. 54 as that portion on the southern end of the disputed area
between the blue lines going through the words "Marikina River Bed" and the red zigzag line
indicating the watercourse then. Engr. Leaño even stated, 86 that they got about 80% of the
materials from the river itself and only 20% from the dry bed. The sand and gravel covered by
Exhs. LL to LL-55 were all taken from here. The foregoing facts are not only corroborated by
Mrs. Hilario87 but even admitted by the plaintiff in his opposition88 to defendants' petition to
extend their area of operation west of the camachile tree. And because their petition was
denied, defendants could not, and have not,89 gone beyond the lateral line about 20 meters east
from said tree, which has already been established as the lateral extremity of the west bank
during the period.

It appears sufficiently established, therefore, that defendants have not gone beyond the
receding western extremities of the west riverbank. They have confined their extraction of gravel
and sand only from within the banks of the river which constitute part of the public domain —
wherein they had the right to operate. Plaintiff has not presented sufficient evidence that
defendants have gone beyond the limits of the west bank, as previously established, and have
invaded his private estate. He cannot, therefore, recover from them.

As a parting argument, plaintiff contends that to declare the entire disputed area as part of the
riverbanks would be tantamount to converting about half of his estate to public ownership
without just compensation. He even adds that defendants have already exhausted the supply in
that area and have unjustly profited at his expense. These arguments, however, do not detract
from the above conclusions.
First of all, We are not declaring that the entire channel, i.e., all that space between the
"secondary bank" line and the "primary bank" line, has permanently become part of the
riverbed. What We are only holding is that at the time the defendants made their extractions, the
excavations were within the confines of the riverbanks then. The "secondary bank" line was the
western limit of the west bank around 1945 to 1949 only. By 1955, this had greatly receded to
the line just 20 meters east of the camachile tree in the New Accretion Area. All that space to
the west of said receding line90 would still be part of plaintiff's property — and also whatever
portion adjoining the river is, at present, no longer reached by the non-inundating ordinary
floods.

Secondly, it is not correct to say that plaintiff would be deprived of his property without any
compensation at all. Under Art. 370 of the old Civil Code, the abandoned bed of the old river
belongs to the riparian owners either fully or in part with the other riparian owners. And had the
change occurred under the Civil Code of the Philippines, plaintiff would even be entitled to all of
the old bed in proportion to the area he has lost.91

And, lastly, defendants cannot be accused of unjustly profiting at plaintiff's expense. They were
not responsible for the shifting of the River. It was due to natural causes for which no one can
be blamed. And defendants were extracting from public property then, under proper
authorization. The government, through the defendants, may have been enriched by chance,
but not unjustly.

Considering the conclusions We have thus reached, the other questions involved in the
remaining assignments of errors — particularly those apropos the doctrine of state immunity
from suit and the liability of defendant City of Manila — are rendered moot.

Wherefore, the decision and orders appealed from are hereby set aside and another judgment
is hereby entered as follows:

(1) Defendants City of Manila and the Director of Public Works and his agents and
employees are hereby absolved from liability to plaintiff since they did not extract
materials from plaintiff's property but from the public domain.

(2) All that portion within the strip of land in question, starting from the line running
parallel to the western waterline of the river and twenty meters east from the camachile
tree in the New Accretion Area measured along line AA in Exhs. 3-Calalang, 13 and 54,
and going to the west up to the western boundaries of the Hilario estate, is hereby
declared as not part of the public domain and confirmed as part of plaintiff's private
property. No costs. So ordered.
G.R. No. L-61647 October 12, 1984

REPUBLIC OF THE PHILIPPINES (DIRECTOR OF LANDS), petitioner,


vs.
THE HON. COURT OF APPEALS, BENJAMIN TANCINCO, AZUCENA TANCINCO REYES,
MARINA TANCINCO IMPERIAL and MARIO C. TANCINCO, respondents.

The Solicitor General for petitioner.

Martin B. Laurea for respondents.

GUTIERREZ, JR., J.:ñé+.£ªwph!1

This is a petition for certiorari to set aside the decision of the respondent Court of Appeals (now
Intermediate Appellate Court) affirming the decision of the Court of First Instance of Bulacan,
Fifth Judicial District, Branch VIII, which found that Lots 1 and 2 of Plan Psu-131892 are
accretion to the land covered by Transfer Certificate of Title No. 89709 and ordered their
registration in the names of the private respondents.

Respondents Benjamin Tancinco, Azucena Tancinco Reyes, Marina (should be "Maria")


Tancinco Imperial and Mario C. Tancinco are registered owners of a parcel of land covered by
Transfer Certificate of Title No. T-89709 situated at Barrio Ubihan, Meycauayan, Bulacan
bordering on the Meycauayan and Bocaue rivers.

On June 24, 1973, the private respondents filed an application for the registration of three lots
adjacent to their fishpond property and particularly described as follows: têñ.£îhqwâ£

Lot 1-Psu-131892
(Maria C. Tancinco)

A parcel of land (lot 1 as shown on plan Psu-131892), situated in the Barrio of


Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the NE.,
along line 1-2, by Lot 3 of plan Psu-131892; on the SE., along lines 2-3-4, by
Meycauayan River; on the S.W., along fines 4-5-6-7-8-9, by Bocaue River; on the
NE., along line 9-10, by property of Joaquina Santiago; on the E., NE., and NW.,
along lines 10-11-12-1, by property of Mariano Tancinco (Lot 2, Psu-111877). ...
containing an area of THIRTY THREE THOUSAND NINE HUNDRED THIRTY
SEVEN (33,937) SQUARE METERS. ...

Lot 2-Psu-131892
(Maria C. Tancinco)

A parcel of land (Lot 2 as shown on plan Psu-131892), situated in the Barrio of


Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the E.,
along line 1-2, by property of Rafael Singson; on the S., along line 2-3, by
Meycauayan River; on the SW., along line 3-4, by Lot 3 of plan Psu-131892; and
on the N., along line 4-1, by property of Mariano Tancinco (Lot 1, Psu-111877).
... containing an area of FIVE THOUSAND FOUR HUNDRED FIFTY THREE
(5,453) SQUARE METERS. ...

Lot 3-Psu-131892
(Maria C. Tancinco)

A parcel of land (Lot 3 as shown on plan Psu-131892), situated in the Barrio of


Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the NE.,
along line 1-2, by property of Mariano Tancinco (Lot 1, Psu-111877); and along
line 2-3, by Lot 2 of plan Psu-131892; on the S., along line 3-4, by Meycauayan
River, on the SW., along line 4-5, by Lot 1 of plan Psu-131892; and along line 5-6
by property of Mariano Tancinco (Lot 2, Psu-111877), and on the NW., along line
6-1, by property of Joaquina Santiago. ... containing an area of ONE
THOUSAND NINE HUNDRED EIGHTY FIVE (1,985) SQUARE METERS. ...

On April 5, 1974, Assistant Provincial Fiscal Amando C. Vicente, in representation of the Bureau
of Lands filed a written opposition to the application for registration.

On March 6, 1975, the private respondents filed a partial withdrawal of the application for
registration with respect to Lot 3 of Plan Psu-131892 in line with the recommendation of the
Commissioner appointed by the Court.

On March 7, 1975, Lot 3 was ordered withdrawn from the application and trial proceeded only
with respect to Lots 1 and 2 covered by Plan Psu-131892.

On June 26, 1976, the lower court rendered a decision granting the application on the finding
that the lands in question are accretions to the private respondents' fishponds covered by
Transfer Certificate of Title No. 89709. The dispositive portion of the decision
reads: têñ.£îhqwâ£

WHEREFORE, it appearing that Lots 1 & 2 of plan Psu-131892 (Exh. H) are


accretions to the land covered by Transfer Certificate of Title No. 89709 of the
Register of Deeds of Bulacan, they belong to the owner of said property. The
Court, therefore, orders the registration of lots 1 & 2 situated in the barrio of
Ubihan, municipality of Meycauayan, province of Bulacan, and more particularly
described in plan Psu-131892 (Exh. H) and their accompanying technical
descriptions (Exhs. E, E-1) in favor of Benjamin Tancinco, married to Alma
Fernandez and residing at 3662 Heatherdown, Toledo, Ohio 43614 U.S.A.;
Azucena Tancinco Reyes, married to Alex Reyes, Jr., residing at 4th St., New
Manila, Quezon City; Marina Tancinco Imperial, married to Juan Imperial,
residing at Pasay Road, Dasmariñas Village, Makati, Rizal; and Mario C.
Tancinco, married to Leticia Regidor, residing at 1616 Cypress St., Dasmariñas
Village, Makati, Rizal, all of legal age, all Filipino citizens.

On July 30, 1976, the petitioner Republic appealed to the respondent Court of Appeals.

On August, 19, 1982, the respondent Court rendered a decision affirming in toto the decision of
the lower court. The dispositive portion of the decision reads: têñ.£îhqwâ£

DAHIL DITO, ang hatol na iniakyat ay sinasangayunan at pinagtitibay sa


kanyang kabuuan nang walang bayad.

The rule that the findings of fact of the trial court and the Court of Appeals are binding upon this
Court admits of certain exceptions. Thus in Carolina Industries Inc. v. CMS Stock Brokerage,
Inc. (97 SCRA 734) we held that this Court retains the power to review and rectify the findings of
fact of said courts when (1) the conclusion is a finding grounded entirely on speculations,
surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd, and
impossible; (3) where there is grave abuse of discretion, (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues
of the case and the same are contrary to the admissions of both appellant and appellee.

There are facts and circumstances in the record which render untenable the findings of the trial
court and the Court of Appeals that the lands in question are accretions to the private
respondents' fishponds.

The petitioner submits that there is no accretion to speak of under Article 457 of the New Civil
Code because what actually happened is that the private respondents simply transferred their
dikes further down the river bed of the Meycauayan River, and thus, if there is any accretion to
speak of, it is man-made and artificial and not the result of the gradual and imperceptible
sedimentation by the waters of the river.

On the other hand, the private respondents rely on the testimony of Mrs. Virginia Acuña to the
effect that: têñ.£îhqwâ£
xxx xxx xxx

... when witness first saw the land, namely, Lots 1 & 2, they were already dry
almost at the level of the Pilapil of the property of Dr. Tancinco, and that from the
boundaries of the lots, for about two (2) arms length the land was still dry up to
the edge of the river; that sometime in 1951, a new Pilapil was established on the
boundaries of Lots 1 & 2 and soil from the old Pilapil was transferred to the new
Pilapil and this was done sometime in 1951; that the new lots were then
converted into fishpond, and water in this fishpond was two (2) meters deep on
the side of the Pilapil facing the fishpond ... .

The private respondents submit that the foregoing evidence establishes the fact of accretion
without human intervention because the transfer of the dike occurred after the accretion was
complete.

We agree with the petitioner.

Article 457 of the New Civil Code provides: têñ.£îhqwâ£

To the owners of lands adjoining the banks of rivers belong the accretion which
they gradually receive from the effects of the current of the waters.

The above-quoted article requires the concurrence of three requisites before an accretion
covered by this particular provision is said to have taken place. They are (1) that the deposit be
gradual and imperceptible; (2) that it be made through the effects of the current of the water;
and (3) that the land where accretion takes place is adjacent to the banks of rivers.

The requirement that the deposit should be due to the effect of the current of the river is
indispensable. This excludes from Art. 457 of the New Civil Code all deposits caused by human
intervention. Alluvion must be the exclusive work of nature. In the instant case, there is no
evidence whatsoever to prove that the addition to the said property was made gradually through
the effects of the current of the Meycauayan and Bocaue rivers. We agree with the observation
of the Solicitor General that it is preposterous to believe that almost four (4) hectares of land
came into being because of the effects of the Meycauayan and Bocaue rivers. The lone witness
of the private respondents who happens to be their overseer and whose husband was first
cousin of their father noticed the four hectare accretion to the twelve hectare fishpond only in
1939. The respondents claim that at this point in time, accretion had already taken place. If so,
their witness was incompetent to testify to a gradual and imperceptible increase to their land in
the years before 1939. However, the witness testified that in that year, she observed an
increase in the area of the original fishpond which is now the land in question. If she was telling
the truth, the accretion was sudden. However, there is evidence that the alleged alluvial
deposits were artificial and man-made and not the exclusive result of the current of the
Meycauayan and Bocaue rivers. The alleged alluvial deposits came into being not because of
the sole effect of the current of the rivers but as a result of the transfer of the dike towards the
river and encroaching upon it. The land sought to be registered is not even dry land cast
imperceptibly and gradually by the river's current on the fishpond adjoining it. It is under two
meters of water. The private respondents' own evidence shows that the water in the fishpond is
two meters deep on the side of the pilapil facing the fishpond and only one meter deep on the
side of the pilapil facing the river

The reason behind the law giving the riparian owner the right to any land or alluvion deposited
by a river is to compensate him for the danger of loss that he suffers because of the location of
his land. If estates bordering on rivers are exposed to floods and other evils produced by the
destructive force of the waters and if by virtue of lawful provisions, said estates are subject to
incumbrances and various kinds of easements, it is proper that the risk or danger which may
prejudice the owners thereof should be compensated by the right of accretion. (Cortes v. City of
Manila, 10 Phil. 567). Hence, the riparian owner does not acquire the additions to his land
caused by special works expressly intended or designed to bring about accretion. When the
private respondents transferred their dikes towards the river bed, the dikes were meant for
reclamation purposes and not to protect their property from the destructive force of the waters of
the river.
We agree with the submission of the Solicitor General that the testimony of the private
respondents' lone witness to the effect that as early as 1939 there already existed such alleged
alluvial deposits, deserves no merit. It should be noted that the lots in question were not
included in the survey of their adjacent property conducted on May 10, 1940 and in the
Cadastral Survey of the entire Municipality of Meycauayan conducted between the years 1958
to 1960. The alleged accretion was declared for taxation purposes only in 1972 or 33 years after
it had supposedly permanently formed. The only valid conclusion therefore is that the said areas
could not have been there in 1939. They existed only after the private respondents transferred
their dikes towards the bed of the Meycauayan river in 1951. What private respondents claim as
accretion is really an encroachment of a portion of the Meycauayan river by reclamation.

The lower court cannot validly order the registration of Lots 1 & 2 in the names of the private
respondents. These lots were portions of the bed of the Meycauayan river and are therefore
classified as property of the public domain under Article 420 paragraph 1 and Article 502,
paragraph 1 of the Civil Code of the Philippines. They are not open to registration under the
Land Registration Act. The adjudication of the lands in question as private property in the
names of the private respondents is null and void.

WHEREFORE, the instant petition is GRANTED. The decision appealed from is hereby
REVERSED and SET ASIDE. The private respondents are ordered to move back the dikes of
their fishponds to their original location and return the disputed property to the river to which it
belongs.

SO ORDERED.1äwphï1.ñët
G.R. No. 98045 June 26, 1996

DESAMPARADO VDA. DE NAZARENO and LETICIA NAZARENO TAPIA, petitioners,


vs.
THE COURT OF APPEALS, MR. & MRS. JOSE SALASALAN, MR. & MRS. LEO RABAYA,
AVELINO LABIS, HON. ROBERTO G. HILARIO, ROLLEO I. IGNACIO, ALBERTO M.
GILLERA and HON. ABELARDO G. PALAD, JR., in their official and/or private
capacities, respondents.

ROMERO, J.:p

Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia challenge the decision
of the Court of Appeals which affirmed the dismissal of petitioners' complaint by the Regional
Trial Court of Misamis Oriental, Branch 22. The complaint was for annulment of the verification,
report and recommendation, decision and order of the Bureau of Lands regarding a parcel of
public land.

The only issue involved in this petition is whether or not petitioners exhausted administrative
remedies before having recourse to the courts.

The subject of this controversy is a parcel of land situated in Telegrapo, Puntod, Cagayan de
Oro City. Said land was formed as a result of sawdust dumped into the dried-up Balacanas
Creek and along the banks of the Cagayan river.

Sometime in 1979, private respondents Jose Salasalan and Leo Rabaya leased the subject lots
on which their houses stood from one Antonio Nazareno, petitioners' predecessor-in-interest. In
the latter part of 1982, private respondents allegedly stopped paying rentals. As a result,
Antonio Nazareno and petitioners filed a case for ejectment with the Municipal Trial Court of
Cagayan de Oro City, Branch 4. A decision was rendered against private respondents, which
decision was affirmed by the Regional Trial Court of Misamis Oriental, Branch 20.

The case was remanded to the municipal trial court for execution of judgment after the same
became final and executory. Private respondents filed a case for annulment of judgment before
the Regional Trial Court of Misamis Oriental, Branch 24 which dismissed the same. Antonio
Nazareno and petitioners again moved for execution of judgment but private respondents filed
another case for certiorari with prayer for restraining order and/or writ of preliminary injunction
with the Regional Trial Court of Misamis Oriental, Branch 25 which was likewise dismissed. The
decision of the lower court was finally enforced with the private respondents being ejected from
portions of the subject lots they occupied..

Before he died, Antonio Nazareno caused the approval by the Bureau of Lands of the survey
plan designated as Plan Csd-106-00571 with a view to perfecting his title over the accretion
area being claimed by him. Before the approved survey plan could be released to the applicant,
however, it was protested by private respondents before the Bureau of Lands.

In compliance with the order of respondent District Land Officer Alberto M. Gillera, respondent
Land Investigator Avelino G. Labis conducted an investigation and rendered a report to the
Regional Director recommending that Survey Plan No. MSI-10-06-000571-D (equivalent to Lot
No. 36302, Cad. 237) in the name of Antonio Nazareno, be cancelled and that private
respondents be directed to file appropriate public land applications.

Based on said report, respondent Regional Director of the Bureau of Lands Roberto Hilario
rendered a decision ordering the amendment of the survey plan in the name of Antonio
Nazareno by segregating therefrom the areas occupied by the private respondents who, if
qualified, may file public land applications covering their respective portions.

Antonio Nazareno filed a motion for reconsideration with respondent Rolleo Ignacio,
Undersecretary of the Department of Natural Resources and Officer-in-Charge of the Bureau of
Lands who denied the motion. Respondent Director of Lands Abelardo Palad then ordered him
to vacate the portions adjudicated to private respondents and remove whatever improvements
they have introduced thereon. He also ordered that private respondents be placed in
possession thereof.

Upon the denial of the late Antonio Nazareno's motion for reconsideration, petitioners
Desamparado Vda. de Nazareno and Leticia Tapia Nazareno, filed a case before the RTC,
Branch 22 for annulment of the following: order of investigation by respondent Gillera, report
and recommendation by respondent Labis, decision by respondent Hilario, order by respondent
Ignacio affirming the decision of respondent Hilario and order of execution by respondent Palad.
The RTC dismissed the complaint for failure to exhaust administrative remedies which resulted
in the finality of the administrative decision of the Bureau of Lands.

On appeal, the Court of Appeals affirmed the decision of the RTC dismissing the complaint.
Applying Section 4 of C.A. No. 141, as amended, it contended that the approval of the survey
plan belongs exclusively to the Director of Lands. Hence, factual findings made by the
Metropolitan Trial Court respecting the subject land cannot be held to be controlling as the
preparation and approval of said survey plans belong to the Director of Lands and the same
shall be conclusive when approved by the Secretary of Agriculture and Natural resources. 1

Furthermore, the appellate court contended that the motion for reconsideration filed by Antonio
Nazareno cannot be considered as an appeal to the Office of the Secretary of Agriculture and
Natural Resources, as mandated by C.A. No. 141 inasmuch as the same had been acted upon
by respondent Undersecretary Ignacio in his capacity as Officer-in-charge of the Bureau of
Lands and not as Undersecretary acting for the Secretary of Agriculture and Natural Resources.
For the failure of Antonio Nazareno to appeal to the Secretary of Agriculture and Natural
Resources, the present case does not fall within the exception to the doctrine of exhaustion of
administrative remedies. It also held that there was no showing of oppressiveness in the
manner in which the orders were issued and executed..

Hence, this petition.

Petitioners assign the following errors:

I. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,


ARBITRARY AND CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE
LOWER COURT WHICH IS CONTRARY TO THE PREVAILING FACTS AND
THE LAW ON THE MATTER;

II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,


ARBITRARY AND CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE
LOWER COURT DISMISSING THE ORIGINAL CASE WHICH FAILED TO
CONSIDER THAT THE EXECUTION ORDER OF PUBLIC RESPONDENT
ABELARDO G. PALAD, JR., DIRECTOR OF LANDS, MANILA, PRACTICALLY
CHANGED THE DECISION OF PUBLIC RESPONDENT ROBERTO HILARIO,
REGIONAL DIRECTOR, BUREAU OF LANDS, REGION 10, THUS MAKING
THE CASE PROPER SUBJECT FOR ANNULMENT WELL WITHIN THE
JURISDICTION OF THE LOWER COURT.

The resolution of the above issues, however, hinges on the question of whether or not the
subject land is public land. Petitioners claim that the subject land is private land being an
accretion to his titled property, applying Article 457 of the Civil Code which provides:

To the owners of lands adjoining the banks of rivers belong the accretion which
they gradually receive from the effects of the current of the waters.

In the case of Meneses v. CA, 2 this Court held that accretion, as a mode of acquiring property
under Art. 457 of the Civil Code, requires the concurrence of these requisites : (1) that the
deposition of soil or sediment be gradual and imperceptible; (2) that it be the result of the action
of the waters of the river (or sea); and (3) that the land where accretion takes place is adjacent
to the banks of rivers (or the sea coast). These are called the rules on alluvion which if present
in a case, give to the owners of lands adjoining the banks of rivers or streams any accretion
gradually received from the effects of the current of waters.

For petitioners to insist on the application of these rules on alluvion to their case, the above-
mentioned requisites must be present. However, they admit that the accretion was formed by
the dumping of boulders, soil and other filling materials on portions of the Balacanas Creek and
the Cagayan River bounding their land. 3 It cannot be claimed, therefore, that the accumulation
of such boulders, soil and other filling materials was gradual and imperceptible, resulting from
the action of the waters or the current of the Balacanas Creek and the Cagayan River. In Hilario
v. City of Manila, 4 this Court held that the word "current" indicates the participation of the body
of water in the ebb and flow of waters due to high and low tide. Petitioners' submission not
having met the first and second requirements of the rules on alluvion, they cannot claim the
rights of a riparian owner.

In any case, this court agrees with private respondents that petitioners are estopped from
denying the public character of the subject land, as well as the jurisdiction of the Bureau of
Lands when the late Antonio Nazareno filed his Miscellaneous Sales Application MSA (G-6)
571. 5 The mere filing of said Application constituted an admission that the land being applied
for was public land, having been the subject of Survey Plan No. MSi-10-06-000571-D
(Equivalent to Lot No. 36302, Cad-237) which was conducted as a consequence of Antonio
Nazareno's Miscellaneous Sales Application wherein said land was described as an orchard.
Said description by Antonio Nazareno was, however, controverted by respondent Labis in his
investigation report to respondent Hilario based on the findings of his ocular inspection that said
land actually covers a dry portion of Balacanas Creek and a swampy portion of Cagayan River.
The investigation report also states that, except for the swampy portion which is fully planted to
nipa palms, the whole area is fully occupied by a part of a big concrete bodega of petitioners
and several residential houses made of light materials, including those of private respondents
which were erected by themselves sometime in the early part of 1978. 6

Furthermore, the Bureau of Lands classified the subject land as an accretion area which was
formed by deposits of sawdust in the Balacanas Creek and the Cagayan river, in accordance
with the ocular inspection conducted by the Bureau of Lands. 7 This Court has often enough
held that findings of administrative agencies which have acquired expertise because their
jurisdiction is confined to specific matters are generally accorded not only respect but even
finality. 8 Again, when said factual findings are affirmed by the Court of Appeals, the same are
conclusive on the parties and not reviewable by this Court. 9

It is this Court's irresistible conclusion, therefore, that the accretion was man-made or artificial.
In Republic v. CA, 10this Court ruled that the requirement that the deposit should be due to the
effect of the current of the river is indispensable. This excludes from Art. 457 of the Civil Code
all deposits caused by human intervention. Putting it differently, alluvion must be the exclusive
work of nature. Thus, in Tiongco v. Director of Lands, et al., 11 where the land was not formed
solely by the natural effect of the water current of the river bordering said land but is also the
consequence of the direct and deliberate intervention of man, it was deemed a man-made
accretion and, as such, part of the public domain.

In the case at bar, the subject land was the direct result of the dumping of sawdust by the Sun
Valley Lumber Co. consequent to its sawmill
operations. 12 Even if this Court were to take into consideration petitioners' submission that the
accretion site was the result of the late Antonio Nazareno's labor consisting in the dumping of
boulders, soil and other filling materials into the Balacanas Creek and Cagayan River bounding
his land, 13 the same would still be part of the public domain.

Having determined that the subject land is public land, a fortiori, the Bureau of Lands, as well as
the Office of the Secretary of Agriculture and Natural Resources have jurisdiction over the same
in accordance with the Public Land Law. Accordingly, the court a quo dismissed petitioners'
complaint for non-exhaustion of administrative remedies which ruling the Court of Appeals
affirmed.

However, this Court agrees with petitioners that administrative remedies have been exhausted.
Petitioners could not have intended to appeal to respondent Ignacio as an Officer-In-Charge of
the Bureau of Lands. The decision being appealed from was the decision of respondent Hilario
who was the Regional Director of the Bureau of Lands. Said decision was made "for and by
authority of the Director of Lands". 14 It would be incongruous to appeal the decision of the
Regional Director of the Bureau of Lands acting for the Director of the Bureau of Lands to an
Officer-In-Charge of the Bureau of Lands.

In any case, respondent Rolleo Ignacio's official designation was "Undersecretary of the
Department of Agriculture and Natural Resources." He was only an "Officer-In-Charge" of the
Bureau of Lands. When he acted on the late Antonio Nazareno's motion for reconsideration by
affirming or adopting respondent Hilario's decision, he was acting on said motion as an
Undersecretary on behalf of the Secretary of the Department. In the case of Hamoy v. Secretary
of Agriculture and Natural Resources, 15 this Court held that the Undersecretary of Agriculture
and Natural Resources may modify, adopt, or set aside the orders or decisions of the Director of
Lands with respect to questions involving public lands under the administration and control of
the Bureau of Lands and the Department of Agriculture and Natural Resources. He cannot,
therefore, be said to have acted beyond the bounds of his jurisdiction under Sections 3, 4 and 5
of Commonwealth Act No. 141 16

As borne out by the administrative findings, the controverted land is public land, being an
artificial accretion of sawdust. As such, the Director of Lands has jurisdiction, authority and
control over the same, as mandated under Sections 3 and 4 of the Public Land Law (C.A. No.
141) which states, thus:

Sec. 3. The Secretary of Agriculture and Natural Resources shall be the


exclusive officer charged with carrying out the provisions of this Act through the
Director of Lands who shall act under his immediate control.

Sec. 4. Subject to said control, the Director of Lands shall have direct executive
control of the survey, classification, lease, sale or any other form of concession
or disposition and management of the lands of the public domain, and his
decisions as to questions of fact shall be conclusive when approved by the
Secretary of Agriculture and Natural Resources.

In connection with the second issue, petitioners ascribe whim, arbitrariness or capriciousness in
the execution order of public respondent Abelardo G. Palad, the Director of Lands. This Court
finds otherwise since said decision was based on the conclusive finding that the subject land
was public land. Thus, this Court agrees with the Court of Appeals that the Director of Lands
acted within his rights when he issued the assailed execution order, as mandated by the
aforecited provisions.

Petitioners' allegation that respondent Palad's execution order directing them to vacate the
subject land practically changed respondent Hilario's decision is baseless. It is incorrect for
petitioners to assume that respondent Palad awarded portions of the subject land to private
respondents Salasalans and Rabayas as they had not yet been issued patents or titles over the
subject land. The execution order merely directed the segregation of petitioners' titled lot from
the subject land which was actually being occupied by private respondents before they were
ejected from it. Based on the finding that private respondents were actually in possession or
were actually occupying the subject land instead of petitioners, respondent Palad, being the
Director of Lands and in the exercise of his administrative discretion, directed petitioners to
vacate the subject land on the ground that private respondents have a preferential right, being
the occupants thereof.

While private respondents may not have filed their application over the land occupied by them,
they nevertheless filed their protest or opposition to petitioners' Miscellaneous Sales
Application, the same being preparatory to the filing of an application as they were in fact
directed to do so. In any case, respondent Palad's execution order merely implements
respondent Hilario's order. It should be noted that petitioners' own application still has to be
given due course. 17

As Director of Lands, respondent Palad is authorized to exercise executive control over any
form of concession, disposition and management of the lands of the public domain. 18 He may
issue decisions and orders as he may see fit under the circumstances as long as they are
based on the findings of fact.

In the case of Calibo v. Ballesteros, 19 this Court held that where, in the disposition of public
lands, the Director of Lands bases his decision on the evidence thus presented, he clearly acts
within his jurisdiction, and if he errs in appraising the evidence, the error is one of judgment, but
not an act of grave abuse of discretion annullable by certiorari. Thus, except for the issue of
non-exhaustion of administrative remedies, this Court finds no reversible error nor grave abuse
of discretion in the decision of the Court of Appeals.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.
G.R. No. L-31934 July 29, 1977

RAMON LANZAR, petitioner


vs.
DIRECTOR OF LANDS and CITY OF ILOILO, Respondents.

Ramon A. Gonzales for petitioner.chanrobles virtual law library

Solicitor General Felix Q. Antonio, Assistant Solicitor General Bernardo P. Pardo and Solicitor
Jose A. Janolo for respondents.

FERNANDEZ, J.:chanrobles virtual law library

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G. R. No.
34333-R entitled "Ramon Lanzar, Applicant-Appellee, versus The Director of Lands and The
City of Iloilo, Oppositors-Appellants", declaring the property sought to be registered as the
property of the public domain devoted to public use not susceptible of private
appropriation.chanroblesvirtualawlibrarychanrobles virtual law library

In May 1960, the petitioner, Ramon Lanzar, filed an application for registration of title to a parcel
of land located in the District of Molo, Iloilo City in the Court of First Instance of Iloilo alleging
that he is the owner in fee simple of the land in question and asking that the title thereto be
registered in his name.chanroblesvirtualawlibrarychanrobles virtual law library

In August 1961, the Director of Lands and the City of Iloilo filed an opposition to the application
on the ground that the land in question a foreshore land which forms part of the public domain
and is needed by the City of Iloilo as a road right of way of the Molo Arevalo Boulevard, and that
the applicant had not possessed the property in such a manner as to warrant an implied grant
entitled him to confirmation of his title thereto.chanroblesvirtualawlibrarychanrobles virtual law
library

After trial, the Court of First Instance of Iloilo rendered a decision in March 1963 holding that the
property in question, having been possessed by the applicant and his predecessors-in-interest,
publicly, continuously and adversely for more than 30 years, the same was adjudicated to the
petitioner, it appearing that no proof had been adduced that the said land is necessary for public
utility or establishment of special industries (Record on Appeal, pp. 30-
37).chanroblesvirtualawlibrarychanrobles virtual law library

The Director of Lands and the City of Iloilo appealed to the Court of Appeals which on March 24,
1970 reversed the decision of the Court of First Instance of Iloilo and held that the land in
question, being an accretion formed by the action of the sea, is property of the public domain
and not susceptible of private appropriation.chanroblesvirtualawlibrarychanrobles virtual law
library

Hence, the applicant-appellee, Ramon Lanzar, filed this petition for certiorari to review the
aforesaid decision of the Court of Appeals. The petitioner assigns the following errors:

Ichanrobles virtual law library

THE COURT OF APPEALS ERRED IN HOLDING THAT LANDS FORMED BY ACTION OF


THE SEA AS ACCRETION TO THE SHORES ARE PROPERTY OF PUBLIC DOMINION, ON
THE AUTHORITY OF ART. 4, LAW OF WATERS, KER & CO. VS GAUDEN AND
GOVERNMENT VS. ALDECOA.chanroblesvirtualawlibrarychanrobles virtual law library

IIchanrobles virtual law library

THE COURT OF APPEALS ERRED IN RELYING ON MONTEVERDE VS. DIRECTOR OF


LANDS, 93 PHIL. 134 HOLDING THAT ONLY THE EXECUTIVE OR LEGISLATURE CAN
DECLARE THE LAND AS NO LONGER INTENDED FOR PUBLIC USE AND SO SHALL
BELONG TO THE ADJACENT OWNER.chanroblesvirtualawlibrarychanrobles virtual law library
IIIchanrobles virtual law library

THE COURT OF APPEALS ERRED IN HOLDING THAT SINCE ART. 422 OF THE NEW CIVIL
CODE PROVIDES THAT PROPERTY OF PUBLIC DOMAIN WHEN NO LONGER INTENDED
FOR PUBLIC USE, SUCH INTENTION CAN ONLY BE SPELLED OUT BY THE EXECUTIVE
OR LEGISLATURE, NOT BY THE COURTS.chanroblesvirtualawlibrarychanrobles virtual law
library

IVchanrobles virtual law library

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER HAS ACQUIRED
THE PROPERTY THRU ACQUISITIVE PRESCRIPTION.chanroblesvirtualawlibrarychanrobles
virtual law library

(Petitioner's Brief, pp. 1-2)

The pertinent facts are not disputed.chanroblesvirtualawlibrarychanrobles virtual law library

The petitioner has applied for the registration of his title to a parcel of land which is admittedly
an accretion of Lot No. 1899 of the Cadastral Survey of Iloilo, it having been formed by the
gradual action of the sea before 1,922. Ignacio Arroyo, the registered owner of Lot 1899, leased
in 19M the property to Maximo Tonogbanua who possessed the whole of Lot 1899 and its
accretion. In 1927, Ignacio Arroyo donated Lot 1899 of the Cadastral Survey of Iloilo, together
with its accretion, to Beaterio de Santissimo Rosario de Molo, which in turn the property to the
applicant, Ramon Lanzar. The lessee planted coconuts and bananas on the land and a portion
thereof was devoted to palay. A verification of Lot 1899 by the Bureau of Lands disclosed that
the portion of land applied for and described in the plan, Exhibit A, and in its technical
description, is outside of Lot 1899, the same being an accretion thereto formed by the action of
the sea. Beaterio de Santissimo Rosario de Molo and the applicant entered into an agreement,
Exhibit 1, on August 13,1959, under which Beaterio de Santissimo Rosario de Molo assigned all
its rights to the accretion, the title to which is sought to be registered by the applicant. Beaterio
de Santissimo Rosario de Molo had possessed Lot 1899 and its accretion through its lessee,
openly, publicly, uninterruptedly and adversely to all claimants and under claim of ownership.
The Beaterio had declared Lot 1899 for taxation and when it assigned the rights to the
applicant, he caused the tax declaration to be transferred to his name in May 1960, Exhibit
J.chanroblesvirtualawlibrarychanrobles virtual law library

During the Cadastral Survey of 1911-1912, the lot in question was non-existent (Exhibit 2,
Director of Lands). Hence, said land as an accretion to Lot 1899 must have gradually developed
from 1912 to 1922 and thereafter. It is now separated by the Arevalo-Molo Boulevard from the
sea.chanroblesvirtualawlibrarychanrobles virtual law library

The only issue to be resolved is whether or not the title to the land in question which was formed
by action of the sea as an accretion to Lot 1899 may be registered in the name of the applicant
on the basis of adverse possession for over 30 years.chanroblesvirtualawlibrarychanrobles
virtual law library

Article 4 of the Law of Waters provides:

ART. 4. Lands added to the shores by accretions and alluvium deposits caused by the action of
the sea, form part of the public domain. When they are no longer washed by the waters of the
sea, and are not necessary for the purposes of public utility, or for the establishment of special
industries, or for the coastguard service, the Government shall declare them to be the property
of the owners of the estates adjacent thereto and as an increment thereof.

In Ker & Co. vs. Cauden, 6 Phil. 732, this Court said:

This case is directly covered by the first part of said article 4. There is therein an express
declaration that land formed in the way this land was formed is public property. Nothing could be
more explicit and the effect of this declaration is not in any way limited by the subsequent
provisions of the same article. The claim of the appellants that these subsequent provisions
indicate that the ownership of such land is in the private persons who own the adjoining
property, and that the declaration which is spoken of is simply proof of that ownership, can not
be sustained. It is in direct conflict with the statement made in the first part of the article. The
true construction of the article is that when these lands which belong to the State are not
needed for the purposes mentioned therein, then the State shall grant them to the adjoining
owners. No attempt was made by the appellants to prove any such grant or concession in this
case and, in fact, it is apparent from the evidence that the conditions upon which the adjoining
owners would be entitled to such a grant have never existed because for a long time the
property was by the Spanish navy and it is now occupied by the present government as a naval
station, and works costing more than $500,000, money of the United States, have been erected
thereon. (Idem. p. 736)

It is contended by the petitioner that:

As found by the Court of Appeals, the accretion began before 1922, but after 1912, as shown by
the undisputed evidence, hence, during the regime of the Spanish Civil Code, which became
effective on December 8, 1889, and consequently, its nature shall be determined by the said
code. Now, the said code provides:

ARTICLE 399. The following are property of public domain: chanrobles virtual law library

l. Those things intended for public use, as roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads and others of a like nature.

(Brief for Petitioner-Appellant, pp. 10-11)

However, in Insular Government vs. Aldecoa and Company, 19 Phil. 505, this Court held:

The Civil Code, which went into effect in these Islands on December 7, 1889, the twentieth day
of its publication in the Gaceta de Manila of the 17th of November of the same year, confirms
the provisions of the said Law of Waters, since, in its article 339, it prescribes that: chanrobles
virtual law library

Property of public ownership is -chanrobles virtual law library

l. That destined to the public use, such as roads, canals, rivers, torrents, ports, and bridges
constructed by the State, and banks, shores, roadsteads, and that of a similar
character.chanroblesvirtualawlibrarychanrobles virtual law library

Article 341 of the same code provides: chanrobles virtual law library

Property of public ownership, when no longer devoted to general uses or to the requirements of
the defense of the territory, shall become a part of the State
property.chanroblesvirtualawlibrarychanrobles virtual law library

The shores and the lands reclaimed from the sea, while they continue to be devoted to public
uses and no grant whatever has been made of any portion of them to private persons, remain a
part of the public domain and are for public uses, and, until they are converted into patrimonial
property of the State, such lands, thrown up by the action of the sea, and the shores adjacent
thereto, are not susceptible of prescription, inasmuch as, being dedicated to the public uses,
they are not subject of commerce among men, in accordance with the provision of article 1936
of the Civil Code.chanroblesvirtualawlibrarychanrobles virtual law library

The occupation or material possession of any land formed upon the shore by accretions and
alluvium deposits occasioned by the sea, where the occupant or possessor is a private person
and holds without previous permission or authorization from the Government, granted in due
form, although he may have had the intention to hold it for the purpose of making it his own, is
illegal possession on his part and amounts to nothing more than a mere detainer of the land,
which is out of the sphere of the commerce of men, as belonging to the public domain and being
alloted to public uses and for the use of all persons who live at the place where it is situated.
(Idem, pp. 514-515)
It is thus seen that the petitioner could not acquire the land in question by
prescription.chanroblesvirtualawlibrarychanrobles virtual law library

The contention of the petitioner-appellant that by "thus expanding the meaning of shores to
include inland property formed by the action of the sea, Government vs. Aldecoa is guilty of
judicial legislation ..." (Brief of Petitioner-Appellant, p. 15) has no
merit.chanroblesvirtualawlibrarychanrobles virtual law library

Articles 339 and 340 of the Spanish Civil Code are not repugnant to Article 4 of the Spanish
Law of Waters of 1866. The said provisions of the said Spanish Code did not provide that lands
added to the shores by action of the sea form part of the patrimonial property of the
State.chanroblesvirtualawlibrarychanrobles virtual law library

As stated by this Court in Insular Government vs. Aldecoa, supra, p. 541, the Civil Code of
Spain confirms the provisions of Article 4 of the Law of Waters, citing Article 339 of said code.
This Court has been consistent in ruling that lands formed by the action of the sea belong to the
public domain. Thus in Monteverde vs. Director of Lands, 93 Phil. 134, it was held:

Lots Nos. 1 and 2 were admittedly formed and added to the shores by the natural. action of the
sea, and the petitioners herein have claimed title thereto as accretion to their adjoining lots, in
accordance with article 4 of the Law of Waters of August 3, 1966, which provides as follows:

'Lands added to the shores by accretion and alluvial deposits caused by action of the sea, form
part of the public domain. When they are no longer washed by the water of the sea and are not
necessary for purposes of public utility, or for the establishment of special industries, or for
coast-guard service, the Government shall declare them to be property of the owners of the
estates adjacent thereto and as increment thereof.'

(Idem. pp. 135-136)

In view of the foregoing, the Court of Appeals did not err in declaring the property sought to be
registered as part of the public domain devoted to public use not susceptible of private
appropriation. The land in question is needed by the City of Iloilo for the expansion of the
Arevalo-Molo Boulevard.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the petition for review is hereby dismissed and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to
costs.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.
G.R. No. 133250 July 9, 2002

FRANCISCO I. CHAVEZ, petitioner,


vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.

CARPIO, J.:

This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a
temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA"
for brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay
and Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The
petition further seeks to enjoin PEA from signing a new agreement with AMARI involving such
reclamation.

The Facts

On November 20, 1973, the government, through the Commissioner of Public Highways, signed
a contract with the Construction and Development Corporation of the Philippines ("CDCP" for
brevity) to reclaim certain foreshore and offshore areas of Manila Bay. The contract also
included the construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated
itself to carry out all the works in consideration of fifty percent of the total reclaimed land.

On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084
creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged
areas," and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands." 1 On
the same date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA
the "lands reclaimed in the foreshore and offshore of the Manila Bay"2 under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP).

On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend
its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned
by PEA." Accordingly, PEA and CDCP executed a Memorandum of Agreement dated
December 29, 1981, which stated:

"(i) CDCP shall undertake all reclamation, construction, and such other works in the
MCCRRP as may be agreed upon by the parties, to be paid according to progress of
works on a unit price/lump sum basis for items of work to be agreed upon, subject to
price escalation, retention and other terms and conditions provided for in Presidential
Decree No. 1594. All the financing required for such works shall be provided by PEA.

xxx

(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and
transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and
to all the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981
which have not yet been sold, transferred or otherwise disposed of by CDCP as of said
date, which areas consist of approximately Ninety-Nine Thousand Four Hundred
Seventy Three (99,473) square meters in the Financial Center Area covered by land
pledge No. 5 and approximately Three Million Three Hundred Eighty Two Thousand
Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at varying
elevations above Mean Low Water Level located outside the Financial Center Area and
the First Neighborhood Unit."3

On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517,
granting and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP) containing a total area of one million nine
hundred fifteen thousand eight hundred ninety four (1,915,894) square meters." Subsequently,
on April 9, 1988, the Register of Deeds of the Municipality of Parañaque issued Transfer
Certificates of Title Nos. 7309, 7311, and 7312, in the name of PEA, covering the three
reclaimed islands known as the "Freedom Islands" located at the southern portion of the Manila-
Cavite Coastal Road, Parañaque City. The Freedom Islands have a total land area of One
Million Five Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square
meters or 157.841 hectares.

On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI,
a private corporation, to develop the Freedom Islands. The JVA also required the reclamation of
an additional 250 hectares of submerged areas surrounding these islands to complete the
configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP.
PEA and AMARI entered into the JVA through negotiation without public bidding.4 On April 28,
1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5 On June 8,
1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres,
approved the JVA.6

On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in
the Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate
Committee on Government Corporations and Public Enterprises, and the Committee on
Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate
Committees reported the results of their investigation in Senate Committee Report No. 560
dated September 16, 1997.7 Among the conclusions of their report are: (1) the reclaimed lands
PEA seeks to transfer to AMARI under the JVA are lands of the public domain which the
government has not classified as alienable lands and therefore PEA cannot alienate these
lands; (2) the certificates of title covering the Freedom Islands are thus void, and (3) the JVA
itself is illegal.

On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order
No. 365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of
Senate Committee Report No. 560. The members of the Legal Task Force were the Secretary
of Justice,8 the Chief Presidential Legal Counsel,9 and the Government Corporate
Counsel.10 The Legal Task Force upheld the legality of the JVA, contrary to the conclusions
reached by the Senate Committees.11

On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there
were on-going renegotiations between PEA and AMARI under an order issued by then
President Fidel V. Ramos. According to these reports, PEA Director Nestor Kalaw, PEA
Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the negotiating panel of
PEA.

On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with
Application for the Issuance of a Temporary Restraining Order and Preliminary
Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the
petition "for unwarranted disregard of judicial hierarchy, without prejudice to the refiling of the
case before the proper court."12

On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the
instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction
and Temporary Restraining Order. Petitioner contends the government stands to lose billions of
pesos in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly
disclose the terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7,
Article III, of the 1987 Constitution on the right of the people to information on matters of public
concern. Petitioner assails the sale to AMARI of lands of the public domain as a blatant violation
of Section 3, Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the
public domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss
of billions of pesos in properties of the State that are of public dominion.

After several motions for extension of time,13 PEA and AMARI filed their Comments on October
19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an
Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI
contract; (b) for issuance of a temporary restraining order; and (c) to set the case for hearing on
oral argument. Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999,
which the Court denied in a Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to the petition and required
the parties to file their respective memoranda.

On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement
("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the
administration of then President Joseph E. Estrada approved the Amended JVA.

Due to the approval of the Amended JVA by the Office of the President, petitioner now prays
that on "constitutional and statutory grounds the renegotiated contract be declared null and
void."14

The Issues

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

I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE MOOT
AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;

II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE THE
PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;

III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF


ADMINISTRATIVE REMEDIES;

IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;

V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES


OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL
AGREEMENT;

VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE


AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED
AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND

VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE OF
WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.

The Court's Ruling

First issue: whether the principal reliefs prayed for in the petition are moot and academic
because of subsequent events.

The petition prays that PEA publicly disclose the "terms and conditions of the on-going
negotiations for a new agreement." The petition also prays that the Court enjoin PEA from
"privately entering into, perfecting and/or executing any new agreement with AMARI."

PEA and AMARI claim the petition is now moot and academic because AMARI furnished
petitioner on June 21, 1999 a copy of the signed Amended JVA containing the terms and
conditions agreed upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a
public disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the signing of the
Amended JVA is now moot because PEA and AMARI have already signed the Amended JVA
on March 30, 1999. Moreover, the Office of the President has approved the Amended JVA on
May 28, 1999.

Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-
tracking the signing and approval of the Amended JVA before the Court could act on the issue.
Presidential approval does not resolve the constitutional issue or remove it from the ambit of
judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the
President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and
AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the
Amended JVA on constitutional grounds necessarily includes preventing its implementation if in
the meantime PEA and AMARI have signed one in violation of the Constitution. Petitioner's
principal basis in assailing the renegotiation of the JVA is its violation of Section 3, Article XII of
the Constitution, which prohibits the government from alienating lands of the public domain to
private corporations. If the Amended JVA indeed violates the Constitution, it is the duty of the
Court to enjoin its implementation, and if already implemented, to annul the effects of such
unconstitutional contract.

The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title
and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay
to a single private corporation. It now becomes more compelling for the Court to resolve the
issue to insure the government itself does not violate a provision of the Constitution intended to
safeguard the national patrimony. Supervening events, whether intended or accidental, cannot
prevent the Court from rendering a decision if there is a grave violation of the Constitution. In
the instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent
the transfer of title and ownership of alienable lands of the public domain in the name of AMARI.
Even in cases where supervening events had made the cases moot, the Court did not hesitate
to resolve the legal or constitutional issues raised to formulate controlling principles to guide the
bench, bar, and the public.17

Also, the instant petition is a case of first impression. All previous decisions of the Court
involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973
Constitution,18 covered agricultural lands sold to private corporations which acquired the lands
from private parties. The transferors of the private corporations claimed or could claim the right
to judicial confirmation of their imperfect titles19 under Title II of Commonwealth Act. 141
("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public
corporation, reclaimed lands and submerged areas for non-agricultural purposes
by purchase under PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain
undertakings by AMARI under the Amended JVA constitute the consideration for the purchase.
Neither AMARI nor PEA can claim judicial confirmation of their titles because the lands covered
by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of
imperfect title requires open, continuous, exclusive and notorious occupation of agricultural
lands of the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the
deadline for filing applications for judicial confirmation of imperfect title expired on December 31,
1987.20

Lastly, there is a need to resolve immediately the constitutional issue raised in this petition
because of the possible transfer at any time by PEA to AMARI of title and ownership to portions
of the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the
latter's seventy percent proportionate share in the reclaimed areas as the reclamation
progresses. The Amended JVA even allows AMARI to mortgage at any time
the entire reclaimed area to raise financing for the reclamation project.21

Second issue: whether the petition merits dismissal for failing to observe the principle
governing the hierarchy of courts.

PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the
Court. The principle of hierarchy of courts applies generally to cases involving factual questions.
As it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant
case, however, raises constitutional issues of transcendental importance to the public.22 The
Court can resolve this case without determining any factual issue related to the case. Also, the
instant case is a petition for mandamus which falls under the original jurisdiction of the Court
under Section 5, Article VIII of the Constitution. We resolve to exercise primary jurisdiction over
the instant case.

Third issue: whether the petition merits dismissal for non-exhaustion of administrative
remedies.
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly
certain information without first asking PEA the needed information. PEA claims petitioner's
direct resort to the Court violates the principle of exhaustion of administrative remedies. It also
violates the rule that mandamus may issue only if there is no other plain, speedy and adequate
remedy in the ordinary course of law.

PEA distinguishes the instant case from Tañada v. Tuvera23 where the Court granted the
petition for mandamus even if the petitioners there did not initially demand from the Office of the
President the publication of the presidential decrees. PEA points out that in Tañada, the
Executive Department had an affirmative statutory duty under Article 2 of the Civil Code24 and
Section 1 of Commonwealth Act No. 63825 to publish the presidential decrees. There was,
therefore, no need for the petitioners in Tañada to make an initial demand from the Office of the
President. In the instant case, PEA claims it has no affirmative statutory duty to disclose publicly
information about its renegotiation of the JVA. Thus, PEA asserts that the Court must apply the
principle of exhaustion of administrative remedies to the instant case in view of the failure of
petitioner here to demand initially from PEA the needed information.

The original JVA sought to dispose to AMARI public lands held by PEA, a government
corporation. Under Section 79 of the Government Auditing Code,26 the disposition of
government lands to private parties requires public bidding. PEA was under a positive legal
duty to disclose to the public the terms and conditions for the sale of its lands. The law
obligated PEA to make this public disclosure even without demand from petitioner or from
anyone. PEA failed to make this public disclosure because the original JVA, like the Amended
JVA, was the result of a negotiated contract, not of a public bidding. Considering that PEA had
an affirmative statutory duty to make the public disclosure, and was even in breach of this legal
duty, petitioner had the right to seek direct judicial intervention.

Moreover, and this alone is determinative of this issue, the principle of exhaustion of
administrative remedies does not apply when the issue involved is a purely legal or
constitutional question.27 The principal issue in the instant case is the capacity of AMARI to
acquire lands held by PEA in view of the constitutional ban prohibiting the alienation of lands of
the public domain to private corporations. We rule that the principle of exhaustion of
administrative remedies does not apply in the instant case.

Fourth issue: whether petitioner has locus standi to bring this suit

PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his
constitutional right to information without a showing that PEA refused to perform an affirmative
duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he
will suffer any concrete injury because of the signing or implementation of the Amended JVA.
Thus, there is no actual controversy requiring the exercise of the power of judicial review.

The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel
PEA to comply with its constitutional duties. There are two constitutional issues involved here.
First is the right of citizens to information on matters of public concern. Second is the application
of a constitutional provision intended to insure the equitable distribution of alienable lands of the
public domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose
publicly information on the sale of government lands worth billions of pesos, information which
the Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to
prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in
violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation.

Moreover, the petition raises matters of transcendental importance to the public. In Chavez v.
PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of
transcendental importance to the public, thus -

"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the
Marcoses is an issue of 'transcendental importance to the public.' He asserts that
ordinary taxpayers have a right to initiate and prosecute actions questioning the validity
of acts or orders of government agencies or instrumentalities, if the issues raised are of
'paramount public interest,' and if they 'immediately affect the social, economic and
moral well being of the people.'

Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest,
when the proceeding involves the assertion of a public right, such as in this case. He
invokes several decisions of this Court which have set aside the procedural matter
of locus standi, when the subject of the case involved public interest.

xxx

In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and
the object of mandamus is to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that he
has any legal or special interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a
right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with
the rule that laws in order to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing,
the Court declared that the right they sought to be enforced 'is a public right recognized
by no less than the fundamental law of the land.'

Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that
'when a mandamus proceeding involves the assertion of a public right, the requirement
of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore,
part of the general 'public' which possesses the right.'

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, management and
operation of the Manila International Container Terminal, 'public interest [was] definitely
involved considering the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial consideration involved.'
We concluded that, as a consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner's standing.

Similarly, the instant petition is anchored on the right of the people to information and
access to official records, documents and papers — a right guaranteed under Section 7,
Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino
citizen. Because of the satisfaction of the two basic requisites laid down by decisional
law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2)
espoused by a Filipino citizen, we rule that the petition at bar should be allowed."

We rule that since the instant petition, brought by a citizen, involves the enforcement of
constitutional rights - to information and to the equitable diffusion of natural resources - matters
of transcendental public importance, the petitioner has the requisite locus standi.

Fifth issue: whether the constitutional right to information includes official information
on on-going negotiations before a final agreement.

Section 7, Article III of the Constitution explains the people's right to information on matters of
public concern in this manner:

"Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to government research data used
as basis for policy development, shall be afforded the citizen, subject to such limitations
as may be provided by law." (Emphasis supplied)

The State policy of full transparency in all transactions involving public interest reinforces the
people's right to information on matters of public concern. This State policy is expressed in
Section 28, Article II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest." (Emphasis supplied)

These twin provisions of the Constitution seek to promote transparency in policy-making and in
the operations of the government, as well as provide the people sufficient information to
exercise effectively other constitutional rights. These twin provisions are essential to the
exercise of freedom of expression. If the government does not disclose its official acts,
transactions and decisions to citizens, whatever citizens say, even if expressed without any
restraint, will be speculative and amount to nothing. These twin provisions are also essential to
hold public officials "at all times x x x accountable to the people,"29 for unless citizens have the
proper information, they cannot hold public officials accountable for anything. Armed with the
right information, citizens can participate in public discussions leading to the formulation of
government policies and their effective implementation. An informed citizenry is essential to the
existence and proper functioning of any democracy. As explained by the Court in Valmonte v.
Belmonte, Jr.30 –

"An essential element of these freedoms is to keep open a continuing dialogue or


process of communication between the government and the people. It is in the interest
of the State that the channels for free political discussion be maintained to the end that
the government may perceive and be responsive to the people's will. Yet, this open
dialogue can be effective only to the extent that the citizenry is informed and thus able to
formulate its will intelligently. Only when the participants in the discussion are aware of
the issues and have access to information relating thereto can such bear fruit."

PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right to
information is limited to "definite propositions of the government." PEA maintains the right does
not include access to "intra-agency or inter-agency recommendations or communications during
the stage when common assertions are still in the process of being formulated or are in the
'exploratory stage'."

Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or
before the closing of the transaction. To support its contention, AMARI cites the following
discussion in the 1986 Constitutional Commission:

"Mr. Suarez. And when we say 'transactions' which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he refer to the contract itself?

Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can
cover both steps leading to a contract and already a consummated contract, Mr.
Presiding Officer.

Mr. Suarez: This contemplates inclusion of negotiations leading to the


consummation of the transaction.

Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.

Mr. Suarez: Thank you."32 (Emphasis supplied)

AMARI argues there must first be a consummated contract before petitioner can invoke the
right. Requiring government officials to reveal their deliberations at the pre-decisional stage will
degrade the quality of decision-making in government agencies. Government officials will
hesitate to express their real sentiments during deliberations if there is immediate public
dissemination of their discussions, putting them under all kinds of pressure before they decide.

We must first distinguish between information the law on public bidding requires PEA to disclose
publicly, and information the constitutional right to information requires PEA to release to the
public. Before the consummation of the contract, PEA must, on its own and without demand
from anyone, disclose to the public matters relating to the disposition of its property. These
include the size, location, technical description and nature of the property being disposed of, the
terms and conditions of the disposition, the parties qualified to bid, the minimum price and
similar information. PEA must prepare all these data and disclose them to the public at the start
of the disposition process, long before the consummation of the contract, because the
Government Auditing Code requires public bidding. If PEA fails to make this disclosure, any
citizen can demand from PEA this information at any time during the bidding process.

Information, however, on on-going evaluation or review of bids or proposals being undertaken


by the bidding or review committee is not immediately accessible under the right to information.
While the evaluation or review is still on-going, there are no "official acts, transactions, or
decisions" on the bids or proposals. However, once the committee makes its official
recommendation, there arises a "definite proposition" on the part of the government. From
this moment, the public's right to information attaches, and any citizen can access all the non-
proprietary information leading to such definite proposition. In Chavez v. PCGG,33 the Court
ruled as follows:

"Considering the intent of the framers of the Constitution, we believe that it is incumbent
upon the PCGG and its officers, as well as other government representatives, to
disclose sufficient public information on any proposed settlement they have decided to
take up with the ostensible owners and holders of ill-gotten wealth. Such information,
though, must pertain to definite propositions of the government, not necessarily to
intra-agency or inter-agency recommendations or communications during the stage
when common assertions are still in the process of being formulated or are in the
"exploratory" stage. There is need, of course, to observe the same restrictions on
disclosure of information in general, as discussed earlier – such as on matters involving
national security, diplomatic or foreign relations, intelligence and other classified
information." (Emphasis supplied)

Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission


understood that the right to information "contemplates inclusion of negotiations leading to
the consummation of the transaction."Certainly, a consummated contract is not a
requirement for the exercise of the right to information. Otherwise, the people can never
exercise the right if no contract is consummated, and if one is consummated, it may be too late
for the public to expose its defects.1âwphi1.nêt

Requiring a consummated contract will keep the public in the dark until the contract, which may
be grossly disadvantageous to the government or even illegal, becomes a fait accompli. This
negates the State policy of full transparency on matters of public concern, a situation which the
framers of the Constitution could not have intended. Such a requirement will prevent the
citizenry from participating in the public discussion of any proposed contract, effectively
truncating a basic right enshrined in the Bill of Rights. We can allow neither an emasculation of
a constitutional right, nor a retreat by the State of its avowed "policy of full disclosure of all its
transactions involving public interest."

The right covers three categories of information which are "matters of public concern," namely:
(1) official records; (2) documents and papers pertaining to official acts, transactions and
decisions; and (3) government research data used in formulating policies. The first category
refers to any document that is part of the public records in the custody of government agencies
or officials. The second category refers to documents and papers recording, evidencing,
establishing, confirming, supporting, justifying or explaining official acts, transactions or
decisions of government agencies or officials. The third category refers to research data,
whether raw, collated or processed, owned by the government and used in formulating
government policies.

The information that petitioner may access on the renegotiation of the JVA includes evaluation
reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference
and other documents attached to such reports or minutes, all relating to the JVA. However, the
right to information does not compel PEA to prepare lists, abstracts, summaries and the like
relating to the renegotiation of the JVA.34 The right only affords access to records, documents
and papers, which means the opportunity to inspect and copy them. One who exercises the
right must copy the records, documents and papers at his expense. The exercise of the right is
also subject to reasonable regulations to protect the integrity of the public records and to
minimize disruption to government operations, like rules specifying when and how to conduct
the inspection and copying.35

The right to information, however, does not extend to matters recognized as privileged
information under the separation of powers.36 The right does not also apply to information on
military and diplomatic secrets, information affecting national security, and information on
investigations of crimes by law enforcement agencies before the prosecution of the accused,
which courts have long recognized as confidential.37 The right may also be subject to other
limitations that Congress may impose by law.

There is no claim by PEA that the information demanded by petitioner is privileged information
rooted in the separation of powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or executive sessions of either
house of Congress,38 are recognized as confidential. This kind of information cannot be pried
open by a co-equal branch of government. A frank exchange of exploratory ideas and
assessments, free from the glare of publicity and pressure by interested parties, is essential to
protect the independence of decision-making of those tasked to exercise Presidential,
Legislative and Judicial power.39 This is not the situation in the instant case.

We rule, therefore, that the constitutional right to information includes official information on on-
going negotiationsbefore a final contract. The information, however, must constitute definite
propositions by the government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters affecting national security and
public order.40 Congress has also prescribed other limitations on the right to information in
several legislations.41

Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands,
reclaimed or to be reclaimed, violate the Constitution.

The Regalian Doctrine

The ownership of lands reclaimed from foreshore and submerged areas is rooted in the
Regalian doctrine which holds that the State owns all lands and waters of the public domain.
Upon the Spanish conquest of the Philippines, ownership of all "lands, territories and
possessions" in the Philippines passed to the Spanish Crown.42 The King, as the sovereign ruler
and representative of the people, acquired and owned all lands and territories in the Philippines
except those he disposed of by grant or sale to private individuals.

The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however,
the State, in lieu of the King, as the owner of all lands and waters of the public domain. The
Regalian doctrine is the foundation of the time-honored principle of land ownership that "all
lands that were not acquired from the Government, either by purchase or by grant, belong to the
public domain."43 Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil
Code of 1950, incorporated the Regalian doctrine.

Ownership and Disposition of Reclaimed Lands

The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and
disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission
enacted Act No. 1654 which provided for the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. Later, on November 29, 1919, the
Philippine Legislature approved Act No. 2874, the Public Land Act, which authorized the lease,
but not the sale, of reclaimed lands of the government to corporations and individuals.
On November 7, 1936, the National Assembly passed Commonwealth Act No. 141, also known
as the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. CA No. 141 continues to this day as the
general law governing the classification and disposition of lands of the public domain.

The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within
the maritime zone of the Spanish territory belonged to the public domain for public use.44 The
Spanish Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which
provided as follows:

"Article 5. Lands reclaimed from the sea in consequence of works constructed by the
State, or by the provinces, pueblos or private persons, with proper permission, shall
become the property of the party constructing such works, unless otherwise provided by
the terms of the grant of authority."

Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party
undertaking the reclamation, provided the government issued the necessary permit and did not
reserve ownership of the reclaimed land to the State.

Article 339 of the Civil Code of 1889 defined property of public dominion as follows:

"Art. 339. Property of public dominion is –

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

2. That belonging exclusively to the State which, without being of general public use, is
employed in some public service, or in the development of the national wealth, such as
walls, fortresses, and other works for the defense of the territory, and mines, until
granted to private individuals."

Property devoted to public use referred to property open for use by the public. In contrast,
property devoted to public service referred to property used for some specific public service and
open only to those authorized to use the property.

Property of public dominion referred not only to property devoted to public use, but also to
property not so used but employed to develop the national wealth. This class of property
constituted property of public dominion although employed for some economic or commercial
activity to increase the national wealth.

Article 341 of the Civil Code of 1889 governed the re-classification of property of public
dominion into private property, to wit:

"Art. 341. Property of public dominion, when no longer devoted to public use or to the
defense of the territory, shall become a part of the private property of the State."

This provision, however, was not self-executing. The legislature, or the executive department
pursuant to law, must declare the property no longer needed for public use or territorial defense
before the government could lease or alienate the property to private parties.45

Act No. 1654 of the Philippine Commission

On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of
reclaimed and foreshore lands. The salient provisions of this law were as follows:

"Section 1. The control and disposition of the foreshore as defined in existing law,
and the title to all Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise throughout the Philippine
Islands, shall be retained by the Government without prejudice to vested rights and
without prejudice to rights conceded to the City of Manila in the Luneta Extension.

Section 2. (a) The Secretary of the Interior shall cause all Government or public lands
made or reclaimed by the Government by dredging or filling or otherwise to be divided
into lots or blocks, with the necessary streets and alleyways located thereon, and shall
cause plats and plans of such surveys to be prepared and filed with the Bureau of
Lands.
(b) Upon completion of such plats and plans the Governor-General shall give notice
to the public that such parts of the lands so made or reclaimed as are not needed
for public purposes will be leased for commercial and business purposes, x x x.

xxx

(e) The leases above provided for shall be disposed of to the highest and best
bidder therefore, subject to such regulations and safeguards as the Governor-General
may by executive order prescribe." (Emphasis supplied)

Act No. 1654 mandated that the government should retain title to all lands reclaimed by the
government. The Act also vested in the government control and disposition of foreshore lands.
Private parties could lease lands reclaimed by the government only if these lands were no
longer needed for public purpose. Act No. 1654 mandated public bidding in the lease of
government reclaimed lands. Act No. 1654 made government reclaimed lands sui generis in
that unlike other public lands which the government could sell to private parties, these reclaimed
lands were available only for lease to private parties.

Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No.
1654 did not prohibit private parties from reclaiming parts of the sea under Section 5 of the
Spanish Law of Waters. Lands reclaimed from the sea by private parties with government
permission remained private lands.

Act No. 2874 of the Philippine Legislature

On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land
Act.46 The salient provisions of Act No. 2874, on reclaimed lands, were as follows:

"Sec. 6. The Governor-General, upon the recommendation of the Secretary of


Agriculture and Natural Resources, shall from time to time classify the lands of
the public domain into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands, x x x.

Sec. 7. For the purposes of the government and disposition of alienable or disposable
public lands, the Governor-General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall from time to time declare what lands are
open to disposition or concession under this Act."

Sec. 8. Only those lands shall be declared open to disposition or concession


which have been officially delimited or classified x x x.

xxx

Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral
land, shall be classified as suitable for residential purposes or for commercial,
industrial, or other productive purposes other than agricultural purposes, and shall
be open to disposition or concession, shall be disposed of under the provisions of this
chapter, and not otherwise.

Sec. 56. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the Government by dredging, filling, or other


means;

(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or
banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

x x x.

Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall be
disposed of to private parties by lease only and not otherwise, as soon as the
Governor-General, upon recommendation by the Secretary of Agriculture and
Natural Resources, shall declare that the same are not necessary for the public
service and are open to disposition under this chapter. The lands included in class
(d) may be disposed of by sale or lease under the provisions of this Act."
(Emphasis supplied)

Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public
domain into x x x alienable or disposable"47 lands. Section 7 of the Act empowered the
Governor-General to "declare what lands are open to disposition or concession." Section 8 of
the Act limited alienable or disposable lands only to those lands which have been "officially
delimited and classified."

Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be classified" as
government reclaimed, foreshore and marshy lands, as well as other lands. All these lands,
however, must be suitable for residential, commercial, industrial or other productive non-
agricultural purposes. These provisions vested upon the Governor-General the power to
classify inalienable lands of the public domain into disposable lands of the public domain. These
provisions also empowered the Governor-General to classify further such disposable lands of
the public domain into government reclaimed, foreshore or marshy lands of the public domain,
as well as other non-agricultural lands.

Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain
classified as government reclaimed, foreshore and marshy lands "shall be disposed of to
private parties by lease only and not otherwise." The Governor-General, before allowing the
lease of these lands to private parties, must formally declare that the lands were "not necessary
for the public service." Act No. 2874 reiterated the State policy to lease and not to sell
government reclaimed, foreshore and marshy lands of the public domain, a policy first
enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands
remained sui generis, as the only alienable or disposable lands of the public domain that the
government could not sell to private parties.

The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy
public lands for non-agricultural purposes retain their inherent potential as areas for public
service. This is the reason the government prohibited the sale, and only allowed the lease, of
these lands to private parties. The State always reserved these lands for some future public
service.

Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and
marshy lands into other non-agricultural lands under Section 56 (d). Lands falling under Section
56 (d) were the only lands for non-agricultural purposes the government could sell to private
parties. Thus, under Act No. 2874, the government could not sell government reclaimed,
foreshore and marshy lands to private parties, unless the legislature passed a law allowing
their sale.49

Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section
5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with
government permission remained private lands.

Dispositions under the 1935 Constitution


On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people.
The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that

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

The 1935 Constitution barred the alienation of all natural resources except public agricultural
lands, which were the only natural resources the State could alienate. Thus, foreshore lands,
considered part of the State's natural resources, became inalienable by constitutional fiat,
available only for lease for 25 years, renewable for another 25 years. The government could
alienate foreshore lands only after these lands were reclaimed and classified as alienable
agricultural lands of the public domain. Government reclaimed and marshy lands of the public
domain, being neither timber nor mineral lands, fell under the classification of public agricultural
lands.50 However, government reclaimed and marshy lands, although subject to classification as
disposable public agricultural lands, could only be leased and not sold to private parties
because of Act No. 2874.

The prohibition on private parties from acquiring ownership of government reclaimed and
marshy lands of the public domain was only a statutory prohibition and the legislature could
therefore remove such prohibition. The 1935 Constitution did not prohibit individuals and
corporations from acquiring government reclaimed and marshy lands of the public domain that
were classified as agricultural lands under existing public land laws. Section 2, Article XIII of the
1935 Constitution provided as follows:

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


agricultural lands in excess of one thousand and twenty four hectares, nor may
any individual acquire such lands by purchase in excess of one hundred and forty
hectares, or by lease in excess of one thousand and twenty-four hectares, or by
homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding
two thousand hectares, may be leased to an individual, private corporation, or
association." (Emphasis supplied)

Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act
No. 2874 to open for sale to private parties government reclaimed and marshy lands of the
public domain. On the contrary, the legislature continued the long established State policy of
retaining for the government title and ownership of government reclaimed and marshy lands of
the public domain.

Commonwealth Act No. 141 of the Philippine National Assembly

On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also
known as the Public Land Act, which compiled the then existing laws on lands of the public
domain. CA No. 141, as amended, remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands.51

Section 6 of CA No. 141 empowers the President to classify lands of the public domain into
"alienable or disposable"52 lands of the public domain, which prior to such classification are
inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President
to "declare what lands are open to disposition or concession." Section 8 of CA No. 141 states
that the government can declare open for disposition or concession only lands that are "officially
delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as follows:

"Sec. 6. The President, upon the recommendation of the Secretary of Agriculture


and Commerce, shall from time to time classify the lands of the public domain
into –

(a) Alienable or disposable,

(b) Timber, and

(c) Mineral lands,

and may at any time and in like manner transfer such lands from one class to
another,53 for the purpose of their administration and disposition.

Sec. 7. For the purposes of the administration and disposition of alienable or disposable
public lands, the President, upon recommendation by the Secretary of Agriculture
and Commerce, shall from time to time declare what lands are open to disposition
or concession under this Act.

Sec. 8. Only those lands shall be declared open to disposition or concession


which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reserved for public or quasi-public uses, nor
appropriated by the Government, nor in any manner become private property, nor those
on which a private right authorized and recognized by this Act or any other valid law may
be claimed, or which, having been reserved or appropriated, have ceased to be so. x x
x."

Thus, before the government could alienate or dispose of lands of the public domain, the
President must first officially classify these lands as alienable or disposable, and then declare
them open to disposition or concession. There must be no law reserving these lands for public
or quasi-public uses.

The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of
the public domain, are as follows:

"Sec. 58. Any tract of land of the public domain which, being neither timber nor
mineral land, is intended to be used for residential purposes or for commercial,
industrial, or other productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the provisions of this
chapter and not otherwise.

Sec. 59. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the Government by dredging, filling, or other


means;

(b) Foreshore;

(c) Marshy lands or lands covered with water bordering upon the shores or
banks of navigable lakes or rivers;

(d) Lands not included in any of the foregoing classes.

Sec. 60. Any tract of land comprised under this title may be leased or sold, as the case
may be, to any person, corporation, or association authorized to purchase or lease
public lands for agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall
be disposed of to private parties by lease only and not otherwise, as soon as the
President, upon recommendation by the Secretary of Agriculture, shall declare that
the same are not necessary for the public service and are open to disposition under
this chapter. The lands included in class (d) may be disposed of by sale or lease
under the provisions of this Act." (Emphasis supplied)

Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of
Act No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable
lands of the public domain. All these lands are intended for residential, commercial, industrial or
other non-agricultural purposes. As before, Section 61 allowed only the lease of such lands to
private parties. The government could sell to private parties only lands falling under Section 59
(d) of CA No. 141, or those lands for non-agricultural purposes not classified as government
reclaimed, foreshore and marshy disposable lands of the public domain. Foreshore lands,
however, became inalienable under the 1935 Constitution which only allowed the lease of these
lands to qualified private parties.

Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended
for residential, commercial, industrial or other productive purposes other than agricultural "shall
be disposed of under the provisions of this chapter and not otherwise." Under Section 10
of CA No. 141, the term "disposition" includes lease of the land. Any disposition of government
reclaimed, foreshore and marshy disposable lands for non-agricultural purposes must comply
with Chapter IX, Title III of CA No. 141,54 unless a subsequent law amended or repealed these
provisions.

In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court
of Appeals,55Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:

"Foreshore lands are lands of public dominion intended for public use. So too are lands
reclaimed by the government by dredging, filling, or other means. Act 1654 mandated
that the control and disposition of the foreshore and lands under water remained in the
national government. Said law allowed only the 'leasing' of reclaimed land. The Public
Land Acts of 1919 and 1936 also declared that the foreshore and lands reclaimed by the
government were to be "disposed of to private parties by lease only and not otherwise."
Before leasing, however, the Governor-General, upon recommendation of the Secretary
of Agriculture and Natural Resources, had first to determine that the land reclaimed was
not necessary for the public service. This requisite must have been met before the land
could be disposed of. But even then, the foreshore and lands under water were not
to be alienated and sold to private parties. The disposition of the reclaimed land
was only by lease. The land remained property of the State." (Emphasis supplied)

As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has
remained in effect at present."

The State policy prohibiting the sale to private parties of government reclaimed, foreshore and
marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in
CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore
lands, however, became a constitutional edict under the 1935 Constitution. Foreshore lands
became inalienable as natural resources of the State, unless reclaimed by the government and
classified as agricultural lands of the public domain, in which case they would fall under the
classification of government reclaimed lands.

After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable
lands of the public domain continued to be only leased and not sold to private parties.56 These
lands remained sui generis, as the only alienable or disposable lands of the public domain the
government could not sell to private parties.

Since then and until now, the only way the government can sell to private parties government
reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law
authorizing such sale. CA No. 141 does not authorize the President to reclassify government
reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands
classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural
purposes that the government could sell to private parties.

Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands
under Section 59 that the government previously transferred to government units or entities
could be sold to private parties. Section 60 of CA No. 141 declares that –

"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of the
Secretary of Agriculture and Natural Resources, be reasonably necessary for the
purposes for which such sale or lease is requested, and shall not exceed one hundred
and forty-four hectares: Provided, however, That this limitation shall not apply to grants,
donations, or transfers made to a province, municipality or branch or subdivision of the
Government for the purposes deemed by said entities conducive to the public
interest; but the land so granted, donated, or transferred to a province,
municipality or branch or subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner affecting its title, except when
authorized by Congress: x x x." (Emphasis supplied)

The congressional authority required in Section 60 of CA No. 141 mirrors the legislative
authority required in Section 56 of Act No. 2874.

One reason for the congressional authority is that Section 60 of CA No. 141 exempted
government units and entities from the maximum area of public lands that could be acquired
from the State. These government units and entities should not just turn around and sell these
lands to private parties in violation of constitutional or statutory limitations. Otherwise, the
transfer of lands for non-agricultural purposes to government units and entities could be used to
circumvent constitutional limitations on ownership of alienable or disposable lands of the public
domain. In the same manner, such transfers could also be used to evade the statutory
prohibition in CA No. 141 on the sale of government reclaimed and marshy lands of the public
domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a lien on
these lands.57

In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA
No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide
as follows:

"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for
public purposes, the Director of Lands shall ask the Secretary of Agriculture and
Commerce (now the Secretary of Natural Resources) for authority to dispose of the
same. Upon receipt of such authority, the Director of Lands shall give notice by public
advertisement in the same manner as in the case of leases or sales of agricultural public
land, x x x.

Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall be
made to the highest bidder. x x x." (Emphasis supplied)

Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of
alienable or disposable lands of the public domain.58

Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the
Spanish Law of Waters of 1866. Private parties could still reclaim portions of the sea with
government permission. However, the reclaimed land could become private land only if
classified as alienable agricultural land of the public domain open to disposition under CA
No. 141. The 1935 Constitution prohibited the alienation of all natural resources except public
agricultural lands.

The Civil Code of 1950

The Civil Code of 1950 readopted substantially the definition of property of public dominion
found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that –
"Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;

(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.

x x x.

Art. 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State."

Again, the government must formally declare that the property of public dominion is no longer
needed for public use or public service, before the same could be classified as patrimonial
property of the State.59 In the case of government reclaimed and marshy lands of the public
domain, the declaration of their being disposable, as well as the manner of their disposition, is
governed by the applicable provisions of CA No. 141.

Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion
those properties of the State which, without being for public use, are intended for public service
or the "development of the national wealth." Thus, government reclaimed and marshy lands
of the State, even if not employed for public use or public service, if developed to enhance the
national wealth, are classified as property of public dominion.

Dispositions under the 1973 Constitution

The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian
doctrine. Section 8, Article XIV of the 1973 Constitution stated that –

"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources
of the Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential, and resettlement lands of the public domain, natural
resources shall not be alienated, and no license, concession, or lease for the
exploration, development, exploitation, or utilization of any of the natural resources shall
be granted for a period exceeding twenty-five years, renewable for not more than
twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases, beneficial
use may be the measure and the limit of the grant." (Emphasis supplied)

The 1973 Constitution prohibited the alienation of all natural resources with the exception of
"agricultural, industrial or commercial, residential, and resettlement lands of the public domain."
In contrast, the 1935 Constitution barred the alienation of all natural resources except "public
agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution
encompassed industrial, commercial, residential and resettlement lands of the public
domain.60 If the land of public domain were neither timber nor mineral land, it would fall under
the classification of agricultural land of the public domain. Both the 1935 and 1973
Constitutions, therefore, prohibited the alienation of all natural resources except
agricultural lands of the public domain.

The 1973 Constitution, however, limited the alienation of lands of the public domain to
individuals who were citizens of the Philippines. Private corporations, even if wholly owned by
Philippine citizens, were no longer allowed to acquire alienable lands of the public domain unlike
in the 1935 Constitution. Section 11, Article XIV of the 1973 Constitution declared that –

"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and
development requirements of the natural resources, shall determine by law the size of
land of the public domain which may be developed, held or acquired by, or leased to,
any qualified individual, corporation, or association, and the conditions therefor. No
private corporation or association may hold alienable lands of the public domain
except by lease not to exceed one thousand hectares in area nor may any citizen hold
such lands by lease in excess of five hundred hectares or acquire by purchase,
homestead or grant, in excess of twenty-four hectares. No private corporation or
association may hold by lease, concession, license or permit, timber or forest lands and
other timber or forest resources in excess of one hundred thousand hectares. However,
such area may be increased by the Batasang Pambansa upon recommendation of the
National Economic and Development Authority." (Emphasis supplied)

Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public
domain only through lease. Only individuals could now acquire alienable lands of the public
domain, and private corporations became absolutely barred from acquiring any kind of
alienable land of the public domain. The constitutional ban extended to all kinds of alienable
lands of the public domain, while the statutory ban under CA No. 141 applied only to
government reclaimed, foreshore and marshy alienable lands of the public domain.

PD No. 1084 Creating the Public Estates Authority

On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084
creating PEA, a wholly government owned and controlled corporation with a special charter.
Sections 4 and 8 of PD No. 1084, vests PEA with the following purposes and powers:

"Sec. 4. Purpose. The Authority is hereby created for the following purposes:

(a) To reclaim land, including foreshore and submerged areas, by dredging, filling
or other means, or to acquire reclaimed land;

(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell
any and all kinds of lands, buildings, estates and other forms of real property, owned,
managed, controlled and/or operated by the government;

(c) To provide for, operate or administer such service as may be necessary for the
efficient, economical and beneficial utilization of the above properties.

Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the
purposes for which it is created, have the following powers and functions:

(a)To prescribe its by-laws.

xxx

(i) To hold lands of the public domain in excess of the area permitted to private
corporations by statute.

(j) To reclaim lands and to construct work across, or otherwise, any stream,
watercourse, canal, ditch, flume x x x.

xxx

(o) To perform such acts and exercise such functions as may be necessary for the
attainment of the purposes and objectives herein specified." (Emphasis supplied)

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

In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public
domain, there must be legislative authority empowering PEA to sell these lands. This legislative
authority is necessary in view of Section 60 of CA No.141, which states –

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


municipality, or branch or subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner affecting its title, except when
authorized by Congress; x x x." (Emphasis supplied)

Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and
submerged alienable lands of the public domain. Nevertheless, any legislative authority granted
to PEA to sell its reclaimed alienable lands of the public domain would be subject to the
constitutional ban on private corporations from acquiring alienable lands of the public domain.
Hence, such legislative authority could only benefit private individuals.

Dispositions under the 1987 Constitution

The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all natural resources are "owned by the State,"
and except for alienable agricultural lands of the public domain, natural resources cannot be
alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that –

"Section 2. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. x x x.

Section 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be further
classified by law according to the uses which they may be devoted. Alienable lands of
the public domain shall be limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and not to exceed one thousand hectares in area. Citizens of the
Philippines may lease not more than five hundred hectares, or acquire not more than
twelve hectares thereof by purchase, homestead, or grant.

Taking into account the requirements of conservation, ecology, and development, and
subject to the requirements of agrarian reform, the Congress shall determine, by law, the
size of lands of the public domain which may be acquired, developed, held, or leased
and the conditions therefor." (Emphasis supplied)

The 1987 Constitution continues the State policy in the 1973 Constitution banning private
corporations from acquiring any kind of alienable land of the public domain. Like the 1973
Constitution, the 1987 Constitution allows private corporations to hold alienable lands of the
public domain only through lease. As in the 1935 and 1973 Constitutions, the general law
governing the lease to private corporations of reclaimed, foreshore and marshy alienable lands
of the public domain is still CA No. 141.

The Rationale behind the Constitutional Ban


The rationale behind the constitutional ban on corporations from acquiring, except through
lease, alienable lands of the public domain is not well understood. During the deliberations of
the 1986 Constitutional Commission, the commissioners probed the rationale behind this ban,
thus:

"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5 which
says:

`No private corporation or association may hold alienable lands of the public domain
except by lease, not to exceed one thousand hectares in area.'

If we recall, this provision did not exist under the 1935 Constitution, but this was
introduced in the 1973 Constitution. In effect, it prohibits private corporations from
acquiring alienable public lands. But it has not been very clear in jurisprudence what
the reason for this is. In some of the cases decided in 1982 and 1983, it was
indicated that the purpose of this is to prevent large landholdings. Is that the intent
of this provision?

MR. VILLEGAS: I think that is the spirit of the provision.

FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances
where the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land
where a chapel stood because the Supreme Court said it would be in violation of this."
(Emphasis supplied)

In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in this way:

"Indeed, one purpose of the constitutional prohibition against purchases of public


agricultural lands by private corporations is to equitably diffuse land ownership or to
encourage 'owner-cultivatorship and the economic family-size farm' and to prevent a
recurrence of cases like the instant case. Huge landholdings by corporations or private
persons had spawned social unrest."

However, if the constitutional intent is to prevent huge landholdings, the Constitution could have
simply limited the size of alienable lands of the public domain that corporations could acquire.
The Constitution could have followed the limitations on individuals, who could acquire not more
than 24 hectares of alienable lands of the public domain under the 1973 Constitution, and not
more than 12 hectares under the 1987 Constitution.

If the constitutional intent is to encourage economic family-size farms, placing the land in the
name of a corporation would be more effective in preventing the break-up of farmlands. If the
farmland is registered in the name of a corporation, upon the death of the owner, his heirs would
inherit shares in the corporation instead of subdivided parcels of the farmland. This would
prevent the continuing break-up of farmlands into smaller and smaller plots from one generation
to the next.

In actual practice, the constitutional ban strengthens the constitutional limitation on individuals
from acquiring more than the allowed area of alienable lands of the public domain. Without the
constitutional ban, individuals who already acquired the maximum area of alienable lands of the
public domain could easily set up corporations to acquire more alienable public lands. An
individual could own as many corporations as his means would allow him. An individual could
even hide his ownership of a corporation by putting his nominees as stockholders of the
corporation. The corporation is a convenient vehicle to circumvent the constitutional limitation on
acquisition by individuals of alienable lands of the public domain.

The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only
a limited area of alienable land of the public domain to a qualified individual. This constitutional
intent is safeguarded by the provision prohibiting corporations from acquiring alienable lands of
the public domain, since the vehicle to circumvent the constitutional intent is removed. The
available alienable public lands are gradually decreasing in the face of an ever-growing
population. The most effective way to insure faithful adherence to this constitutional intent is to
grant or sell alienable lands of the public domain only to individuals. This, it would seem, is the
practical benefit arising from the constitutional ban.

The Amended Joint Venture Agreement

The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of
three properties, namely:

1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo
Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of
1,578,441 square meters;"

2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and

3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less to
regularize the configuration of the reclaimed area."65

PEA confirms that the Amended JVA involves "the development of the Freedom Islands and
further reclamation of about 250 hectares x x x," plus an option "granted to AMARI to
subsequently reclaim another 350 hectares x x x."66

In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares
of the 750-hectare reclamation project have been reclaimed, and the rest of the 592.15
hectares are still submerged areas forming part of Manila Bay.

Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's
"actual cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own
expense, the reclamation of the Freedom Islands. AMARI will further shoulder all the
reclamation costs of all the other areas, totaling 592.15 hectares, still to be reclaimed. AMARI
and PEA will share, in the proportion of 70 percent and 30 percent, respectively, the total net
usable area which is defined in the Amended JVA as the total reclaimed area less 30 percent
earmarked for common areas. Title to AMARI's share in the net usable area, totaling 367.5
hectares, will be issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides
that –

"x x x, PEA shall have the duty to execute without delay the necessary deed of transfer
or conveyance of the title pertaining to AMARI's Land share based on the Land
Allocation Plan. PEA, when requested in writing by AMARI, shall then cause the
issuance and delivery of the proper certificates of title covering AMARI's Land
Share in the name of AMARI, x x x; provided, that if more than seventy percent (70%)
of the titled area at any given time pertains to AMARI, PEA shall deliver to AMARI only
seventy percent (70%) of the titles pertaining to AMARI, until such time when a
corresponding proportionate area of additional land pertaining to PEA has been titled."
(Emphasis supplied)

Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5
hectares of reclaimed land which will be titled in its name.

To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint
venture PEA's statutory authority, rights and privileges to reclaim foreshore and submerged
areas in Manila Bay. Section 3.2.a of the Amended JVA states that –

"PEA hereby contributes to the joint venture its rights and privileges to perform Rawland
Reclamation and Horizontal Development as well as own the Reclamation Area, thereby
granting the Joint Venture the full and exclusive right, authority and privilege to
undertake the Project in accordance with the Master Development Plan."

The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and
its supplemental agreement dated August 9, 1995.

The Threshold Issue


The threshold issue is whether AMARI, a private corporation, can acquire and own under the
Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in
view of Sections 2 and 3, Article XII of the 1987 Constitution which state that:

"Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. x x x.

xxx

Section 3. x x x Alienable lands of the public domain shall be limited to agricultural


lands. Private corporations or associations may not hold such alienable lands of
the public domain except by lease, x x x."(Emphasis supplied)

Classification of Reclaimed Foreshore and Submerged Areas

PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay
are alienable or disposable lands of the public domain. In its Memorandum,67 PEA admits that –

"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified as
alienable and disposable lands of the public domain:

'Sec. 59. The lands disposable under this title shall be classified as follows:

(a) Lands reclaimed by the government by dredging, filling, or other means;

x x x.'" (Emphasis supplied)

Likewise, the Legal Task Force68 constituted under Presidential Administrative Order No. 365
admitted in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed
lands are classified as alienable and disposable lands of the public domain."69 The Legal
Task Force concluded that –

"D. Conclusion

Reclaimed lands are lands of the public domain. However, by statutory authority, the
rights of ownership and disposition over reclaimed lands have been transferred to PEA,
by virtue of which PEA, as owner, may validly convey the same to any qualified person
without violating the Constitution or any statute.

The constitutional provision prohibiting private corporations from holding public land,
except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to reclaimed
lands whose ownership has passed on to PEA by statutory grant."

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources"
and consequently "owned by the State." As such, foreshore and submerged areas "shall not be
alienated," unless they are classified as "agricultural lands" of the public domain. The mere
reclamation of these areas by PEA does not convert these inalienable natural resources of the
State into alienable or disposable lands of the public domain. There must be a law or
presidential proclamation officially classifying these reclaimed lands as alienable or disposable
and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as
alienable or disposable if the law has reserved them for some public or quasi-public use.71

Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or
concession which have been officially delimited and classified."72 The President has the
authority to classify inalienable lands of the public domain into alienable or disposable lands of
the public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia,73 the Executive
Department attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by
the Philippine Government for use as the Chancery of the Philippine Embassy. Although the
Chancery had transferred to another location thirteen years earlier, the Court still ruled that,
under Article 42274 of the Civil Code, a property of public dominion retains such character until
formally declared otherwise. The Court ruled that –

"The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be part of the public
domain, not available for private appropriation or ownership 'until there is a formal
declaration on the part of the government to withdraw it from being such' (Ignacio
v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)

PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for
lands reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19,
1988 then President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for
the 157.84 hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April
9, 1999 the Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311
and 7312 in the name of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance
of certificates of title corresponding to land patents. To this day, these certificates of title are still
in the name of PEA.

PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the
Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as
alienable or disposable lands of the public domain. PD No. 1085 and President Aquino's
issuance of a land patent also constitute a declaration that the Freedom Islands are no longer
needed for public service. The Freedom Islands are thus alienable or disposable lands of
the public domain, open to disposition or concession to qualified parties.

At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed
the Freedom Islands although subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these islands. Thus, the Freedom
Islands were no longer part of Manila Bay but part of the land mass. Section 3, Article XII of the
1987 Constitution classifies lands of the public domain into "agricultural, forest or timber, mineral
lands, and national parks." Being neither timber, mineral, nor national park lands, the reclaimed
Freedom Islands necessarily fall under the classification of agricultural lands of the public
domain. Under the 1987 Constitution, agricultural lands of the public domain are the only natural
resources that the State may alienate to qualified private parties. All other natural resources,
such as the seas or bays, are "waters x x x owned by the State" forming part of the public
domain, and are inalienable pursuant to Section 2, Article XII of the 1987 Constitution.

AMARI claims that the Freedom Islands are private lands because CDCP, then a private
corporation, reclaimed the islands under a contract dated November 20, 1973 with the
Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law of Waters of
1866, argues that "if the ownership of reclaimed lands may be given to the party constructing
the works, then it cannot be said that reclaimed lands are lands of the public domain which the
State may not alienate."75 Article 5 of the Spanish Law of Waters reads as follows:

"Article 5. Lands reclaimed from the sea in consequence of works constructed by the
State, or by the provinces, pueblos or private persons, with proper permission, shall
become the property of the party constructing such works, unless otherwise provided
by the terms of the grant of authority." (Emphasis supplied)

Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea
only with "proper permission" from the State. Private parties could own the reclaimed land only if
not "otherwise provided by the terms of the grant of authority." This clearly meant that no one
could reclaim from the sea without permission from the State because the sea is property of
public dominion. It also meant that the State could grant or withhold ownership of the reclaimed
land because any reclaimed land, like the sea from which it emerged, belonged to the State.
Thus, a private person reclaiming from the sea without permission from the State could not
acquire ownership of the reclaimed land which would remain property of public dominion like the
sea it replaced.76 Article 5 of the Spanish Law of Waters of 1866 adopted the time-honored
principle of land ownership that "all lands that were not acquired from the government, either by
purchase or by grant, belong to the public domain."77

Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted
on the disposition of public lands. In particular, CA No. 141 requires that lands of the public
domain must first be classified as alienable or disposable before the government can alienate
them. These lands must not be reserved for public or quasi-public purposes.78 Moreover, the
contract between CDCP and the government was executed after the effectivity of the 1973
Constitution which barred private corporations from acquiring any kind of alienable land of the
public domain. This contract could not have converted the Freedom Islands into private lands of
a private corporation.

Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the
reclamation of areas under water and revested solely in the National Government the power to
reclaim lands. Section 1 of PD No. 3-A declared that –

"The provisions of any law to the contrary notwithstanding, the reclamation of areas
under water, whether foreshore or inland, shall be limited to the National Government
or any person authorized by it under a proper contract. (Emphasis supplied)

x x x."

PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of
areas under water could now be undertaken only by the National Government or by a person
contracted by the National Government. Private parties may reclaim from the sea only under a
contract with the National Government, and no longer by grant or permission as provided in
Section 5 of the Spanish Law of Waters of 1866.

Executive Order No. 525, issued on February 14, 1979, designated PEA as the National
Government's implementing arm to undertake "all reclamation projects of the government,"
which "shall be undertaken by the PEA or through a proper contract executed by it with
any person or entity." Under such contract, a private party receives compensation for
reclamation services rendered to PEA. Payment to the contractor may be in cash, or in kind
consisting of portions of the reclaimed land, subject to the constitutional ban on private
corporations from acquiring alienable lands of the public domain. The reclaimed land can be
used as payment in kind only if the reclaimed land is first classified as alienable or disposable
land open to disposition, and then declared no longer needed for public service.

The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares
which are still submerged and forming part of Manila Bay. There is no legislative or
Presidential act classifying these submerged areas as alienable or disposable lands of
the public domain open to disposition. These submerged areas are not covered by any
patent or certificate of title. There can be no dispute that these submerged areas form part of
the public domain, and in their present state are inalienable and outside the commerce of
man. Until reclaimed from the sea, these submerged areas are, under the Constitution, "waters
x x x owned by the State," forming part of the public domain and consequently inalienable. Only
when actually reclaimed from the sea can these submerged areas be classified as public
agricultural lands, which under the Constitution are the only natural resources that the State
may alienate. Once reclaimed and transformed into public agricultural lands, the government
may then officially classify these lands as alienable or disposable lands open to disposition.
Thereafter, the government may declare these lands no longer needed for public service. Only
then can these reclaimed lands be considered alienable or disposable lands of the public
domain and within the commerce of man.

The classification of PEA's reclaimed foreshore and submerged lands into alienable or
disposable lands open to disposition is necessary because PEA is tasked under its charter to
undertake public services that require the use of lands of the public domain. Under Section 5 of
PD No. 1084, the functions of PEA include the following: "[T]o own or operate railroads,
tramways and other kinds of land transportation, x x x; [T]o construct, maintain and operate
such systems of sanitary sewers as may be necessary; [T]o construct, maintain and operate
such storm drains as may be necessary." PEA is empowered to issue "rules and regulations as
may be necessary for the proper use by private parties of any or all of the highways, roads,
utilities, buildings and/or any of its properties and to impose or collect fees or tolls for their
use." Thus, part of the reclaimed foreshore and submerged lands held by the PEA would
actually be needed for public use or service since many of the functions imposed on PEA by its
charter constitute essential public services.

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily
responsible for integrating, directing, and coordinating all reclamation projects for and on behalf
of the National Government." The same section also states that "[A]ll reclamation projects shall
be approved by the President upon recommendation of the PEA, and shall be undertaken by
the PEA or through a proper contract executed by it with any person or entity; x x x." Thus,
under EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became the primary
implementing agency of the National Government to reclaim foreshore and submerged lands of
the public domain. EO No. 525 recognized PEA as the government entity "to undertake the
reclamation of lands and ensure their maximum utilization in promoting public welfare and
interests."79 Since large portions of these reclaimed lands would obviously be needed for public
service, there must be a formal declaration segregating reclaimed lands no longer needed for
public service from those still needed for public service.1âwphi1.nêt

Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be
owned by the PEA," could not automatically operate to classify inalienable lands into alienable
or disposable lands of the public domain. Otherwise, reclaimed foreshore and submerged lands
of the public domain would automatically become alienable once reclaimed by PEA, whether or
not classified as alienable or disposable.

The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525,
vests in the Department of Environment and Natural Resources ("DENR" for brevity) the
following powers and functions:

"Sec. 4. Powers and Functions. The Department shall:

(1) x x x

xxx

(4) Exercise supervision and control over forest lands, alienable and disposable
public lands, mineral resources and, in the process of exercising such control, impose
appropriate taxes, fees, charges, rentals and any such form of levy and collect such
revenues for the exploration, development, utilization or gathering of such resources;

xxx

(14) Promulgate rules, regulations and guidelines on the issuance of licenses,


permits, concessions, lease agreements and such other privileges concerning the
development, exploration and utilization of the country's marine, freshwater, and
brackish water and over all aquatic resources of the country and shall continue to
oversee, supervise and police our natural resources; cancel or cause to cancel such
privileges upon failure, non-compliance or violations of any regulation, order, and for all
other causes which are in furtherance of the conservation of natural resources and
supportive of the national interest;

(15) Exercise exclusive jurisdiction on the management and disposition of all


lands of the public domain and serve as the sole agency responsible for
classification, sub-classification, surveying and titling of lands in consultation with
appropriate agencies."80 (Emphasis supplied)

As manager, conservator and overseer of the natural resources of the State, DENR exercises
"supervision and control over alienable and disposable public lands." DENR also exercises
"exclusive jurisdiction on the management and disposition of all lands of the public domain."
Thus, DENR decides whether areas under water, like foreshore or submerged areas of Manila
Bay, should be reclaimed or not. This means that PEA needs authorization from DENR before
PEA can undertake reclamation projects in Manila Bay, or in any part of the country.

DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain.
Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under
Sections 681 and 782 of CA No. 141. Once DENR decides that the reclaimed lands should be so
classified, it then recommends to the President the issuance of a proclamation classifying the
lands as alienable or disposable lands of the public domain open to disposition. We note that
then DENR Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in
compliance with the Revised Administrative Code and Sections 6 and 7 of CA No. 141.

In short, DENR is vested with the power to authorize the reclamation of areas under water,
while PEA is vested with the power to undertake the physical reclamation of areas under water,
whether directly or through private contractors. DENR is also empowered to classify lands of the
public domain into alienable or disposable lands subject to the approval of the President. On the
other hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public
domain.

Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not
make the reclaimed lands alienable or disposable lands of the public domain, much less
patrimonial lands of PEA. Likewise, the mere transfer by the National Government of lands of
the public domain to PEA does not make the lands alienable or disposable lands of the public
domain, much less patrimonial lands of PEA.

Absent two official acts – a classification that these lands are alienable or disposable and open
to disposition and a declaration that these lands are not needed for public service, lands
reclaimed by PEA remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into alienable or disposable
lands of the public domain, open to disposition under the Constitution, Title I and Title III83 of CA
No. 141 and other applicable laws.84

PEA's Authority to Sell Reclaimed Lands

PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public
domain, the reclaimed lands shall be disposed of in accordance with CA No. 141, the Public
Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed lands transferred to a
branch or subdivision of the government "shall not be alienated, encumbered, or otherwise
disposed of in a manner affecting its title, except when authorized by Congress: x x
x."85 (Emphasis by PEA)

In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of 1987,
which states that –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following: x x x."

Thus, the Court concluded that a law is needed to convey any real property belonging to the
Government. The Court declared that -

"It is not for the President to convey real property of the government on his or her own
sole will. Any such conveyance must be authorized and approved by a law enacted
by the Congress. It requires executive and legislative concurrence." (Emphasis
supplied)

PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing
PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that –

"The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to
the contract for the reclamation and construction of the Manila-Cavite Coastal Road
Project between the Republic of the Philippines and the Construction and Development
Corporation of the Philippines dated November 20, 1973 and/or any other contract or
reclamation covering the same area is hereby transferred, conveyed and assigned to
the ownership and administration of the Public Estates Authority established
pursuant to PD No. 1084; Provided, however, That the rights and interests of the
Construction and Development Corporation of the Philippines pursuant to the aforesaid
contract shall be recognized and respected.

Henceforth, the Public Estates Authority shall exercise the rights and assume the
obligations of the Republic of the Philippines (Department of Public Highways) arising
from, or incident to, the aforesaid contract between the Republic of the Philippines and
the Construction and Development Corporation of the Philippines.

In consideration of the foregoing transfer and assignment, the Public Estates Authority
shall issue in favor of the Republic of the Philippines the corresponding shares of stock
in said entity with an issued value of said shares of stock (which) shall be deemed fully
paid and non-assessable.

The Secretary of Public Highways and the General Manager of the Public Estates
Authority shall execute such contracts or agreements, including appropriate agreements
with the Construction and Development Corporation of the Philippines, as may be
necessary to implement the above.

Special land patent/patents shall be issued by the Secretary of Natural Resources


in favor of the Public Estates Authority without prejudice to the subsequent
transfer to the contractor or his assignees of such portion or portions of the land
reclaimed or to be reclaimed as provided for in the above-mentioned contract. On
the basis of such patents, the Land Registration Commission shall issue the
corresponding certificate of title." (Emphasis supplied)

On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that -

"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the PEA which
shall be responsible for its administration, development, utilization or disposition in
accordance with the provisions of Presidential Decree No. 1084. Any and all income that
the PEA may derive from the sale, lease or use of reclaimed lands shall be used in
accordance with the provisions of Presidential Decree No. 1084."

There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its
reclaimed lands. PD No. 1085 merely transferred "ownership and administration" of lands
reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA
"shall belong to or be owned by PEA." EO No. 525 expressly states that PEA should dispose of
its reclaimed lands "in accordance with the provisions of Presidential Decree No. 1084," the
charter of PEA.

PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed,
controlled and/or operated by the government."87(Emphasis supplied) There is, therefore,
legislative authority granted to PEA to sell its lands, whether patrimonial or alienable
lands of the public domain. PEA may sell to private parties its patrimonial propertiesin
accordance with the PEA charter free from constitutional limitations. The constitutional ban on
private corporations from acquiring alienable lands of the public domain does not apply to the
sale of PEA's patrimonial lands.

PEA may also sell its alienable or disposable lands of the public domain to private
individuals since, with the legislative authority, there is no longer any statutory prohibition
against such sales and the constitutional ban does not apply to individuals. PEA, however,
cannot sell any of its alienable or disposable lands of the public domain to private corporations
since Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The
legislative authority benefits only individuals. Private corporations remain barred from acquiring
any kind of alienable land of the public domain, including government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred
by PEA to the "contractor or his assignees" (Emphasis supplied) would not apply to private
corporations but only to individuals because of the constitutional ban. Otherwise, the provisions
of PD No. 1085 would violate both the 1973 and 1987 Constitutions.

The requirement of public auction in the sale of reclaimed lands

Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to
disposition, and further declared no longer needed for public service, PEA would have to
conduct a public bidding in selling or leasing these lands. PEA must observe the provisions of
Sections 63 and 67 of CA No. 141 requiring public auction, in the absence of a law exempting
PEA from holding a public auction.88 Special Patent No. 3517 expressly states that the patent is
issued by authority of the Constitution and PD No. 1084, "supplemented by Commonwealth Act
No. 141, as amended." This is an acknowledgment that the provisions of CA No. 141 apply to
the disposition of reclaimed alienable lands of the public domain unless otherwise provided by
law. Executive Order No. 654,89 which authorizes PEA "to determine the kind and manner of
payment for the transfer" of its assets and properties, does not exempt PEA from the
requirement of public auction. EO No. 654 merely authorizes PEA to decide the mode of
payment, whether in kind and in installment, but does not authorize PEA to dispense with public
auction.

Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing
Code, the government is required to sell valuable government property through public bidding.
Section 79 of PD No. 1445 mandates that –

"Section 79. When government property has become unserviceable for any cause, or
is no longer needed, it shall, upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized representative in the
presence of the auditor concerned and, if found to be valueless or unsaleable, it may be
destroyed in their presence. If found to be valuable, it may be sold at public auction
to the highest bidder under the supervision of the proper committee on award or
similar body in the presence of the auditor concerned or other authorized representative
of the Commission, after advertising by printed notice in the Official Gazette, or for
not less than three consecutive days in any newspaper of general circulation, or
where the value of the property does not warrant the expense of publication, by notices
posted for a like period in at least three public places in the locality where the property is
to be sold. In the event that the public auction fails, the property may be sold at a
private sale at such price as may be fixed by the same committee or body
concerned and approved by the Commission."

It is only when the public auction fails that a negotiated sale is allowed, in which case the
Commission on Audit must approve the selling price.90 The Commission on Audit implements
Section 79 of the Government Auditing Code through Circular No. 89-29691 dated January 27,
1989. This circular emphasizes that government assets must be disposed of only through public
auction, and a negotiated sale can be resorted to only in case of "failure of public auction."

At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed
foreshore and submerged alienable lands of the public domain. Private corporations are barred
from bidding at the auction sale of any kind of alienable land of the public domain.

PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA
imposed a condition that the winning bidder should reclaim another 250 hectares of submerged
areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional
reclaimed areas in favor of the winning bidder.92 No one, however, submitted a bid. On
December 23, 1994, the Government Corporate Counsel advised PEA it could sell the Freedom
Islands through negotiation, without need of another public bidding, because of the failure of the
public bidding on December 10, 1991.93

However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the
additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim
another 350 hectares. The original JVA, a negotiated contract, enlarged the reclamation area
to 750 hectares.94 The failure of public bidding on December 10, 1991, involving only 407.84
hectares,95 is not a valid justification for a negotiated sale of 750 hectares, almost double the
area publicly auctioned. Besides, the failure of public bidding happened on December 10, 1991,
more than three years before the signing of the original JVA on April 25, 1995. The economic
situation in the country had greatly improved during the intervening period.

Reclamation under the BOT Law and the Local Government Code

The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and
clear: "Private corporations or associations may not hold such alienable lands of the public
domain except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by
PEA and AMARI as legislative authority to sell reclaimed lands to private parties, recognizes the
constitutional ban. Section 6 of RA No. 6957 states –

"Sec. 6. Repayment Scheme. - For the financing, construction, operation and


maintenance of any infrastructure projects undertaken through the build-operate-and-
transfer arrangement or any of its variations pursuant to the provisions of this Act, the
project proponent x x x may likewise be repaid in the form of a share in the revenue of
the project or other non-monetary payments, such as, but not limited to, the grant of a
portion or percentage of the reclaimed land, subject to the constitutional
requirements with respect to the ownership of the land: x x x." (Emphasis supplied)

A private corporation, even one that undertakes the physical reclamation of a government BOT
project, cannot acquire reclaimed alienable lands of the public domain in view of the
constitutional ban.

Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes
local governments in land reclamation projects to pay the contractor or developer in kind
consisting of a percentage of the reclaimed land, to wit:

"Section 302. Financing, Construction, Maintenance, Operation, and Management of


Infrastructure Projects by the Private Sector. x x x

xxx

In case of land reclamation or construction of industrial estates, the repayment plan may
consist of the grant of a portion or percentage of the reclaimed land or the industrial
estate constructed."

Although Section 302 of the Local Government Code does not contain a proviso similar to that
of the BOT Law, the constitutional restrictions on land ownership automatically apply even
though not expressly mentioned in the Local Government Code.

Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if
a corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the
contractor or developer is an individual, portions of the reclaimed land, not exceeding 12
hectares96 of non-agricultural lands, may be conveyed to him in ownership in view of the
legislative authority allowing such conveyance. This is the only way these provisions of the BOT
Law and the Local Government Code can avoid a direct collision with Section 3, Article XII of
the 1987 Constitution.

Registration of lands of the public domain

Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public
respondent PEA transformed such lands of the public domain to private lands." This theory is
echoed by AMARI which maintains that the "issuance of the special patent leading to the
eventual issuance of title takes the subject land away from the land of public domain and
converts the property into patrimonial or private property." In short, PEA and AMARI contend
that with the issuance of Special Patent No. 3517 and the corresponding certificates of titles, the
157.84 hectares comprising the Freedom Islands have become private lands of PEA. In support
of their theory, PEA and AMARI cite the following rulings of the Court:
1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –

"Once the patent was granted and the corresponding certificate of title was issued, the
land ceased to be part of the public domain and became private property over which the
Director of Lands has neither control nor jurisdiction."

2. Lee Hong Hok v. David,98 where the Court declared -

"After the registration and issuance of the certificate and duplicate certificate of title
based on a public land patent, the land covered thereby automatically comes under the
operation of Republic Act 496 subject to all the safeguards provided therein."3. Heirs of
Gregorio Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled -

"While the Director of Lands has the power to review homestead patents, he may do so
only so long as the land remains part of the public domain and continues to be under his
exclusive control; but once the patent is registered and a certificate of title is issued, the
land ceases to be part of the public domain and becomes private property over which
the Director of Lands has neither control nor jurisdiction."

4. Manalo v. Intermediate Appellate Court,100 where the Court held –

"When the lots in dispute were certified as disposable on May 19, 1971, and free patents
were issued covering the same in favor of the private respondents, the said lots ceased
to be part of the public domain and, therefore, the Director of Lands lost jurisdiction over
the same."

5.Republic v. Court of Appeals,101 where the Court stated –

"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally effected
a land grant to the Mindanao Medical Center, Bureau of Medical Services, Department
of Health, of the whole lot, validly sufficient for initial registration under the Land
Registration Act. Such land grant is constitutive of a 'fee simple' title or absolute title in
favor of petitioner Mindanao Medical Center. Thus, Section 122 of the Act, which
governs the registration of grants or patents involving public lands, provides that
'Whenever public lands in the Philippine Islands belonging to the Government of the
United States or to the Government of the Philippines are alienated, granted or
conveyed to persons or to public or private corporations, the same shall be brought
forthwith under the operation of this Act (Land Registration Act, Act 496) and shall
become registered lands.'"

The first four cases cited involve petitions to cancel the land patents and the corresponding
certificates of titles issued to private parties. These four cases uniformly hold that the Director
of Lands has no jurisdiction over private lands or that upon issuance of the certificate of title the
land automatically comes under the Torrens System. The fifth case cited involves the
registration under the Torrens System of a 12.8-hectare public land granted by the National
Government to Mindanao Medical Center, a government unit under the Department of Health.
The National Government transferred the 12.8-hectare public land to serve as the site for the
hospital buildings and other facilities of Mindanao Medical Center, which performed a public
service. The Court affirmed the registration of the 12.8-hectare public land in the name of
Mindanao Medical Center under Section 122 of Act No. 496. This fifth case is an example of a
public land being registered under Act No. 496 without the land losing its character as a
property of public dominion.

In the instant case, the only patent and certificates of title issued are those in the name of PEA,
a wholly government owned corporation performing public as well as proprietary functions. No
patent or certificate of title has been issued to any private party. No one is asking the Director of
Lands to cancel PEA's patent or certificates of title. In fact, the thrust of the instant petition is
that PEA's certificates of title should remain with PEA, and the land covered by these
certificates, being alienable lands of the public domain, should not be sold to a private
corporation.
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or
public ownership of the land. Registration is not a mode of acquiring ownership but is merely
evidence of ownership previously conferred by any of the recognized modes of acquiring
ownership. Registration does not give the registrant a better right than what the registrant had
prior to the registration.102 The registration of lands of the public domain under the Torrens
system, by itself, cannot convert public lands into private lands.103

Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the
alienable land of the public domain automatically becomes private land cannot apply to
government units and entities like PEA. The transfer of the Freedom Islands to PEA was made
subject to the provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued
by then President Aquino, to wit:

"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the Philippines
and in conformity with the provisions of Presidential Decree No. 1084, supplemented
by Commonwealth Act No. 141, as amended, there are hereby granted and conveyed
unto the Public Estates Authority the aforesaid tracts of land containing a total area of
one million nine hundred fifteen thousand eight hundred ninety four (1,915,894) square
meters; the technical description of which are hereto attached and made an integral part
hereof." (Emphasis supplied)

Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD
No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale
of alienable lands of the public domain that are transferred to government units or entities.
Section 60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a "statutory lien
affecting title" of the registered land even if not annotated on the certificate of title.104Alienable
lands of the public domain held by government entities under Section 60 of CA No. 141 remain
public lands because they cannot be alienated or encumbered unless Congress passes a law
authorizing their disposition. Congress, however, cannot authorize the sale to private
corporations of reclaimed alienable lands of the public domain because of the constitutional
ban. Only individuals can benefit from such law.

The grant of legislative authority to sell public lands in accordance with Section 60 of CA No.
141 does not automatically convert alienable lands of the public domain into private or
patrimonial lands. The alienable lands of the public domain must be transferred to qualified
private parties, or to government entities not tasked to dispose of public lands, before these
lands can become private or patrimonial lands. Otherwise, the constitutional ban will become
illusory if Congress can declare lands of the public domain as private or patrimonial lands in the
hands of a government agency tasked to dispose of public lands. This will allow private
corporations to acquire directly from government agencies limitless areas of lands which, prior
to such law, are concededly public lands.

Under EO No. 525, PEA became the central implementing agency of the National
Government to reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525
declares that –

"EXECUTIVE ORDER NO. 525

Designating the Public Estates Authority as the Agency Primarily Responsible for all
Reclamation Projects

Whereas, there are several reclamation projects which are ongoing or being proposed to
be undertaken in various parts of the country which need to be evaluated for consistency
with national programs;

Whereas, there is a need to give further institutional support to the Government's


declared policy to provide for a coordinated, economical and efficient reclamation of
lands;

Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be
limited to the National Government or any person authorized by it under proper contract;
Whereas, a central authority is needed to act on behalf of the National
Government which shall ensure a coordinated and integrated approach in the
reclamation of lands;

Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a
government corporation to undertake reclamation of lands and ensure their
maximum utilization in promoting public welfare and interests; and

Whereas, Presidential Decree No. 1416 provides the President with continuing authority
to reorganize the national government including the transfer, abolition, or merger of
functions and offices.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by


virtue of the powers vested in me by the Constitution and pursuant to Presidential
Decree No. 1416, do hereby order and direct the following:

Section 1. The Public Estates Authority (PEA) shall be primarily responsible for
integrating, directing, and coordinating all reclamation projects for and on behalf
of the National Government. All reclamation projects shall be approved by the
President upon recommendation of the PEA, and shall be undertaken by the PEA or
through a proper contract executed by it with any person or entity; Provided, that,
reclamation projects of any national government agency or entity authorized under its
charter shall be undertaken in consultation with the PEA upon approval of the President.

x x x ."

As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being
leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes
of other alienable lands, does not dispose of private lands but alienable lands of the public
domain. Only when qualified private parties acquire these lands will the lands become private
lands. In the hands of the government agency tasked and authorized to dispose of
alienable of disposable lands of the public domain, these lands are still public, not
private lands.

Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain"
as well as "any and all kinds of lands." PEA can hold both lands of the public domain and
private lands. Thus, the mere fact that alienable lands of the public domain like the Freedom
Islands are transferred to PEA and issued land patents or certificates of title in PEA's name
does not automatically make such lands private.

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private
lands will sanction a gross violation of the constitutional ban on private corporations from
acquiring any kind of alienable land of the public domain. PEA will simply turn around, as PEA
has now done under the Amended JVA, and transfer several hundreds of hectares of these
reclaimed and still to be reclaimed lands to a single private corporation in only one transaction.
This scheme will effectively nullify the constitutional ban in Section 3, Article XII of the 1987
Constitution which was intended to diffuse equitably the ownership of alienable lands of the
public domain among Filipinos, now numbering over 80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain
since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to
corporations and even individuals acquiring hundreds of hectares of alienable lands of the
public domain under the guise that in the hands of PEA these lands are private lands. This will
result in corporations amassing huge landholdings never before seen in this country - creating
the very evil that the constitutional ban was designed to prevent. This will completely reverse
the clear direction of constitutional development in this country. The 1935 Constitution allowed
private corporations to acquire not more than 1,024 hectares of public lands.105 The 1973
Constitution prohibited private corporations from acquiring any kind of public land, and the 1987
Constitution has unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD
No. 1529, automatically become private lands is contrary to existing laws. Several laws
authorize lands of the public domain to be registered under the Torrens System or Act No. 496,
now PD No. 1529, without losing their character as public lands. Section 122 of Act No. 496,
and Section 103 of PD No. 1529, respectively, provide as follows:

Act No. 496

"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x
Government of the Philippine Islands are alienated, granted, or conveyed to persons or
the public or private corporations, the same shall be brought forthwith under the
operation of this Act and shall become registered lands."

PD No. 1529

"Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government
alienated, granted or conveyed to any person, the same shall be brought forthwith
under the operation of this Decree." (Emphasis supplied)

Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No.
1529 includes conveyances of public lands to public corporations.

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


municipality, or branch or subdivision of the Government," as provided in Section 60 of CA No.
141, may be registered under the Torrens System pursuant to Section 103 of PD No. 1529.
Such registration, however, is expressly subject to the condition in Section 60 of CA No. 141
that the land "shall not be alienated, encumbered or otherwise disposed of in a manner
affecting its title, except when authorized by Congress." This provision refers to government
reclaimed, foreshore and marshy lands of the public domain that have been titled but still cannot
be alienated or encumbered unless expressly authorized by Congress. The need for legislative
authority prevents the registered land of the public domain from becoming private land that can
be disposed of to qualified private parties.

The Revised Administrative Code of 1987 also recognizes that lands of the public domain may
be registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states –

"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:

(1) x x x

(2) For property belonging to the Republic of the Philippines, but titled in the name
of any political subdivision or of any corporate agency or instrumentality, by the
executive head of the agency or instrumentality." (Emphasis supplied)

Thus, private property purchased by the National Government for expansion of a public wharf
may be titled in the name of a government corporation regulating port operations in the country.
Private property purchased by the National Government for expansion of an airport may also be
titled in the name of the government agency tasked to administer the airport. Private property
donated to a municipality for use as a town plaza or public school site may likewise be titled in
the name of the municipality.106 All these properties become properties of the public domain,
and if already registered under Act No. 496 or PD No. 1529, remain registered land. There is no
requirement or provision in any existing law for the de-registration of land from the Torrens
System.

Private lands taken by the Government for public use under its power of eminent domain
become unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529
authorizes the Register of Deeds to issue in the name of the National Government new
certificates of title covering such expropriated lands. Section 85 of PD No. 1529 states –
"Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest
therein, is expropriated or taken by eminent domain, the National Government, province,
city or municipality, or any other agency or instrumentality exercising such right shall file
for registration in the proper Registry a certified copy of the judgment which shall state
definitely by an adequate description, the particular property or interest expropriated, the
number of the certificate of title, and the nature of the public use. A memorandum of the
right or interest taken shall be made on each certificate of title by the Register of Deeds,
and where the fee simple is taken, a new certificate shall be issued in favor of the
National Government, province, city, municipality, or any other agency or
instrumentality exercising such right for the land so taken. The legal expenses incident to
the memorandum of registration or issuance of a new certificate of title shall be for the
account of the authority taking the land or interest therein." (Emphasis supplied)

Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or
patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws.

AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom
Islands or of the lands to be reclaimed from submerged areas of Manila Bay. In the words of
AMARI, the Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement
of the original cost incurred by PEA for the earlier reclamation and construction works
performed by the CDCP under its 1973 contract with the Republic." Whether the Amended JVA
is a sale or a joint venture, the fact remains that the Amended JVA requires PEA to "cause the
issuance and delivery of the certificates of title conveying AMARI's Land Share in the name of
AMARI."107

This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides
that private corporations "shall not hold such alienable lands of the public domain except by
lease." The transfer of title and ownership to AMARI clearly means that AMARI will "hold" the
reclaimed lands other than by lease. The transfer of title and ownership is a "disposition" of the
reclaimed lands, a transaction considered a sale or alienation under CA No. 141,108 the
Government Auditing Code,109 and Section 3, Article XII of the 1987 Constitution.

The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas
form part of the public domain and are inalienable. Lands reclaimed from foreshore and
submerged areas also form part of the public domain and are also inalienable, unless converted
pursuant to law into alienable or disposable lands of the public domain. Historically, lands
reclaimed by the government are sui generis, not available for sale to private parties unlike
other alienable public lands. Reclaimed lands retain their inherent potential as areas for public
use or public service. Alienable lands of the public domain, increasingly becoming scarce
natural resources, are to be distributed equitably among our ever-growing population. To insure
such equitable distribution, the 1973 and 1987 Constitutions have barred private corporations
from acquiring any kind of alienable land of the public domain. Those who attempt to dispose of
inalienable natural resources of the State, or seek to circumvent the constitutional ban on
alienation of lands of the public domain to private corporations, do so at their own risk.

We can now summarize our conclusions as follows:

1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now
covered by certificates of title in the name of PEA, are alienable lands of the public
domain. PEA may lease these lands to private corporations but may not sell or transfer
ownership of these lands to private corporations. PEA may only sell these lands to
Philippine citizens, subject to the ownership limitations in the 1987 Constitution and
existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural
resources of the public domain until classified as alienable or disposable lands open to
disposition and declared no longer needed for public service. The government can make
such classification and declaration only after PEA has reclaimed these submerged
areas. Only then can these lands qualify as agricultural lands of the public domain,
which are the only natural resources the government can alienate. In their present state,
the 592.15 hectares of submerged areas are inalienable and outside the commerce
of man.

3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership
of 77.34 hectares110of the Freedom Islands, such transfer is void for being contrary to
Section 3, Article XII of the 1987 Constitution which prohibits private corporations from
acquiring any kind of alienable land of the public domain.

4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156
hectares111 of still submerged areas of Manila Bay, such transfer is void for being
contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation of
natural resources other than agricultural lands of the public domain. PEA may reclaim
these submerged areas. Thereafter, the government can classify the reclaimed lands as
alienable or disposable, and further declare them no longer needed for public service.
Still, the transfer of such reclaimed alienable lands of the public domain to AMARI will be
void in view of Section 3, Article XII of the 1987 Constitution which prohibits private
corporations from acquiring any kind of alienable land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987
Constitution. Under Article 1409112 of the Civil Code, contracts whose "object or purpose is
contrary to law," or whose "object is outside the commerce of men," are "inexistent and void
from the beginning." The Court must perform its duty to defend and uphold the Constitution, and
therefore declares the Amended JVA null and void ab initio.

Seventh issue: whether the Court is the proper forum to raise the issue of whether the
Amended JVA is grossly disadvantageous to the government.

Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this
last issue. Besides, the Court is not a trier of facts, and this last issue involves a determination
of factual matters.

WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay
Development Corporation are PERMANENTLY ENJOINED from implementing the Amended
Joint Venture Agreement which is hereby declared NULL and VOID ab initio.

SO ORDERED.
G.R. No. L-43938 April 15, 1988

REPUBLIC OF THE PHILIPPINES (DIRECTOR OF FOREST DEVELOPMENT), petitioner,


vs.
HON. COURT OF APPEALS (THIRD DIVISION) and JOSE Y. DE LA ROSA, respondents.

G.R. No. L-44081 April 15, 1988

BENGUET CONSOLIDATED, INC., petitioner,


vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORIA, BENJAMIN and
EDUARDO, all surnamed DE LA ROSA, represented by their father JOSE Y. DE LA
ROSA, respondents.

G.R. No. L-44092 April 15, 1988

ATOK-BIG WEDGE MINING COMPANY, petitioner,


vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORlA, BENJAMIN and
EDUARDO, all surnamed DE LA ROSA, represented by their father, JOSE Y. DE LA
ROSA, respondents.

CRUZ, J.:

The Regalian doctrine reserves to the State all natural wealth that may be found in the bowels
of the earth even if the land where the discovery is made be private. 1 In the cases at bar, which
have been consolidated because they pose a common issue, this doctrine was not correctly
applied.

These cases arose from the application for registration of a parcel of land filed on February 11,
1965, by Jose de la Rosa on his own behalf and on behalf of his three children, Victoria,
Benjamin and Eduardo. The land, situated in Tuding, Itogon, Benguet Province, was divided into
9 lots and covered by plan Psu-225009. According to the application, Lots 1-5 were sold to Jose
de la Rosa and Lots 6-9 to his children by Mamaya Balbalio and Jaime Alberto, respectively, in
1964. 2

The application was separately opposed by Benguet Consolidated, Inc. as to Lots 1-5, Atok Big
Wedge Corporation, as to Portions of Lots 1-5 and all of Lots 6-9, and by the Republic of the
Philippines, through the Bureau of Forestry Development, as to lots 1-9. 3

In support of the application, both Balbalio and Alberto testified that they had acquired the
subject land by virtue of prescription Balbalio claimed to have received Lots 1-5 from her father
shortly after the Liberation. She testified she was born in the land, which was possessed by her
parents under claim of ownership. 4 Alberto said he received Lots 6-9 in 1961 from his mother,
Bella Alberto, who declared that the land was planted by Jaime and his predecessors-in-interest
to bananas, avocado, nangka and camote, and was enclosed with a barbed-wire fence. She
was corroborated by Felix Marcos, 67 years old at the time, who recalled the earlier possession
of the land by Alberto's father. 5 Balbalio presented her tax declaration in 1956 and the realty tax
receipts from that year to 1964, 6 Alberto his tax declaration in 1961 and the realty tax receipts
from that year to 1964. 7

Benguet opposed on the ground that the June Bug mineral claim covering Lots 1-5 was sold to
it on September 22, 1934, by the successors-in-interest of James Kelly, who located the claim in
September 1909 and recorded it on October 14, 1909. From the date of its purchase, Benguet
had been in actual, continuous and exclusive possession of the land in concept of owner, as
evidenced by its construction of adits, its affidavits of annual assessment, its geological
mappings, geological samplings and trench side cuts, and its payment of taxes on the land. 8
For its part, Atok alleged that a portion of Lots 1-5 and all of Lots 6-9 were covered by the
Emma and Fredia mineral claims located by Harrison and Reynolds on December 25, 1930,
and recorded on January 2, 1931, in the office of the mining recorder of Baguio. These claims
were purchased from these locators on November 2, 1931, by Atok, which has since then been
in open, continuous and exclusive possession of the said lots as evidenced by its annual
assessment work on the claims, such as the boring of tunnels, and its payment of annual taxes
thereon. 9

The location of the mineral claims was made in accordance with Section 21 of the Philippine Bill
of 1902 which provided that:

SEC. 21. All valuable mineral deposits in public lands in the philippine Islands
both surveyed and unsurveyed are hereby declared to be free and open to
exploration, occupation and purchase and the land in which they are found to
occupation and purchase by the citizens of the United States, or of said islands.

The Bureau of Forestry Development also interposed its objection, arguing that the land sought
to be registered was covered by the Central Cordillera Forest Reserve under Proclamation No.
217 dated February 16, 1929. Moreover, by reason of its nature, it was not subject to alienation
under the Constitutions of 1935 and 1973. 10

The trial court * denied the application, holding that the applicants had failed to prove their claim
of possession and ownership of the land sought to be registered. 11 The applicants appealed to
the respondent court, * which reversed the trial court and recognized the claims of the applicant,
but subject to the rights of Benguet and Atok respecting their mining claims. 12 In other words,
the Court of Appeals affirmed the surface rights of the de la Rosas over the land while at the
same time reserving the sub-surface rights of Benguet and Atok by virtue of their mining claims.

Both Benguet and Atok have appealed to this Court, invoking their superior right of ownership.
The Republic has filed its own petition for review and reiterates its argument that neither the
private respondents nor the two mining companies have any valid claim to the land because it is
not alienable and registerable.

It is true that the subject property was considered forest land and included in the Central
Cordillera Forest Reserve, but this did not impair the rights already vested in Benguet and Atok
at that time. The Court of Appeals correctly declared that:

There is no question that the 9 lots applied for are within the June Bug mineral
claims of Benguet and the "Fredia and Emma" mineral claims of Atok. The June
Bug mineral claim of plaintiff Benguet was one of the 16 mining claims of James
E. Kelly, American and mining locator. He filed his declaration of the location of
the June Bug mineral and the same was recorded in the Mining Recorder's Office
on October 14, 1909. All of the Kelly claims ha subsequently been acquired by
Benguet Consolidated, Inc. Benguet's evidence is that it had made improvements
on the June Bug mineral claim consisting of mine tunnels prior to 1935. It had
submitted the required affidavit of annual assessment. After World War II,
Benguet introduced improvements on mineral claim June Bug, and also
conducted geological mappings, geological sampling and trench side cuts. In
1948, Benguet redeclared the "June Bug" for taxation and had religiously paid
the taxes.

The Emma and Fredia claims were two of the several claims of Harrison
registered in 1931, and which Atok representatives acquired. Portions of Lots 1
to 5 and all of Lots 6 to 9 are within the Emma and Fredia mineral claims of Atok
Big Wedge Mining Company.

The June Bug mineral claim of Benguet and the Fredia and Emma mineral
claims of Atok having been perfected prior to the approval of the Constitution of
the Philippines of 1935, they were removed from the public domain and had
become private properties of Benguet and Atok.
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 v. 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 afterwards 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. (Union Oil Co. v. Smith, 249 U.S. 337; Van Mess
v. Roonet, 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. v.
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 right 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) (Gold Creek Mining Corporation v. Hon.
Eulogio Rodriguez, Sec. of Agriculture and Commerce, and
Quirico Abadilla, Director of the Bureau of Mines, 66 Phil. 259,
265-266)

It is of no importance whether Benguet and Atok had secured a patent for as held
in the Gold Creek Mining Corp. Case, for all physical purposes of ownership, the
owner is not required to secure a patent as 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.

We agree likewise with the oppositors that having complied with all the
requirements of the mining laws, the claims were removed from the public
domain, and not even the government of the Philippines can take away this right
from them. The reason is obvious. Having become the private properties of the
oppositors, they cannot be deprived thereof without due process of law. 13

Such rights were not affected either by the stricture in the Commonwealth Constitution against
the alienation of all lands of the public domain except those agricultural in nature for this was
made subject to existing rights. Thus, in its Article XIII, Section 1, it was categorically provided
that:
SEC. 1. All agricultural, timber and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces of potential energy
and other natural resources of the Philipppines 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 60% of the capital of
which is owned by such citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of the government established under
this Constitution. Natural resources with the exception of public agricultural lands,
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 25 years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which
case beneficial use may be the measure and the limit of the grant.

Implementing this provision, Act No. 4268, approved on November 8, 1935, declared:

Any provision of existing laws, executive order, proclamation to the contrary


notwithstanding, all locations of mining claim made prior to February 8, 1935
within lands set apart as forest reserve under Sec. 1826 of the Revised
Administrative Code which would be valid and subsisting location except to the
existence of said reserve are hereby declared to be valid and subsisting locations
as of the date of their respective locations.

The perfection of the mining claim converted the property to mineral land and under the laws
then in force removed it from the public domain. 14 By such act, the locators acquired exclusive
rights over the land, against even the government, without need of any further act such as the
purchase of the land or the obtention of a patent over it. 15As the land had become the private
property of the locators, they had the right to transfer the same, as they did, to Benguet and
Atok.

It is true, as the Court of Appeals observed, that such private property was subject to the
"vicissitudes of ownership," or even to forfeiture by non-user or abandonment or, as the private
respondents aver, by acquisitive prescription. However, the method invoked by the de la Rosas
is not available in the case at bar, for two reasons.

First, the trial court found that the evidence of open, continuous, adverse and exclusive
possession submitted by the applicants was insufficient to support their claim of ownership.
They themselves had acquired the land only in 1964 and applied for its registration in 1965,
relying on the earlier alleged possession of their predecessors-in-interest. 16The trial judge, who
had the opportunity to consider the evidence first-hand and observe the demeanor of the
witnesses and test their credibility was not convinced. We defer to his judgment in the absence
of a showing that it was reached with grave abuse of discretion or without sufficient basis. 17

Second, even if it be assumed that the predecessors-in-interest of the de la Rosas had really
been in possession of the subject property, their possession was not in the concept of owner of
the mining claim but of the property as agricultural land, which it was not. The property was
mineral land, and they were claiming it as agricultural land. They were not disputing the lights of
the mining locators nor were they seeking to oust them as such and to replace them in the
mining of the land. In fact, Balbalio testified that she was aware of the diggings being
undertaken "down below" 18 but she did not mind, much less protest, the same although she
claimed to be the owner of the said land.

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 doctrine, for it is a
well-known principle that the owner of 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. 19 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 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 other's 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. In the instant case, as already observed, the land
which was originally classified as forest land ceased to be so and became mineral — and
completely mineral — once the mining claims were perfected. 20 As long as mining operations
were being undertaken thereon, or underneath, it did not cease to be so and become
agricultural, even if only partly so, because it was enclosed with a fence and was cultivated by
those who were unlawfully occupying the surface.

What must have misled the respondent court is Commonwealth Act No. 137, providing as
follows:

Sec. 3. All mineral lands of the public domain and minerals 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 60% 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 government established
under the Constitution.

SEC. 4. The ownership of, and the right to the use of land for agricultural,
industrial, commercial, residential, or for any purpose other than mining does not
include the ownership of, nor the right to extract or utilize, the minerals which
may be found on or under the surface.

SEC. 5. The ownership of, and the right to extract and utilize, the minerals
included within all areas for which public agricultural land patents are granted are
excluded and excepted from all such patents.

SEC. 6. The ownership of, and the right to extract and utilize, the minerals
included within all areas for which Torrens titles are granted are excluded and
excepted from all such titles.

This is an application of the Regalian doctrine which, as its name implies, is intended for the
benefit of the State, not of private persons. The rule simply reserves to the State all minerals
that may be found in public and even private land devoted to "agricultural, industrial,
commercial, residential or (for) any purpose other than mining." Thus, if a person is the owner of
agricultural land in which minerals are discovered, his ownership of such land does not give him
the right to extract or utilize the said minerals without the permission of the State to which such
minerals belong.

The flaw in the reasoning of the respondent court is in supposing that the rights over the land
could be used for both mining and non-mining purposes simultaneously. The correct
interpretation is that once minerals are discovered in the land, whatever the use to which it is
being devoted at the time, such use may be discontinued by the State to enable it to extract the
minerals therein in the exercise of its sovereign prerogative. The land is thus converted to
mineral land and may not be used by any private party, including the registered owner thereof,
for any other purpose that will impede the mining operations to be undertaken therein, For the
loss sustained by such owner, he is of course entitled to just compensation under the Mining
Laws or in appropriate expropriation proceedings. 21

Our holding is that Benguet and Atok have exclusive rights to the property in question by virtue
of their respective mining claims which they validly acquired before the Constitution of 1935
prohibited the alienation of all lands of the public domain except agricultural lands, subject to
vested rights existing at the time of its adoption. The land was not and could not have been
transferred to the private respondents by virtue of acquisitive prescription, nor could its use be
shared simultaneously by them and the mining companies for agricultural and mineral purposes.

WHEREFORE, the decision of the respondent court dated April 30, 1976, is SET ASIDE and
that of the trial court dated March 11, 1969, is REINSTATED, without any pronouncement as to
costs.

SO ORDERED.
[G.R. No. L-11028. April 17, 1959.]

LAO CHIT, Plaintiff-Appellee, v. SECURITY BANK & TRUST CO. and CONSOLIDATED
INVESTMENT, INC., Defendants-Appellants.

Nicetas A. Suanes for Appellee.

Augusto S. Francisco for appellant Security Bank & Trust Co.

Jesus S. Nava for appellant Consolidated Investments, Inc.

SYLLABUS

1. LEASE; IMMOVABLE PROPERTY; PERMANENT IMPROVEMENTS INTRODUCED BY


LESSEE; LIABILITY OF LESSOR FOR VALUE OF IMPROVEMENTS. — Pursuant to the lease
contract between the parties, the lessee undertook to construct at his expense such
improvements as may be necessary to make the leased premises suitable for banking
purposes, and such improvements shall become the property of the lessor upon the termination
and/or rescission of said contract. It appears that, pursuant to another contract, entered into
between the lessee and plaintiff, the latter furnished the materials and the work for said
improvements. For failure of the lessee to pay the rents the lease contract was rescinded.
Unable to collect the cost of the improvements from the lessee, the plaintiff demanded payment
thereof, as well as rents for the use of said improvements, from the lessor. Held: The
improvement in the question became the property of the lessor not only by operation of law, as
accession to the building, but also by specific stipulation in the lease contract. Although plaintiff
was not a party to said contract, this stipulation is binding upon him, he having introduced said
improvements pursuant to his contract with the lessee form whom he derived, therefore, his
right to enter the building and make the improvements. In short, insofar as the construction
thereof, plaintiff was, vis-a-vis the lessor, a mere agent or representative of the lessee and, as
such was privy to the undertakings of the lessee under his contract of lease with the lessor.

DECISION

CONCEPCION, J.:

In May, 1949, the Consolidated Investments, Inc., hereafter referred to as the lessor, leased to
Domingo T. Dikit part of the lobby, on the ground floor of the Consolidated Building, at Plaza
Goiti, Manila, to be used as offices of a proposed Bank of Manila, then being organized by said
Dikit and one Jose Silva. Pursuant to the lease contract between the parties (Exhibit 2, 2-A and
2-B), the lessee undertook to construct, at the expense thereof, such walls, partitions and other
improvements as may be necessary to make the leased premises suitable for banking
purposes, and such partitions and improvements "shall become the property" of the lessor
"upon the termination and/or rescission" of said contract. It appears that, pursuant to another
contract, entered into in June, 1949, between Dikit and Silva on the one hand, and plaintiff Lao
Chit, on the other (Exhibit A-1, A-2 and A-3), the latter furnished the materials and the work for
said walls, partitions and improvements, at a total cost of P59,365, payable "as soon as the
Bank of Manila opens for business, and is given a permit by the Central Bank." This permit,
however, was never issued. The proposed Bank of Manila did not open for business, and the
rentals due under said lease contract, at the rate of P5,000 a month, beginning from October,
1949, were not paid. On December 3, 1949, the lessor instituted Civil Case No. 9708 of the
Municipal Court of Manila, against Dikit, for unlawful detainer. After appropriate proceedings,
said court rendered judgment on March 27, 1950, sentencing Dikit.

". . . to vacate the premises described in the complaint, and to pay the plaintiff the sum of
P10,000.00, under the first cause of action, corresponding rentals due from October to
November, 1949, plus the sum of P227.80, under the second cause of action, for electric
consumption up to November 30, 1949; plus the rents that will become due from December 1,
1949, at the rate of P5,000.00 per month until the date said defendant finally vacates and
surrenders possession to the plaintiff and costs of this suit." (Exhibit 3.)

Dikit appealed from this decision to the Court of First Instance of Manila, where the case was
docketed as Civil Case No. 11214 of said court. He, likewise, applied, in the Supreme Court —
in Case G. R. No. L-3621, entitled "Domingo Dikit v. Hon. Ramon Ino" — for writ
of certiorari against the municipal judge who had rendered the aforementioned decision in the
ejectment case. Said cases No. 11214 and L-3621 were soon dismissed, however, upon
agreement of the parties, dated May 22, 1951, whereby Dikit, among other things, relinquished
whatever rights he might have to the possession of the leased premises and disclaimed all
rights to and over any and all improvement introduced therein while he was in possession
thereof.

Prior to said decision, but after the commencement of said Case No. 9708, Lao Chit had filed
Civil Case No. 10178 of the Court of First Instance of Manila, against Dikit and Silva, for the
recovery of what was due from them by reason of the aforementioned improvements introduced
by Lao Chit. On June 30, 1953, judgment was rendered in said Case No. 10178 the dispositive
part of which reads as follows:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,
sentencing the latter to pay the former, jointly and severally, the sum of P59,365.00, which is the
total of the claim under the second, third and fourth causes of action, the same to be paid within
15 days from notice, with legal interest from the date of the filing of the complaint until its full
payment; and in the event the defendants fail to pay within the period of grace herein fixed, the
fixtures herein referred to (which by express agreement of the parties shall remain the plaintiff’s
property until are fully paid for) shall return to the plaintiff. The defendants shall also pay jointly
and severally the plaintiff by way of damages an amount equivalent to 12% of the
aforementioned sum of P59,365.00. The defendants shall likewise pay the plaintiff, jointly and
severally, another sum equivalent to 25% of the amounts claimed in the first and sixth causes of
action, besides the equivalent to six (6%) of the sums due and payable under the second and
third causes of action as attorney’s fees, with costs against them." (Exhibit A.)

In due course, the corresponding writ of execution (Exhibit D-1 and D-3) of this judgment was
subsequently issued. Later on it was returned by the sheriff unsatisfied, with the statement that
neither Dikit nor Silva had any property registered in their respective names, and that the
whereabouts of Silva was known (Exhibits D-2 and D-4). Meanwhile, or on September 10, 1953,
Lao Chit brought the present action against the Security Bank and Trust Company (Hereafter
referred to as the Bank), to which the lessor had, since July 1, 1951, leased the premises in
question (after it had been vacated by Silva), together with the fixtures and improvements
introduced therein by Lao Chit. In its complaint, Lao Chit demanded payment of P1,000 a
month, by way of rental for the use of said fixtures and improvement by the Bank, in addition to
expenses of litigation, attorney’s fees and costs. In its answer, the Bank alleged that it held and
used said improvements pursuant to its contract of lease with the lessor and that it had paid the
rentals due and complied with its other obligations under said contract, and set up a
counterclaim for damages. Soon thereafter, or on November 5, 1953, Lao Chit demanded
payment of the aforementioned sum of P59,365, plus P1,000 a month from June, 1951, from
the lessor, which did not heed the demand whereupon the complaint herein was, on December
18, 1953, amended to include said lessor as one of the defendants. The latter alleged, in its
answer, that the improvements in question were introduced at the initiative and expense of Dikit
and Silva, as lessees of the premises above referred to, and that, as permanent fixtures, said
improvement form an integral part of the Consolidated Investments Building, and belong to the
lessor and owner juridical relation with the lessor. The lessor, likewise, sought to recover, by
way of counterclaim, the sum of P50,000, as damages for its inclusion as defendant herein,
aside from attorney’s fees and costs. In due course, the Court of First Instance of Manila
rendered judgment on December 28, 1955, the dispositive part of which
reads:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered, sentencing the defendant, Consolidated


Investments, Inc., to pay to the plaintiff the value of the permanent improvement in the sum of
P59,365.00, and, together with the defendant, Security Bank and Trust Company, to pay, jointly
and severally, for the use of the permanent improvements, at the rate of P1,000.00 monthly
from June, 1951 to July 31, 1954, and thereafter, until January, 1955, by the defendant,
Consolidated Investments, Inc., alone, at the same rate, and in both instances, plus legal
interest until full payment thereof; in addition, the defendant, Consolidated Investments, Inc., is
further ordered to pay to the plaintiff the amount equivalent to 80% of whatever amount is due
from it, as reimbursement for plaintiff’s litigation expenses, including attorney’s contingent fees,
aside from moral, nominal, moderate and exemplary damages in the amount of P2,000.00, and
the costs of suit.

"Defendants’ counterclaims are hereby both dismissed for lack of merits and in view of the
above conclusion of the Court."cralaw virtua1aw library

Their respective motions for reconsideration and new trial having been denied, the defendants
have appealed from this decision.

It is apparent to us that the lower court erred in rendering judgment against the Bank. This
defendant had occupied and used the premises in question, including the partitions, fixtures and
other improvements made therein by Lao Chit, pursuant to a contract of lease entered into with
the lessor, the right of which to enter into said contract is not disputed. Moreover, the Bank had
paid the rentals and fulfilled its other obligations under said contract. Again, it cannot be denied
that the improvements introduced by Lao Chit became property of the lessor, not only because
such improvements are permanent in nature and cannot be removed without impairing the
building to which they were attacked, but also, because the contract of lease between Dikit and
Silva on the one hand, and the lessor, on the other improvements "upon the expiration and/or
rescission" of said contract, and the same has already been resolved. Although Lao Chit was
not a party to said contract, this stipulation is binding upon him, he having introduced said
improvements pursuant to his right to enter the building and make the improvements. In short,
insofar as the construction thereof, Lao Chit was, vis-a-vis the lessor, a mere agent or
representative of Dikit and, as such was privy to the undertakings of Dikit under his contract of
lease with the lessor.

The lower court held the latter liable to Lao Chit upon the ground that Lao Chit was a builder in
good faith, under the provisions of the Old Civil Code, and under the theory of undue
enrichment.

As regards the first ground, Article 361 of the Civil Code of Spain, on which the lower court
relied, provides:jgc:chanrobles.com.ph

"The owner of land on which anything has been built, sown, or planted, in good faith, shall be
entitled to appropriate the thing so built, sown, or planted, upon paying the compensation
mentioned in Article 453 and 454, or to compel the person who has built or planted to pay him
the value of the land, and the person who sowed thereon to pay the proper rent therefor."cralaw
virtua1aw library

It is well settled, however, that this provisions refers to one who builds upon a land which he
believes to be his property (Alburo v. Villanueva, 7 Phil., 277; Cortes v. Ramos, 46 Phil., Rivera
v. Trinidad, 48 Phil., 396; Fojas v. Velasco, 51 Phil., 520; Montinola v. Bantug, 71 Phil., 499-
450; Lopez Inc. v. Philippines & Eastern Trading Co., Inc., 98 Phil., 348; 52 Off. Gaz., 1452).
Neither Lao Chit, nor Dikit, claimed the Consolidated Investments Building as his own. Dikit was
a mere lessee and Lao Chit was his agent, as such, in the construction of the improvement
under consideration. In any event, the Spanish text of said Article 361, which is the original,
reads:jgc:chanrobles.com.ph

"El dueno del terreno en que se edificare, sembrane o plantare de buena fe, tendra derecho a
hacer suya la obra, siembra o plantacion, previa la indemnizacion establecida en los articulous
453 y 454, o a obligar al que edifico o planto a pagar el precio del terreno, y al que sembro, la
renta correspondiente." (Emphasis supplied.)

Clearly this provision is limited in its application to "buildings" constructed on another’s land or
"terreno", not to partitions, railings, counters, shelves and other fixtures made in a building
belonging to the owner of the land. although the verb "edificar" in Spanish is roughly
synonymous with "build" in English, the latter is broader in its connotation than the former.
Literally "edificar" is to undertake the construction of an edifice, such as a fort, castle, house,
church, market, tower, stadium, barrack, stable or other similar structure. Upon the other hand,
one may build a house, as well as a fence, partition, window, door, or even a desk or a chair,
but, it would be improper to use the verb "edificar" to describe the making of such fense,
partition, window, door, desk or chair. It is apparent, therefore, that Lao Chit is not entitled to the
benefits of said Article 361.

The lower court, moreover, said:jgc:chanrobles.com.ph

". . . convincing evidence abounds, to wit: that the improvements were made in presence of, and
with the knowledge and consent, and even under the personal supervision, on the part of
Investments, Inc., which owns the building. Thus, it may even be said that it was the defendant,
Consolidated Investments Inc., which had acted in a bad faith." (Record on Appeal of
Consolidated Investments, Inc., p. 56.)

and quoted, in support thereof, the second paragraph of Article 364 of the Spanish Civil Code,
reading:jgc:chanrobles.com.ph

"Bad faith on the part of the owner is deemed to exist whenever the act had been done in his
presence, with his knowledge and tolerance, and without opposition on his part."cralaw
virtua1aw library

The foregoing view is, likewise, untenable. To begin with, this Article 364, like Article 361,
involves a person who builds, plants or sows upon a land not knowing that it belongs to another.
Inasmuch as, there is no contractual relation between them, their rights are governed by law,
not by contract.

Secondly, under his contract of lease with the lessor, Dikit had a legal right to make the
improvements in question and the lessor was legally bound to permit Dikit and his agent Lao
Chit to enter the leased premises and construct said improvements. Surely, compliance with this
valid contractual obligation does not, and cannot, constituted bad faith on the part of the lessor.
Upon the other hand, the lessor could not legally object to, or obstruct, the work done by Lao
Chit, without being chargeable with bad faith in the performance of said contractual obligation
with Dikit.

In order to justify the application of the principle that no one should be permitted to unjustly
enrich himself at the expense of another, His Honor the Trial Judge cited Article 356 of the Civil
Code of Spain, which provides:jgc:chanrobles.com.ph

"He who receives fruits is obliged to pay any expense which may have been incurred by another
in the production, gathering, and gathering, and preservation thereof."cralaw virtua1aw library

We agree with the lessor that this Article is not in point for:chanrob1es virtual 1aw library

(a) Said provision is part of Section I, Chapter II, Title II, Book II, of the Spanish Civil Code,
which section regulates the "right of accession with respect to the products of property," and the
work done and the improvements introduced by Lao Chit are not "products" of the lessor’s
property.

(b) Said Article 356 refers to "expenses" of production, gathering and preservation" of fruits
received by the owner of a property, not to improvements, whereas the claim of Lao Chit is
based upon "improvements" introduced, not "expenses" incurred by him for the "production,
gathering and preservation" of fruits. In the language of Manresa:jgc:chanrobles.com.ph

". . . el Codigo exige que el propietario pague al tercer poseedor que fue de la cosa los gastos
de produccion, y en su caso los de recoleccion y conservacion. El propietario no puede
excusarse alegando la mal fe del tercero, porque sea de buena o de mala fe, lo cierto es que
este ha hecho un gastto, no solo util para el propietario, sino necesario, y sin el cual el
propietario no hubiera obtenido frutos de su fundo, resultando ademas que, de no mediar
indemnizacio, se consagraria el injusto principio de uno puede enriquecerse a costa y con dano
de otro. Para afirmarse por completo en esta opinion debe concotdarse el articulo que
comentamos con los 452 a 456, relavitos a los efectos de la posesion de buena y mala fe, y
que no examinamos ahora porque el asunto se trata luego con mas detalles.
"Los gastos de produccion y demas, para que puedan conceptuarse reembolsables por el
propietario en el caso que suponemos, deben tener dos caracteres: primero, que enten
dedicados a la produccion annual; es decir, que no se trata en este supuesto de la
bonificaciones generales del fundo. Semejantes bonificaciones entran en la categoria de las
mejoras, que se regulan en otro lugar del Codigo (al tratar de la posesion), y segundo, que no
sean superfluous, excesivos o de puro lujo, sino que deben ser hechos en aquella medida
natural que la condicion del cultivo o trabajo de que se trata exige." (3 Manresa [6th ed. ],
196; Emphasis supplied.)

(c) The right to recover under the principle of undue enrichments in justifiable under Article 1887
of the Spanish Civil Code, reading:jgc:chanrobles.com.ph

"Quasi contracts are licit and purely voluntary acts which create an obligation on the part of the
actor in favor of a third person and, at times, a reciprocal obligation between the parties
concerned."cralaw virtua1aw library

Its counterpart in the Civil Code of the Philippines is Article 2142, which we
quote:jgc:chanrobles.com.ph

"Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefited at the expense of another."cralaw
virtua1aw library

The former is part of Title XVI, Book IV of the Civil Code of the Philippines, regulating "extra-
contractual obligations" or obligations beyond, outside of, or outside the scope of, a contract.
The constructions of the improvements in question was not a "purely voluntary act" or "unilateral
act" of Lao Chit. He introduced them in compliance with a bilateral "obligation" he undertook
under his contract with Dikit. The right of Dikit to enter into such contract, in turn, sprang from
his lease contract with the lessor. As a privy to Dikit’s rights under this contract, insofar as said
improvement are concerned, Lao Chit’s title thereto, as against the lessor, is governed,
therefore, by such contract of lease, not by any quasi-contract, or by the principles of equity, as
distinguished from law, contracts or quasi-contracts.

(d) For the principle of undue enrichment to apply, there must be "enrichment" and the same
must be "undue" or "unjust."

In the case at bar, Dikit failed to pay the agreed monthly rental of P5,000 from October, 1949.
Up to July 1, 1951, when the premises in question were leased to the Bank, the rentals due
from Dikit aggregated, therefore, P105,000. Thus, despite the fact that the lessor had become
the owner of the improvements in question, worth P59,365.00, it still suffered a loss of over
P45,000.00. Such "loss" negates the idea of "enrichment." Neither may the latter be deemed to
have taken place in the sense that said improvements had increased the productive capacity of
the leased premises, for, despite said improvements, the Bank agreed to pay, beginning from
July 1, 1951, only P4,000 a month, or P1,000 a month less than the rental stipulated with Dikit.

Regardless of the foregoing, Lao Chit had no reason to believe — and he does not claim to
have acted under the belief — that Dikit owned the leased premises. In fact, the circumstances
surrounding the case are such such as to leave no room for doubt that Lao Chit knew that Dikit
was not the owner of said property and that the same belonged to the lessor. Besides, Lao Chit
should have known that, as Dikit’s agent, in the construction of the improvements, he (Lao Chit)
was subject to the limitations imposed upon Dikit by his contract with the lessor and that the
improvements in question became property of the owner of the building, not only by operation of
law, as accessions to said building, but, also, by specific stipulation in the contract of lease
between Dikit and the lessor. Inasmuch as the acquisition of said improvements by the owner of
the building and lessor is ordained by law and provided for by said contract, which is admittedly
valid, the resulting enrichment — if any — by said owner and lessor, is neither "undue" nor
"unjustly."

Upon the other hand, had been reasonably vigilant, Lao Chit could have demanded from Dikit a
mortgage, or a bond, or some other security, for the protection of his rights, yet he (Lao Chit) did
not do so. Should the lessor be required to pay Lao Chit what he is entitled to recover from Dikit,
but which he (Lao Chit) cannot — due to his oversight, carelessness or negligence — collect
from Dikit, the effect would be to relieve Lao Chit of the consequences of his own inadvertence
or negligence, and hold the lessor responsible therefor. This would be neither fair, nor just, nor
equitable.

Lastly, the lower court declared that the improvements in question belong to Lao Chit, because
it had been so held in Case No. 10718 instituted by him against Dikit and Silva. Obviously,
however, the proceedings in that case and the decision therein rendered are not binding upon
the lessor, the same being neither a party in said case, nor a successor to the interest of the
defendants therein. Besides, the aforementioned finding is not borne out by Lao Chit’s contract
with Dikit and Silva (Exhibits A-1, A-2, A-2-a and A-3). Indeed, even if Dikit and Silva had
agreed with Lao Chit — and they had no such agreement — that he would own the
improvements until payment of the price thereof, the stipulation would be, neither valid, nor
binding upon the lessor, for Dikit and Silva had not authority whatsoever to waive the statutory
right of accession of the lessor to and over said improvements (Arts. 353 and 358, Civil Code of
Spain; Arts. 440 and 445, Civil Code of the Philippines).

Wherefore, the decision appealed from is hereby reversed and another one shall be entered
dismissing the complaint, with costs against plaintiff-appellee Lao Chit. It is so ordered.
G.R. No. L-57348 May 16, 1985

FRANCISCO DEPRA, plaintiff-appellee,


vs.
AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of
Appeals, which the latter certified to this instance as involving pure questions of law

Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo,
with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an
adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms.

Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had
encroached on an area of thirty four (34) square meters of DEPRA's property, After the
encroachment was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his
mother, Beatriz Depra after writing a demand letter asking DUMLAO to move back from his
encroachment, filed an action for Unlawful Detainer on February 6,1973 against DUMLAO in the
Municipal Court of of Dumangas, docketed as Civil Case No 1, Said complaint was later amended to
include DEPRA as a party plain. plaintiff.

After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article
448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which
reads:

Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the rent
is due; and the lease shall commence on the day that this decision shall have
become final.

From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have
ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that
DUMLAO deposited such rentals with the Municipal Court.

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then
Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters,
which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the
Decision of the Municipal Court, which had become final and executory.

After the case had been set for pre-trial, the parties submitted a Joint Motion for Judgment based on
the Stipulation of Facts attached thereto. Premised thereon, the Trial Court on October 31, 1974,
issued the assailed Order, decreeing:

WHEREFORE, the Court finds and so holds that the thirty four (34) square meters
subject of this litigation is part and parcel of Lot 685 of the Cadastral Survey of
Dumangas of which the plaintiff is owner as evidenced by Transfer Certificate of Title
No. 3087 and such plaintiff is entitled to possess the same.

Without pronouncement as to costs.


SO ORDERED.

Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims that the Decision of
the Municipal Court was null and void ab initio because its jurisdiction is limited to the sole issue of
possession, whereas decisions affecting lease, which is an encumbrance on real property, may only
be rendered by Courts of First Instance.

Addressing out selves to the issue of validity of the Decision of the Municipal Court, we hold the
same to be null and void. The judgment in a detainer case is effective in respect of possession only
(Sec. 7, Rule 70, Rules of Court). 1 The Municipal Court over-stepped its bounds when it imposed
upon the parties a situation of "forced lease", which like "forced co-ownership" is not favored in law.
Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First
Instance (now Regional Trial Courts) (Sec. 44(b), Judiciary Act of 1948; 2 Sec. 19 (2) Batas
Pambansa Blg. 129). 3 Since the Municipal Court, acted without jurisdiction, its Decision was null and
void and cannot operate as res judicata to the subject complaint for Queting of Title. Besides, even if
the Decision were valid, the rule on res judicata would not apply due to difference in cause of action.
In the Municipal Court, the cause of action was the deprivation of possession, while in the action to
quiet title, the cause of action was based on ownership. Furthermore, Sec. 7, Rule 70 of the Rules of
Court explicitly provides that judgment in a detainer case "shall not bar an action between the same
parties respecting title to the land. " 4

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a builder in good
faith. Thus,

8. That the subject matter in the unlawful detainer case, Civil Case No. 1, before the
Municipal Court of Dumangas, Iloilo involves the same subject matter in the present
case, the Thirty-four (34) square meters portion of land and built thereon in good faith
is a portion of defendant's kitchen and has been in the possession of the defendant
since 1952 continuously up to the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must be a dispute resolving
mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual
concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute to
appeal ply to DUMLAO the rights of a "builder in good faith" and to DEPRA those of a "landowner in
good faith" as prescribed in Article 448. Hence, we shall refrain from further examining whether the
factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by
law, for a "builder in good faith" under Article 448, a "possessor in good faith" under Article 526 and
a "landowner in good faith' under Article 448.

In regards to builders in good faith, Article 448 of the Civil Code provides:

ART. 448. The owner of the land on which anything has been built sown or planted in good faith,

shall have the right

to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon the terms of the lease
and in case of disagreement, the court shall fix the terms thereof (Paragraphing
supplied)

Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of
DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot
refuse to pay for the encroaching part of the building, and to sell the encroached part of his land, 5 as
he had manifested before the Municipal Court. But that manifestation is not binding because it was
made in a void proceeding.
However, the good faith of DUMLAO is part of the Stipulation of Facts in the Court of First Instance.
It was thus error for the Trial Court to have ruled that DEPRA is "entitled to possession," without
more, of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is
entitled to such removal only when, after having chosen to sell his encroached land, DUMLAO fails
to pay for the same. 6 In this case, DUMLAO had expressed his willingness to pay for the land, but
DEPRA refused to sell.

The owner of the building erected in good faith on a land owned by another, is
entitled to retain the possession of the land until he is paid the value of his building,
under article 453 (now Article 546). The owner of the land, upon the other hand, has
the option, under article 361 (now Article 448), either to pay for the building or to sell
his land to the owner of the building. But he cannot as respondents here did refuse
both to pay for the building and to sell the land and compel the owner of the building
to remove it from the land where it erected. He is entitled to such remotion only
when, after having chosen to sell his land. the other party fails to pay for the same
(italics ours).

We hold, therefore, that the order of Judge Natividad compelling defendants-


petitioners to remove their buildings from the land belonging to plaintiffs-respondents
only because the latter chose neither to pay for such buildings nor to sell the land, is
null and void, for it amends substantially the judgment sought to be executed and is.
furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of
the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608[1946]).

A word anent the philosophy behind Article 448 of the Civil rode.

The original provision was found in Article 361 of the Spanish Civil Code; which provided:

ART. 361. The owner of land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the work, sowing or
planting, after the payment of the indemnity stated in Articles 453 and 454, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.

As will be seen, the Article favors the owner of the land, by giving him one of the two options
mentioned in the Article. Some commentators have questioned the preference in favor of the owner
of the land, but Manresa's opinion is that the Article is just and fair.

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el


caso de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y
como un extraordinario privilegio en favor de la propiedad territorial. Entienden que
impone el Codigo una pena al poseedor de buena fe y como advierte uno de los
comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al que
obro de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno
que ocupa, porque si bien es verdad que cuando edifico o planto demostro con este
hecho, que queria para si el edificio o plantio tambien lo es que el que edifico o
planto de buena fe lo hizo en la erronea inteligencia de creerse dueno del terreno
Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y
pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley obligandole a
hacerlo fuerza su voluntad, y la fuerza por un hecho inocente de que no debe ser
responsable'. Asi podra suceder pero la realidad es que con ese hecho voluntario,
aunque sea inocente, se ha enriquecido torticeramente con perjuicio de otro a quien
es justo indemnizarle,

En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y


equitativa y respetando en lo possible el principio que para la accesion se establece
en el art. 358. 7

Our own Code Commission must have taken account of the objections to Article 361 of the Spanish
Civil Code. Hence, the Commission provided a modification thereof, and Article 448 of our Code has
been made to provide:

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

Additional benefits were extended to the builder but the landowner retained his options.

The fairness of the rules in Article 448 has also been explained as follows:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just
solution by giving the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to pay for the land
and the sower to pay for the proper rent. It is the owner of the land who is authorized
to exercise the option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167,
April 30, 1949; Article applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217;
Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050). 8

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered
remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and
546 of the Civil Code, as follows:

1. The trial Court shall determine

a) the present fair price of DEPRA's 34 square meter area of land;

b) the amount of the expenses spent by DUMLAO for the building of the kitchen;

c) the increase in value ("plus value") which the said area of 34 square meters may
have acquired by reason thereof, and

d) whether the value of said area of land is considerably more than that of the kitchen
built thereon.

2. After said amounts shall have been determined by competent evidence, the Regional, Trial Court
shall render judgment, as follows:

a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate the
kitchen as his own by paying to DUMLAO either the amount of tile expenses spent
by DUMLAO f or the building of the kitchen, or the increase in value ("plus value")
which the said area of 34 square meters may have acquired by reason thereof, or to
oblige DUMLAO to pay the price of said area. The amounts to be respectively paid
by DUMLAO and DEPRA, in accordance with the option thus exercised by written
notice of the other party and to the Court, shall be paid by the obligor within fifteen
(15) days from such notice of the option by tendering the amount to the Court in favor
of the party entitled to receive it;

b) The trial Court shall further order that if DEPRA exercises the option to oblige
DUMLAO to pay the price of the land but the latter rejects such purchase because,
as found by the trial Court, the value of the land is considerably more than that of the
kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the
Court within fifteen (15) days from notice of DEPRA's option to sell the land. In that
event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the Court formal
written notice of such agreement and its provisos. If no agreement is reached by the
parties, the trial Court, within fifteen (15) days from and after the termination of the
said period fixed for negotiation, shall then fix the terms of the lease, provided that
the monthly rental to be fixed by the Court shall not be less than Ten Pesos (P10.00)
per month, payable within the first five (5) days of each calendar month. The period
for the forced lease shall not be more than two (2) years, counted from the finality of
the judgment, considering the long period of time since 1952 that DUMLAO has
occupied the subject area. The rental thus fixed shall be increased by ten percent
(10%) for the second year of the forced lease. DUMLAO shall not make any further
constructions or improvements on the kitchen. Upon expiration of the two-year
period, or upon default by DUMLAO in the payment of rentals for two (2) consecutive
months, DEPRA shall be entitled to terminate the forced lease, to recover his land,
and to have the kitchen removed by DUMLAO or at the latter's expense. The rentals
herein provided shall be tendered by DUMLAO to the Court for payment to DEPRA,
and such tender shall constitute evidence of whether or not compliance was made
within the period fixed by the Court.

c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos
(P10.00) per month as reasonable compensation for the occupancy of DEPRA's land
for the period counted from 1952, the year DUMLAO occupied the subject area, up to
the commencement date of the forced lease referred to in the preceding paragraph;

d) The periods to be fixed by the trial Court in its Precision shall be inextendible, and
upon failure of the party obliged to tender to the trial Court the amount due to the
obligee, the party entitled to such payment shall be entitled to an order of execution
for the enforcement of payment of the amount due and for compliance with such
other acts as may be required by the prestation due the obligee.

No costs,

SO ORDERED.
G.R. No. L-57288 April 30, 1984

LEONILA SARMINETO, petitioner,


vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh
Judicial District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and
REBECCA LORENZO-VALENTINO, respondents.

Mercedes M. Respicio for petitioner.

Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.:ñé+.£ªwph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of
First Instance of Pasay City. The Decision was one made on memoranda, pursuant to the
provisions of RA 6031, and it modified, on October 17, 1977, a judgment of the then Municipal
Court of Paranaque, Rizal, in an Ejectment suit instituted by herein petitioner Leonila
SARMIENTO against private respondents, the spouses ERNESTO Valentino and Rebecca
Lorenzo. For the facts, therefore, we have to look to the evidence presented by the parties at
the original level.

It appears that while ERNESTO was still courting his wife, the latter's mother had told him the
couple could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision
in Paranaque (the LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE
on the LAND at a cost of P8,000.00 to P10,000.00. It was probably assumed that the wife's
mother was the owner of the LAND and that, eventually, it would somehow be transferred to the
spouses.

It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C.
Santo, Jr. who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The following
January 6, 1975, SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed
an Ejectment suit against them. In the evidentiary hearings before the Municipal Court,
SARMIENTO submitted the deed of sale of the LAND in her favor, which showed the price to be
P15,000.00. On the other hand, ERNESTO testified that the then cost of the RESIDENTIAL
HOUSE would be from P30,000.00 to P40,000.00. The figures were not questioned by
SARMIENTO.

The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in
good faith, and, disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It
then ordered ERNESTO and wife to vacate the LAND after SARMIENTO has paid them the
mentioned sum of P20,000.00.

The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the
submission of memoranda, said Court rendered a modifying Decision under Article 448 of the
Civil Code. SARMIENTO was required, within 60 days, to exercise the option to reimburse
ERNESTO and wife the sum of 40,000.00 as the value of the RESIDENTIAL HOUSE, or the
option to allow them to purchase the LAND for P25,000.00. SARMIENTO did not exercise any
of the two options within the indicated period, and ERNESTO was then allowed to deposit the
sum of P25,000.00 with the Court as the purchase price for the LAND. This is the hub of the
controversy. SARMIENTO then instituted the instant certiorari proceedings.

We agree that ERNESTO and wife were builders in good faith in view of the peculiar
circumstances under which they had constructed the RESIDENTIAL HOUSE. As far as they
knew, the LAND was owned by ERNESTO's mother-in-law who, having stated they could build
on the property, could reasonably be expected to later on give them the LAND.

In regards to builders in good faith, Article 448 of the Code provides:têñ.£îhqwâ£


ART. 448. The owner of the land on which anything has been built, sown or
planted in good faith,

shall have the right

to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and the one
who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.
(Paragraphing supplied)

The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been
very much more than that amount during the following January when ERNESTO and wife were
asked to vacate. However, ERNESTO and wife have not questioned the P25,000.00 valuation
determined by the Court of First Instance.

In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the
testimony of ERNESTO that its worth at the time of the trial should be from P30,000.00 to
P40,000.00. The Municipal Court chose to assess its value at P20,000.00, or below the
minimum testified by ERNESTO, while the Court of First Instance chose the maximum of
P40,000.00. In the latter case, it cannot be said that the Court of First Instance had abused its
discretion.

The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND
and P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed as not supported by the
evidence. The provision for the exercise by petitioner SARMIENTO of either the option to
indemnify private respondents in the amount of P40,000.00, or the option to allow private
respondents to purchase the LAND at P25,000.00, in our opinion, was a correct
decision.têñ.£îhqwâ£

The owner of the building erected in good faith on a land owned by another, is
entitled to retain the possession of the land until he is paid the value of his
building, under article 453 (now Article 546). The owner, of the land. upon, the
other hand, has the option, under article 361 (now Article 448), either to pay for
the building or to sell his land to the owner of the building. But he cannot, as
respondents here did, refuse both to pay for the building and to sell the land and
compel the owner of the building to remove it from the land where it is erected.
He is entitled to such remotion only when, after having chosen to sell his land,
the other party fails to pay for the same. (Emphasis ours)

We hold, therefore, that the order of Judge Natividad compelling defendants-


petitioners to remove their buildings from the land belonging to plaintiffs-
respondents only because the latter chose neither to pay for such buildings nor
to sell the land, is null and void, for it amends substantially the judgment sought
to be executed and is, furthermore, offensive to articles 361 (now Article 448)
and 453 (now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608
[1946]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement
as to costs.
G.R. No. 108894. February 10, 1997.]

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, Petitioner, v. COURT OF APPEALS


(FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, Respondents.

De Jesus Paguio and Manimtim for Petitioner.

M.R. Pamaran Law Offices for Private Respondent.

Acebes Del Carmen Cinco & Cordova for Private Respondent.

SYLLABUS

1. CIVIL LAW; PROPERTY; POSSESSION; GOOD FAITH, PRESUMED. — When


petitioner purchased the land from Pariz Industries, the buildings and other
structures were already in existence. The record is not clear as to who actually built
those structures, but it may well be assumed that petitioner’s predecessor-in-
interest, Pariz Industries, did so. Article 527 of the Civil Code presumes good faith,
and since no proof exists to show that the encroachment over a narrow, needle-
shaped portion of private respondent’s land was done in bad faith by the builder of
the encroaching structures, the latter should be presumed to have built them in
good faith. It is presumed that possession continues to be enjoyed in the same
character in which it was acquired, until the contrary is proved. Good faith consists
in the belief of the builder that the land he is building on is his, and his ignorance of
any defect or flaw in his title. Hence, such good faith, by law passed on to Pariz’s
successor, petitioner in this case. Further," (w)here one derives title to property
from another, the act, declaration, or omission of the latter, while holding the title,
in relation to the property, is evidence against the former." And possession
acquired in good faith does not lose this character except in case and from the
moment facts exist which show that the possessor is not unaware that he
possesses the thing improperly or wrongfully. The good faith ceases from the
moment defects in the title are made known to the possessor, by extraneous
evidence or by suit for recovery of the property by the true owner.

2. ID.; ID.; OWNERSHIP; RIGHT OF ACCESSION; IMMOVABLE PROPERTY; BUILDER


IN GOOD FAITH CAN COMPEL THE LANDOWNER TO EXERCISE HIS OPTION UNDER
ART. 448; APPLICABLE TO BUYER IN GOOD FAITH. — The builder in good faith
under Article 448 of the Civil Code, instead of being outrightly ejected from the
land, can compel the landowner to make a choice between the two options: (1) to
appropriate the building by paying the indemnity required by law, or (2) sell the
land to the builder. The landowner cannot refuse to exercise either option and
compel instead the owner of the building to remove it from the land. The same
benefit can be invoked by petitioner who is not the builder of the offending
structures but possesses them in good faith as buyer. Petitioner is deemed to have
stepped into the shoes of the seller in regard to all rights of ownership over the
immovable sold, including the right to compel the private respondent to exercise
either of the two options provided under Article 448 of the Civil Code.

3. ID.; ID.; ID.; ID.; ID.; ID.; ID. — Petitioner did not lose its rights under Article
448 of the Civil Code on the basis merely of the fact that some years after acquiring
the property in good faith, it learned about — and aptly recognized — the right of
private respondent to a portion of the land occupied by its building. The
supervening awareness of the encroachment by petitioner does not militate against
its right to claim the status of a builder in good faith. In fact, a judicious reading of
said Article 448 will readily show that the landowner’s exercise of his option can
only take place after the builder shall have come to know of the intrusion — in
short, when both parties shall have become aware of it. Only then will the occasion
for exercising the option arise, for it is only then that both parties will have been
aware that a problem exists in regard to their property rights.

4. ID.; ID.; ID.; ID.; ID.; ARTICLE 148; APPLICATION IN CASE AT BAR;
ATTORNEY’S FEES, AWARD OF, UNWARRANTED. — In line with the case of Depra v.
Dumlao, this case will have to be remanded to the trial court for further
proceedings to fully implement the mandate of Art. 448. It is a rule of procedure for
the Supreme Court to strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation. Petitioner, however,
must also pay the rent for the property occupied by its building as prescribed by
respondent Court from October 4, 1979, but only up to the date private respondent
serves notice of its option upon petitioner and the trial court; that is, if such option
is for private respondent to appropriate the encroaching structure. In such event,
petitioner would have a right of retention which negates the obligation to pay rent.
The rent should however continue if the option chosen is compulsory sale, but only
up to the actual transfer of ownership. The award of attorney’s fees by respondent
Court against petitioner is unwarranted since the action appears to have been filed
in good faith. Besides, there should be no penalty on the right to litigate.

DECISION

PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was discovered in a
survey that a portion of a building of petitioner, which was presumably constructed by its predecessor-in-
interest, encroached on a portion of the lot owned by private Respondent. What are the rights and
obligations of the parties? Is petitioner considered a builder in bad faith because, as held by respondent
Court, he is "presumed to know the metes and bounds of his property as described in his certificate of title"
? Does petitioner succeed into the good faith or bad faith of his predecessor-in-interest which presumably
constructed the building?

These are the questions raised in the petition for review of the Decision 1 dated August 28, 1992, in CA-G.R.
CV No. 28293 of respondent Court 2 where the disposition reads: 3

"WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set
aside and another one entered —

1. Dismissing the complaint for lack of cause of action;

2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4, 1979
until appellee vacates the land;

3. To remove the structures and surrounding walls on the encroached area;

4. Ordering appellee to pay the value of the land occupied by the two-storey building;

5. Ordering appellee to pay the sum of P20,000.00 for and as attorney’s fees;
6. Costs against appellee." cralaw virtua1a w libra ry

Acting on the motions for reconsideration of both petitioner and private respondent, respondent Court
ordered the deletion of paragraph 4 of the dispositive portion in an Amended Decision dated February 9,
1993, as follows: 4

"WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting paragraph
4 of the dispositive portion of our decision which reads: chan rob 1es vi rtual 1aw lib rary

‘4. Ordering appellee to pay the value of the land occupied by the two-storey building.’

The motion for reconsideration of appellee is hereby DENIED for lack of merit." cralaw virtua1aw l ibra ry

The foregoing Amended Decision is also challenged in the instant petition.

The Facts

The facts are not disputed. Respondent Court merely reproduced the factual findings of the trial court, as
follows: 5

"That plaintiff (herein petitioner) which is a corporation duly organized and existing under and by virtue of
Philippine laws is the registered owner of a parcel of land situated in Barrio San Dionisio, Parañaque, Metro
Manila known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral Survey of Parañaque, Metro
Manila, covered by Transfer Certificate of Title No. 409316 of the Registry of Deeds of the Province of Rizal;
that said land was purchased by plaintiff from Pariz Industries, Inc. in 1970, together with all the buildings
and improvements including the wall existing thereon; that the defendant (herein private respondent) is the
registered owner of a parcel of land known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of
Parañaque, LRC (GLRO) Rec. No. 19645 covered by Transfer Certificate of Title No. 279838, of the Registry
of Deeds for the Province of Rizal; that said land which adjoins plaintiff’s land was purchased by defendant
from a certain Enrile Antonio also in 1970; that in 1971, defendant purchased another lot also adjoining
plaintiff’s land from a certain Miguel Rodriguez and the same was registered in defendant’s name under
Transfer Certificate of Title No. 31390, of the Registry of Deeds for the Province of Rizal; that portions of the
buildings and wall bought by plaintiff together with the land from Pariz Industries are occupying a portion of
defendant’s adjoining land; that upon learning of the encroachment or occupation by its buildings and wall
of a portion of defendant’s land, plaintiff offered to buy from defendant that particular portion of defendant’s
land occupied by portions of its buildings and wall with an area of 770 square meters, more or less, but
defendant, however, refused the offer. In 1973, the parties entered into a private agreement before a
certain Col. Rosales in Malacañang, wherein plaintiff agreed to demolish the wall at the back portion of its
land thus giving to defendant possession of a portion of his land previously enclosed by plaintiff’s wall; that
defendant later filed a complaint before the office of Municipal Engineer of Parañaque, Metro Manila as well
as before the Office of the Provincial Fiscal of Rizal against plaintiff in connection with the encroachment or
occupation by plaintiff’s buildings and walls of a portion of its land but said complaint did not prosper; that
defendant dug or caused to be dug a canal along plaintiff’s wall, a portion of which collapsed in June, 1980,
and led to the filing by plaintiff of the supplemental complaint in the above-entitled case and a separate
criminal complaint for malicious mischief against defendant and his wife which ultimately resulted into the
conviction in court of defendant’s wife for the crime of malicious mischief; that while trial of the case was in
progress, plaintiff filed in Court a formal proposal for settlement of the case but said proposal, however, was
ignored by defendant." cralaw vi rtua1aw l ibra ry

After trial on the merits, the Regional Trial Court 6 of Pasay City, Branch 117, in Civil Case No. PQ-7631-P,
rendered a decision dated December 4, 1989 in favor of petitioner who was the plaintiff therein. The
dispositive portion reads: 7

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering the
latter to sell to plaintiff that portion of land owned by him and occupied by portions of plaintiff’s buildings
and wall at the price of P2,000.00 per square meter and to pay the former: chanrob 1es vi rtua l 1aw lib rary

1. The sum of P44,000.00 to compensate for the losses in materials and properties incurred by plaintiff
through thievery as a result of the destruction of its wall;

2. The sum of P7,500.00 as and by way of attorney’s fees; and

3. The costs of this suit." cralaw virtua 1aw lib rary

Appeal was duly interposed with respondent Court, which as previously stated, reversed and set aside the
decision of the Regional Trial Court and rendered the assailed Decision and Amended Decision. Hence, this
recourse under Rule 45 of the Rules of Court.

The Issues
The petition raises the following issues: 8

"(A)

Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in bad faith because
it is ‘presumed to know the metes and bounds of his property.’

(B)

Whether or not the respondent Court of Appeals erred when it used the amicable settlement between the
petitioner and the private respondent, where both parties agreed to the demolition of the rear portion of the
fence, as estoppel amounting to recognition by petitioner of respondent’s right over his property including
the portions of the land where the other structures and the building stand, which were not included in the
settlement.

(C)

Whether or not the respondent Court of Appeals erred in ordering the removal of the ‘structures and
surrounding walls on the encroached area’ and in withdrawing its earlier ruling in its August 28, 1992
decision for the petitioner ‘to pay for the value of the land occupied’ by the building, only because the
private respondent has ‘manifested its choice to demolish’ it despite the absence of compulsory sale where
the builder fails to pay for the land, and which ‘choice’ private respondent deliberately deleted from its
September 1, 1980 answer to the supplemental complaint in the Regional Trial Court." cralaw virtua 1aw lib rary

In its Memorandum, petitioner poses the following issues: jgc:chan roble s.com.p h

"A.

The time when to determine the good faith of the builder under Article 448 of the New Civil Code, is
reckoned during the period when it was actually being built; and in a case where no evidence was presented
nor introduced as to the good faith or bad faith of the builder at that time, as in this case, he must be
presumed to be a ‘builder in good faith,’ since ‘bad faith cannot be presumed.’ 9

B.

In a specific ‘boundary overlap situation’ which involves a builder in good faith, as in this case, it is now well
settled that the lot owner, who builds on the adjacent lot is not charged with ‘constructive notice’ of the
technical metes and bounds contained in their torrens titles to determine the exact and precise extent of his
boundary perimeter. 10

C.

The respondent court’s citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason & Co. v.
Macalindong is not the ‘judicial authority’ for a boundary dispute situation between adjacent torrens titled lot
owners, as the facts of the present case do not fall within nor square with the involved principle of a
dissimilar case. 11

D.

Quite contrary to respondent Uy’s reasoning, petitioner Tecnogas continues to be a builder in good faith,
even if it subsequently built/repaired the walls/other permanent structures thereon while the case a quo was
pending and even while respondent sent the petitioner many letters/filed cases thereon. 12

D. (E.)

The amicable settlement between the parties should be interpreted as a contract and enforced only in
accordance with its explicit terms, and not over and beyond that agreed upon; because the courts do not
have the power to create a contract nor expand its scope. 13

E. (F.)

As a general rule, although the landowner has the option to choose between: (1) ‘buying the building built in
good faith’, or (2) ‘selling the portion of his land on which stands the building’ under Article 448 of the Civil
Code; the first option is not absolute, because an exception thereto, once it would be impractical for the
landowner to choose to exercise the first alternative, i.e. buy that portion of the house standing on his land,
for the whole building might be rendered useless. The workable solution is for him to select the second
alternative, namely, to sell to the builder that part of his land on which was constructed a portion of the
house." 14
Private respondent, on the other hand, argues that the petition is "suffering from the following flaws: 15

1. It did not give the exact citations of cases decided by the Honorable Supreme Court that allegedly
contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down in Tuason v. Lumanlan
case citing also Tuason v. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao v. Chico case is contradictory to the doctrine in Tuason
v. Lumanlan and Tuason v. Macalindong, the two cases being more current, the same should prevail." cralaw vi rt ua1aw lib rary

Further, private respondent contends that the following "unmistakably" point to the bad faith of petitioner:
(1) private respondent’s purchase of the two lots, "was ahead of the purchase by petitioner of the building
and lot from Pariz Industries" ; (2) the declaration of the General Manager of Tecnogas that the sale
between petitioner and Pariz Industries "was not registered" because of some problems with China Banking
Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name only in "the month of
May 1973." 16

The Court’s Ruling

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J. M. Tuason & Co., Inc. v. Vda. de Lumanlan 17 and J. M. Tuason or
Co., Inc. v. Macalindong, 18 ruled that petitioner "cannot be considered in good faith" because as a land
owner, it is "presumed to know the metes and bounds of his own property, specially if the same are
reflected in a properly issued certificate of title. One who erroneously builds on the adjoining lot should be
considered a builder in (b)ad (f)aith, there being presumptive knowledge of the Torrens title, the area, and
the extent of the boundaries." 19 chanroble svirtuallaw lib rary:re d

We disagree with respondent Court. The two cases it relied upon do not support its main pronouncement
that a registered owner of land has presumptive knowledge of the metes and bounds of its own land, and is
therefore in bad faith if he mistakenly builds on an adjoining land. Aside from the fact that those cases had
factual moorings radically different from those obtaining here, there is nothing in those cases which would
suggest, however remotely, that bad faith is imputable to a registered owner of land when a part of his
building encroaches upon a neighbor’s land, simply because he is supposedly presumed to know the
boundaries of his land as described in his certificate of title. No such doctrinal statement could have been
made in those cases because such issue was not before the Supreme Court. Quite the contrary, we have
rejected such a theory in Co Tao v. Chico, 20 where we held that unless one is versed in the science of
surveying, "no one can determine the precise extent or location of his property by merely examining his
paper title."
cra law virt ua1aw lib ra ry

There is no question that when petitioner purchased the land from Pariz Industries, the buildings and other
structures were already in existence. The record is not clear as to who actually built those structures, but it
may well be assumed that petitioner’s predecessor-in-interest, Pariz Industries, did so. Article 527 of the
Civil Code presumes good faith, and since no proof exists to show that the encroachment over a narrow,
needle-shaped portion of private respondent’s land was done in bad faith by the builder of the encroaching
structures, the latter should be presumed to have built them in good faith. 21 It is presumed that
possession continues to be enjoyed in the same character in which it was acquired, until the contrary is
proved. 22 Good faith consists in the belief of the builder that the land he is building on is his, and his
ignorance of any defect or flaw in his title. 23 Hence, such good faith, by law, passed on to Pariz’s
successor, petitioner in this case. Further," (w)here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against
the former." 24 And possession acquired in good faith does not lose this character except in case and from
the moment facts exist which show that the possessor is not unaware that he possesses the thing
improperly or wrongfully. 25 The good faith ceases from the moment defects in the title are made known to
the possessor, by extraneous evidence or by suit for recovery of the property by the true owner. 26

Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall
(as fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner’s lot. It was an
error which, in the context of the attendant facts, was consistent with good faith. Consequently, the builder,
if sued by the aggrieved landowner for recovery of possession, could have invoked the provisions of Art. 448
of the Civil Code, which reads: jgc:chan roble s.com.p h

"The owner of the land on which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in
articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner
of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof." cralaw virtua1aw l ibra ry
The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land,
he can compel the landowner to make a choice between the two options: (1) to appropriate the building by
paying the indemnity required by law, or (2) sell the land to the builder. The landowner cannot refuse to
exercise either option and compel instead the owner of the building to remove it from the land. 27

The question, however, is whether the same benefit can be invoked by petitioner who, as earlier stated, is
not the builder of the offending structures but possesses them as buyer.

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the encroachment at the time it
acquired the property from Pariz Industries. We agree with the trial court that various factors in evidence
adequately show petitioner’s lack of awareness thereof. In any case, contrary proof has not overthrown the
presumption of good faith under Article 527 of the Civil Code, as already stated, taken together with the
disputable presumptions of the law on evidence. These presumptions state, under Section 3 (a) of Rule 131
of the Rules of Court, that the person is innocent of a crime or wrong; and under Section 3 (ff) of Rule 131,
that the law has been obeyed. In fact, private respondent Eduardo Uy himself was unaware of such intrusion
into his property until after 1971 when he hired a surveyor, following his purchase of another adjoining lot,
to survey all his newly acquired lots. Upon being apprised of the encroachment, petitioner immediately
offered to buy the area occupied by its building — a species of conduct consistent with good faith.

In the second place, upon delivery of the property by Pariz Industries, as seller, to the petitioner, as buyer,
the latter acquired ownership of the property. Consequently and as earlier discussed, petitioner is deemed to
have stepped into the shoes of the seller in regard to all rights of ownership over the immovable sold,
including the right to compel the private respondent to exercise either of the two options provided under
Article 448 of the Civil Code.

Estoppel

Respondent Court ruled that the amicable settlement entered into between petitioner and private
respondent estops the former from questioning the private respondent’s "right" over the disputed property.
It held that by undertaking to demolish the fence under said settlement, petitioner recognized private
respondent’s right over the property, and "cannot later on compel" private respondent "to sell to it the land
since" private respondent "is under no obligation to sell." 28

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement, the
pertinent portions of which read: 29

"That the parties hereto have agreed that the rear portion of the fence that separates the property of the
complainant and respondent shall be demolished up to the back of the building housing the machineries
which demolision (sic) shall be undertaken by the complainant at anytime.

That the fence which serve(s) as a wall housing the electroplating machineries shall not be demolished in
the mean time which portion shall be subject to negotiation by herein parties." cra law virt ua1aw lib ra ry

From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the wall
separating the adjoining properties of the parties — i.e. "up to the back of the building housing the
machineries." But that portion of the fence which served as the wall housing the electro-plating machineries
was not to be demolished. Rather, it was to "be subject to negotiation by herein parties." The settlement
may have recognized the ownership of private respondent but such admission cannot be equated with bad
faith. Petitioner was only trying to avoid a litigation, one reason for entering into an amicable settlement.

As was ruled in Osmeña v. Commission on Audit, 30

"A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement by
the Civil Code and is therein dealt with in some detail.’A compromise,’ declares Article 2208 of said Code, ‘is
a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one
already commenced.’

x x x

The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil actions. Art.
2029 states that ‘The Court shall endeavor to persuade the litigants in a civil case to agree upon some fair
compromise.’ . . ."cralaw virtua 1aw lib rary

In the context of the established facts, we hold that petitioner did not lose its rights under Article 448 of the
Civil Code on the basis merely of the fact that some years after acquiring the property in good faith, it
learned about — and aptly recognized — the right of private respondent to a portion of the land occupied by
its building. The supervening awareness of the encroachment by petitioner does not militate against its right
to claim the status of a builder in good faith. In fact, a judicious reading of said Article 448 will readily show
that the landowner’s exercise of his option can only take place after the builder shall have come to know of
the intrusion — in short, when both parties shall have become aware of it. Only then will the occasion for
exercising the option arise, for it is only then that both parties will have been aware that a problem exists in
regard to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke as his remedy:
Article 448 or Article 450 31 of the Civil Code?

In view of the good faith of both petitioner and private respondent, their rights and obligations are to be
governed by Art. 448. The essential fairness of this codal provision has been pointed out by Mme. Justice
Ameurfina Melencio-Herrera, citing Manresa and applicable precedents, in the case of Depra v. Dumlao, 32
to wit:
jgc:chan roble s.com. ph

"Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners,
and it becomes necessary to protect the owner of the improvements without causing injustice to the owner
of the land. In view of the impracticality of creating a state of forced co-ownership, the law has provided a
just solution by giving the owner of the land the option to acquire the improvements after payment of the
proper indemnity, or to oblige the builder or planter to pay for the land and the sower to pay the proper
rent. It is the owner of the land who is authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the ownership of the accessory thing (3 Manresa
213; Bernardo v. Bataclan, 37 Off. Gaz. 1382; Co Tao v. Chan Chico, G. R. No. 49167, April 30, 1949;
Article applied; see Cabral, Et. Al. v. Ibañez [S.C.] 52 Off. Gaz. 217; Marfori v. Velasco, [C.A.] 52 Off. Gaz.
2050)." cralaw virtua1aw l ibra ry

The private respondent’s insistence on the removal of the encroaching structures as the proper remedy,
which respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not one of the
remedies bestowed upon him by law. It would be available only if and when he chooses to compel the
petitioner to buy the land at a reasonable price but the latter fails to pay such price. 33 This has not taken
place. Hence, his options are limited to: (1) appropriating the encroaching portion of petitioner’s building
after payment of proper indemnity, or (2) obliging the latter to buy the lot occupied by the structure. He
cannot exercise a remedy of his own liking.

Neither is petitioner’s prayer that private respondent be ordered to sell the land 34 the proper remedy.
While that was dubbed as the "more workable solution in Grana and Torralba v. The Court of Appeals, Et Al.,
35 it was not the relief granted in that case as the landowners were directed to exercise "within 30 days
from this decision their option to either buy the portion of the petitioners’ house on their land or sell to said
petitioners the portion of their land on which it stands." 36 Moreover, in Grana and Torralba, the area
involved was only 87 square meters while this case involves 520 square meters 37 . In line with the case of
Depra v. Dumlao, 38 this case will have to be remanded to the trial court for further proceedings to fully
implement the mandate of Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the
entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. 39

Petitioner, however, must also pay the rent for the property occupied by its building as prescribed by
respondent Court from October 4, 1979, but only up to the date private respondent serves notice of its
option upon petitioner and the trial court; that is, if such option is for private respondent to appropriate the
encroaching structure. In such event, petitioner would have a right of retention which negates the obligation
to pay rent. 40 The rent should however continue if the option chosen is compulsory sale, but only up to the
actual transfer of ownership.

The award of attorney’s fees by respondent Court against petitioner is unwarranted since the action appears
to have been filed in good faith. Besides, there should be no penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision and the
Amended Decision are REVERSED and SET ASIDE. In accordance with the case of Depra v. Dumlao, 42 this
case is REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent
with Articles 448 and 546 43 of the Civil Code, as follows: chan roblesv irt uallawl ibra ry

1. The trial court shall determine: chan rob 1es vi rtual 1aw lib rary

a) the present fair price of private respondent’s 520 square-meter area of land;

b) the increase in value ("plus value") which the said area of 520 square meters may have acquired by
reason of the existence of the portion of the building on the area;

c) the fair market value of the encroaching portion of the building; and

d) whether the value of said area of land is considerably more than the fair market value of the portion of
the building thereon.
2. After said amounts shall have been determined by competent evidence, the regional trial court shall
render judgment as follows: c ha nrob1e s virtual 1aw lib rary

a) The private respondent shall be granted a period of fifteen (15) days within which to exercise his option
under the law (Article 448, Civil Code), whether to appropriate the portion of the building as his own by
paying to petitioner its fair market value, or to oblige petitioner to pay the price of said area. The amounts
to be respectively paid by petitioner and private respondent, in accordance with the option thus exercised by
written notice of the other party and to the court, shall be paid by the obligor within fifteen (15) days from
such notice of the option by tendering the amount to the trial court in favor of the party entitled to receive
it;

b) If private respondent exercises the option to oblige petitioner to pay the price of the land but the latter
rejects such purchase because, as found by the trial court, the value of the land is considerably more than
that of the portion of the building, petitioner shall give written notice of such rejection to private respondent
and to the trial court within fifteen (15) days from notice of private respondent’s option to sell the land. In
that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which
to agree upon the terms of the lease, and give the trial court formal written notice of the agreement and its
provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after
the termination of the said period fixed for negotiation, shall then fix the terms of the lease provided that
the monthly rental to be fixed by the Court shall not be less than two thousand pesos (P2,000.00) per
month, payable within the first five (5) days of each calendar month. The period for the forced lease shall
not be more than two (2) years, counted from the finality of the judgment, considering the long period of
time since 1970 that petitioner has occupied the subject area. The rental thus fixed shall be increased by ten
percent (10%) for the second year of the forced lease. Petitioner shall not make any further constructions or
improvements on the building. Upon expiration of the two-year period, or upon default by petitioner in the
payment of rentals for two (2) consecutive months, private respondent shall be entitled to terminate the
forced lease, to recover his land, and to have the portion of the building removed by petitioner or at latter’s
expense. The rentals herein provided shall be tendered by petitioner to the trial court for payment to private
respondent, and such tender shall constitute evidence of whether or not compliance was made within the
period fixed by the said court.

c) In any event, petitioner shall pay private respondent an amount computed at two thousand pesos
(P2,000.00) per month as reasonable compensation for the occupancy of private respondent’s land for the
period counted from October 4, 1979, up to the date private respondent serves notice of its option to
appropriate the encroaching structures, otherwise up to the actual transfer of ownership to petitioner or, in
case a forced lease has to be imposed, up to the commencement date of the forced lease referred to in the
preceding paragraph;

d) The periods to be fixed by the trial court in its decision shall be non-extendible, and upon failure of the
party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment
shall be entitled to an order of execution for the enforcement of payment of the amount due and for
compliance with such other acts as may be required by the prestation due the obligee.

No costs.

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

SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL


CANTO, plaintiffs-appellees,
vs.
BERNARDA FERNANDEZ ABESIA, defendant-appellant.

Geronimo Creer, Jr. for plaintiffs-appellees.

Benedicto G. Cobarde for defendant, defendant-appellant

GANCAYCO, J.:

In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to this
Court by the Court of Appeals on account of the question of law involved, the sole issue is the
applicability of the provisions of Article 448 of the Civil Code relating to a builder in good faith
when the property involved is owned in common.

This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with an area
of only about 45 square meters, situated at the corner of F. Flores and Cavan Streets, Cebu
City covered by TCT No. 61850. An action for partition was filed by plaintiffs in the CFI of Cebu.
Plaintiffs and defendants are co-owners pro indiviso of this lot in the proportion of and 1/3 share
each, respectively. The trial court appointed a commissioner in accordance with the agreement
of the parties. ,the Id commissioner conducted a survey, prepared a sketch plan and submitted
a report to the trial court on May 29, 1976, recommending that the property be divided into two
lots: Lot 1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area
of 15 square meters for the defendants. The houses of plaintiffs and defendants were surveyed
and shown on the sketch plan. The house of defendants occupied the portion with an area of 5
square meters of Lot 1161-A of plaintiffs. The parties manifested their conformity to the report
and asked the trial court to finally settle and adjudicate who among the parties should take
possession of the 5 square meters of the land in question.

In solving the issue the trial court held as follows:

The Court believed that the plaintiffs cannot be obliged to pay for the value of the
portion of the defendants' house which has encroached an area of five (5) sq.
meters of the land alloted to them. The defendants cannot also be obliged to pay
for the price of the said five (5) square meters. The rights of a builder in good
faith under Article 448 of the New Civil Code does (sic) not apply to a case where
one co-owner has built, planted or sown on the land owned in common.
"Manresa agreeing with Sanchez Roman, says that as a general rule this article
is not applicable because the matter should be governed more by the provisions
on co-ownership than on accession. Planiol and Ripert are also of the opinion
that this article is not applicable to a co-owner who constructs, plants or sows on
the community property, even if the land where the construction, planting or
sowing is made is a third person under the circumstances, and the situation is
governed by the rules of co-ownership. Our Court of Appeals has held that this
article cannot be invoked by one co-owner against another who builds, plants or
sows upon their land, since the latter does not do so on land not belonging to
him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of the foregoing
authorities and considering that the defendants have expressed their conformity
to the partition that was made by the commissioner as shown in the sketch plan
attached to the commissioner's report, said defendants have no other alternative
except to remove and demolish part of their house that has encroached an area
of five (5) sq. meters of the land allotted to the plaintiffs.

WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an area


of thirty (30) sq. meters to the plaintiffs spouses Concepcion Fernandez Abesia,
Lourdes Fernandez Rodil, Genaro Fernandez and Dominga A. Fernandez, in the
respective metes and bounds as shown in the subdivision sketch plan attached
to the Commissioner's Report dated may 29, 1976 prepared by the
Commissioner, Geodetic Engineer Espiritu Bunagan. Further, the defendants are
hereby ordered at their expense to remove and demolish part of their house
which has encroached an area of five (5) square meters from Lot 1161-A of the
plaintiffs; within sixty (60) days from date hereof and to deliver the possession of
the same to the plaintiffs. For the Commissioner's fee of P400.00, the defendants
are ordered to pay, jointly and severally, the sum of P133.33 and the balance
thereof to be paid by the plaintiffs. The costs of suit shall be paid by the plaintiffs
and the defendants in the proportion of two-thirds (2/3) and one-third (1/3) shares
respectively. A certified copy of this judgment shall be recorded in the office of
the Register of Deeds of the City of Cebu and the expense of such recording
shall be taxed as a part of the costs of the action.

Hence, this appeal interposed by the defendants with the following assignments of errors:

THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A BUILDER


IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE TO
DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF THEIR
HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO PLAINTIFFS-
APPELLEES.

II

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-APPELLANTS TO


REMOVE AND DEMOLISH AT THEIR EXPENSE, THAT PART OF THEIR
HOUSE WHICH HAS ENCROACHED ON AN AREA OF FIVE SQUARE
METERS OF LOT 1161-A OF PLAINTIFFS-APPELLEES.

Article 448 of the New Civil Code provides as follows:

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

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner
builds, plants or sows on the land owned in common for then he did not build, plant or sow upon
land that exclusively belongs to another but of which he is a co-owner. The co-owner is not a
third person under the circumstances, and the situation is governed by the rules of co-
ownership. 1

However, when, as in this case, the co-ownership is terminated by the partition and it appears
that the house of defendants overlaps or occupies a portion of 5 square meters of the land
pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of
Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the
said provision of the Civil Code may apply even when there was co-ownership if good faith has
been established. 2

Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to appropriate
said portion of the house of defendants upon payment of indemnity to defendants as provided
for in Article 546 of the Civil Code. Otherwise, the plaintiffs may oblige the defendants to pay the
price of the land occupied by their house. However, if the price asked for is considerably much
more than the value of the portion of the house of defendants built thereon, then the latter
cannot be obliged to buy the land. The defendants shall then pay the reasonable rent to the
plaintiff upon such terms and conditions that they may agree. In case of disagreement, the trial
court shall fix the terms thereof. Of course, defendants may demolish or remove the said portion
of their house, at their own expense, if they so decide.

WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff to


indemnify defendants for the value of the Id portion of the house of defendants in accordance
with Article 546 of the Civil Code, if plaintiffs elect to appropriate the same. Otherwise, the
defendants shall pay the value of the 5 square meters of land occupied by their house at such
price as may be agreed upon with plaintiffs and if its value exceeds the portion of the house that
defendants built thereon, the defendants may choose not to buy the land but defendants must
pay a reasonable rental for the use of the portion of the land of plaintiffs As may be agreed upon
between the parties. In case of disagreement, the rate of rental shall be determined by the trial
court. Otherwise, defendants may remove or demolish at their own expense the said portion of
their house. No costs.

SO ORDERED.
G.R. No. 72876 January 18, 1991

FLORENCIO IGNAO, petitioner,


vs.
HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his Legal Heirs,
and ISIDRO IGNAO, respondents.

Dolorfino and Dominguez Law Offices for petitioner.


Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.

FERNAN, C.J.:

In this petition for review by certiorari, petitioner seeks the reversal of the decision of the
Intermediate Appellate Court (now Court of Appeals) affirming in toto the decision of the Court
of First Instance of Cavite, ordering petitioner Florencio Ignao to sell to private respondents
Juan and Isidro Ignao, that part of his property where private respondents had built a portion of
their houses.

The antecedent facts are as follows:

Petitioner Florencio Ignao and his uncles private respondents Juan Ignao and Isidro Ignao were
co-owners of a parcel of land with an area of 534 square meters situated in Barrio Tabon,
Municipality of Kawit, Cavite. Pursuant to an action for partition filed by petitioner docketed as
Civil Case No. N-1681, the then Court of First Instance of Cavite in a decision dated February 6,
1975 directed the partition of the aforesaid land, alloting 133.5 square meters or 2/8 thereof to
private respondents Juan and Isidro, and giving the remaining portion with a total area of 266.5
square meters to petitioner Florencio. However, no actual partition was ever effected. 1

On July 17, 1978, petitioner instituted a complaint for recovery of possession of real property
against private respondents Juan and Isidro before the Court of First Instance of Cavite,
docketed as Civil Case No. 2662. In his complaint petitioner alleged that the area occupied by
the two (2) houses built by private respondents exceeded the 133.5 square meters previously
alloted to them by the trial court in Civil Case No. N-1681.

Consequently, the lower court conducted an ocular inspection. It was found that the houses of
Juan and Isidro actually encroached upon a portion of the land belonging to Florencio. Upon
agreement of the parties, the trial court ordered a licensed geodetic engineer to conduct a
survey to determine the exact area occupied by the houses of private respondents. The survey
subsequently disclosed that the house of Juan occupied 42 square meters while that of Isidro
occupied 59 square meters of Florencio's land or a total of 101 square meters.

In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private respondents
occupied a portion of Florencio's property, they should be considered builders in good faith. The
trial court took into account the decision of the Court of First Instance of Cavite in the action for
partition2 and quoted:

. . . . Hence, it is the well-considered opinion of the Court that although it turned out that
the defendants had, before partition, been in possession of more than what rightfully
belongs to them, their possession of what is in excess of their rightful share can at worst
be possession in good faith which exempts them from being condemned to pay
damages by reason thereof.3

Furthermore, the trial court stated that pursuant to Article 448 of the Civil Code, the owner of the
land (Florencio) should have the choice to either appropriate that part of the house standing on
his land after payment of indemnity or oblige the builders in good faith (Juan and Isidro) to pay
the price of the land. However, the trial court observed that based on the facts of the case, it
would be useless and unsuitable for Florencio to exercise the first option since this would render
the entire houses of Juan and Isidro worthless. The trial court then applied the ruling in the
similar case of Grana vs. Court of Appeals,4 where the Supreme Court had advanced a more
"workable solution". Thus, it ordered Florencio to sell to Juan and Isidro those portions of his
land respectively occupied by the latter. The dispositive portion of said decision reads as
follows:

WHEREFORE, judgment is hereby rendered in favor of the defendants and—

(a) Ordering the plaintiff Florencio Ignao to sell to the defendants Juan and Isidro Ignao
that portion of his property with an area of 101 square meters at P40.00 per square
meter, on which part the defendants had built their houses; and

(b) Ordering the said plaintiff to execute the necessary deed of conveyance to the
defendants in accordance with paragraph (a) hereof.

Without pronouncement as to costs.5

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985,
the Appellate Court, Second Civil Cases Division, promulgated a decision,6 affirming the
decision of the trial court.

Hence the instant petition for review which attributes to the Appellate Court the following errors:

1. That the respondent Court has considered private respondents builders in good faith
on the land on question, thus applying Art. 448 of the Civil Code, although the land in
question is still owned by the parties in co-ownership, hence, the applicable provision is
Art. 486 of the Civil Code, which was not applied.

2. That, granting for the sake of argument that Art. 448 . . . is applicable, the respondent
Court has adjudged the working solution suggested in Grana and Torralba vs. CA. (109
Phil. 260), which is just an opinion by way of passing, and not the judgment rendered
therein, which is in accordance with the said provision of the Civil Code, wherein the
owner of the land to buy (sic) the portion of the building within 30 days from the
judgment or sell the land occupied by the building.

3. That, granting that private respondents could buy the portion of the land occupied by
their houses, the price fixed by the court is unrealistic and pre-war price.7

The records of the case reveal that the disputed land with an area of 534 square meters was
originally owned by Baltazar Ignao who married twice. In his first marriage, he had four children,
namely Justo (the father of petitioner Florencio), Leon and private respondents Juan and Isidro.
In his second marriage, Baltazar had also four children but the latter waived their rights over the
controverted land in favor of Justo. Thus, Justo owned 4/8 of the land which was waived by his
half-brothers and sisters plus his 1/8 share or a total of 5/8. Thereafter, Justo acquired the 1/8
share of Leon for P500.00 which he later sold to his son Florencio for the same amount. When
Justo died, Florencio inherited the 5/8 share of his father Justo plus his 1/8 share of the land
which he bought or a total of 6/8 (representing 400.5 square meters). Private respondents, Juan
and Isidro, on the other hand, had 1/8 share (66.75 square meters) each of the land or a total of
133.5 square meters.

Before the decision in the partition case was promulgated, Florencio sold 134 square meters of
his share to a certain Victa for P5,000.00 on January 27, 1975. When the decision was handed
down on February 6,1975, the lower court alloted 2/8 of the land to private respondents Juan
and Isidro, or a total of 133.5 square meters.

It should be noted that prior to partition, all the co-owners hold the property in common dominion
but at the same time each is an owner of a share which is abstract and undetermined until
partition is effected. As cited in Eusebio vs. Intermediate Appellate Court,8 "an undivided estate
is co-ownership by the heirs."

As co-owners, the parties may have unequal shares in the common property, quantitatively
speaking. But in a qualitative sense, each co-owner has the same right as any one of the other
co-owners. Every co-owner is therefore the owner of the whole, and over the whole he
exercises the right of dominion, but he is at the same time the owner of a portion which is truly
abstract, because until division is effected such portion is not concretely determined.9

Petitioner Florencio, in his first assignment of error, asseverates that the court a quo erred in
applying Article 448 of the Civil Code, since this article contemplates a situation wherein the
land belongs to one person and the thing built, sown or planted belongs to another. In the
instant case, the land in dispute used to be owned in common by the contending parties.

Article 448 provides:

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

Whether or not the provisions of Article 448 should apply to a builder in good faith on a property
held in common has been resolved in the affirmative in the case of Spouses del Campo vs.
Abesia,10 wherein the Court ruled that:

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-
owner builds, plants or sows on the land owned in common for then he did not build,
plant or sow upon land that exclusively belongs to another but of which he is a co-owner.
The co-owner is not a third person under the circumstances, and the situation is
governed by the rules of co-ownership.

However, when, as in this case, the ownership is terminated by the partition and it
appears that the home of defendants overlaps or occupies a portion of 5 square meters
of the land pertaining to plaintiffs which the defendants obviously built in good faith, then
the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro
Amandi agree that the said provision of the Civil Code may apply even when there is a
co-ownership if good faith has been established.11

In other words, when the co-ownership is terminated by a partition and it appears that the house
of an erstwhile co-owner has encroached upon a portion pertaining to another co-owner which
was however made in good faith, then the provisions of Article 448 should apply to determine
the respective rights of the parties.

Petitioner's second assigned error is however well taken. Both the trial court and the Appellate
Court erred when they peremptorily adopted the "workable solution" in the case of Grana vs.
Court of appeals,12 and ordered the owner of the land, petitioner Florencio, to sell to private
respondents, Juan and Isidro, the part of the land they intruded upon, thereby depriving
petitioner of his right to choose. Such ruling contravened the explicit provisions of Article 448 to
the effect that "(t)he owner of the land . . . shall have the right to appropriate . . .or to oblige the
one who built . . . to pay the price of the land . . . ." The law is clear and unambiguous when it
confers the right of choice upon the landowner and not upon the builder and the courts.

Thus, in Quemuel vs. Olaes,13 the Court categorically ruled that the right to appropriate the
works or improvements or to oblige the builder to pay the price of the land belongs to the
landowner.

As to the third assignment of error, the question on the price to be paid on the land need not be
discussed as this would be premature inasmuch as petitioner Florencio has yet to exercise his
option as the owner of the land.
WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner Florencio
Ignao is directed within thirty (30) days from entry of judgment to exercise his option to either
appropriate as his own the portions of the houses of Juan and Isidro Ignao occupying his land
upon payment of indemnity in accordance with Articles 546 and 548 of the Civil Code, or sell to
private respondents the 101 square meters occupied by them at such price as may be agreed
upon. Should the value of the land exceed the value of the portions of the houses that private
respondents have erected thereon, private respondents may choose not to buy the land but
they must pay reasonable rent for the use of the portion of petitioner's land as may be agreed
upon by the parties. In case of disagreement, the rate of rental and other terms of the lease
shall be determined by the trial court. Otherwise, private respondents may remove or demolish
at their own expense the said portions of their houses encroaching upon petitioner's land.14 No
costs.

SO ORDERED.
G.R. No. 73418 September 20, 1988

PELICULA SABIDO and MAXIMO RANCES, petitioners,


vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and DOMINADOR STA.
ANA, respondents.

GUTIERREZ, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the then Intermediate
Appellate Court which nullified the orders of the trial court for the issuance of the writs of
execution and demolition in favor of the petitioners and which ordered the trial court to assess
the value of the demolished properties of the private respondent for the purposes of set-off
against respondent's liability to the petitioners.

This case originated from an action for quieting of title which was filed by the spouses Victor
Dasal and Maria Pecunio against herein petitioners, Maximo Rances and Pelicula Sabido on the
question of ownership over two parcels of land otherwise known as Lots "B" and "D".

On October 7, 1969, the trial court presided by Judge Delfin Sunga declared the petitioners as
owners of Lots "B" and "D". The decision became final. However, when the decision was being
carried out to put the petitioners in possession of Lot "B", the Provincial Sheriff found three (3)
persons occupying portions of Lot "B". One of them was private respondent Dominador Sta.
Ana.

The petitioners filed a motion to require the private respondent to show cause why he should
not be ejected from the portion of Lot "B". In his answer, Sta. Ana claimed ownership by
purchase from one Prudencio Lagarto, of a bigger area of which Lot "B" is a part. He stated that
the two other persons occupying the disputed portion are his tenants.

Subsequently, an order of demolition was issued by the trial court against the private
respondent. This order was challenged by the private respondent and upon his filing of certiorari
proceedings, this Court on November 26, 1973, set aside the order of the trial court and
remanded the case to the latter for further reception of evidence to determine: 1) Whether or not
the private respondent is privy to the spouses Victor Dasal and Maria Pecunio as the losing
parties in the action below; and 2) Whether or not the petitioners and the private respondent are
litigating over the same parcel of land or whether there is overlapping of boundaries of their
respective lands.

On December 12, 1974, after conducting an ocular inspection and hearing, Judge Sunga issued
an order for the private respondent to vacate Lot "B" upon finding that there is no proof that
what the respondent allegedly purchased from Lagarto covers a portion of Lot "B" but on the
contrary, the deed of sale and tax declaration show that what was sold to the respondent was
bounded on the south by Tigman river and therefore, the respondent's ownership could not
have extended to Lot "B" which was separated by the Tigman river and mangrove swamps from
the portion he purchased.

Before the order of December 12, 1974, could be executed, however, Judge Sunga inhibited
himself from the case so the same was transferred to the then Court of First Instance (now
Branch M, Regional Trial Court) of Naga City presided by Judge Mericia B. Palma.

The execution of the order met with some further delay when the records were reconstituted.
Judge Palma, feeling the need for a clearer understanding of the facts and issues involved in
the case, proceeded to hear and received evidence.

On May 16, 1983, Judge Palma issued a resolution finding that there was privity between the
private respondent and the spouses Victor Dasal and Maria Pecunio as to the ownership of Lot
"C" and as to the possession over the western portion of the private road and the disputed Lot
"B"; and that Lot "B" and the private road are not included in the land purchased by the
respondent from Lagarto.

According to the trial court, the private respondent was in the company of Dasal (from whom he
was renting Lot "C' and who was also the brother-in-law of Lagarto) and was present when
Commissioner Tubianosa inspected the land in question in 1953 supporting the claim that the
respondent knew that the land was already in dispute between Dasal and the petitioners; and if
the respondent really believed that he owns the entire Lot "B" and the private road, he should
have raised his claim of ownership when Tubianosa inspected the land. The respondent also
failed to include the land in dispute in the survey of his purchased lot with the flimsy excuse that
the surveyor failed to return to finish the survey and include the disputed land.

Before arriving at the above findings, however, the trial court clarified the issues involved in the
case. It said:

WE NOW come to the RESOLUTION OF THE TWO ISSUES: (1) Was there
privity between Petitioner Sta. Ana and Plaintiffs Dasal? and (2) Is the disputed
area Identified in paragraph 1 of the foregoing enumeration, part of the land
purchased by Petitioner from Prudencio Lagarto?

If there is a privity between the Petitioner and Dasal, then the Petitioner is bound
by the final decision in this CC No. R-396 (2040) against Dasal and therefore
Petitioner is subject to the order of execution and is bound to vacate the land in
question or subject a portion of his house and the surrounding walls to
demolition. If there is no privity then he is not bound by said final decision. (Rollo,
pp. 48-49).

In the dispositive portion, however, the trial court held:

WHEREFORE, premises considered, the Court finds:

1.) That there is privity between the petitioner and the plaintiffs spouses Victor
Dasal and Maria Pecunio as to ownership of Lot C and as to the possession over
the western portion of the private road and the disputed Lot B as so Identified in
Exhibit 5;

2.) That the private road Identified as within points 1, 2, 3, 4, 5, 6 and 1 in Exh. 5
is owned by the respondents as already decided in CC No. 1103, and the same
private road and the Lot B in Exhibit 5 are both owned by the respondents as
already decided in this CC No. R-396 (2040);

3.) That the balcony of the present house of the petitioner is located in the
disputed Lot B and its southern (or southeastern) part of the western portion of
the 'private road';

xxx xxx xxx

6.) That therefore, this Court recommends to the Honorable Supreme Court, that
the petitioner be ordered to remove the entire balcony and the northern portion of
the main house to the extent of about one meter found to be standing on the
private road, as well as the northern extension of the hollow block walls on the
eastern boundary of Lot C that stand on the private road and to the northern end
of Lot B which wall measures to a total length of about 15 meters from the
northern boundary of Lot B to the southern edge of the private road; or in the
alternative to require the petitioner to pay the respondents the value of the
western portion of the disputed area which is now enclosed in the wall
constructed by the petitioner;

7.) And to hold the petitioner liable to the respondents for reasonable attorney's
fees and damages. (Rollo, p. 52)
On June 7, 1983, the private respondent filed with this Court a pleading captioned "Notice of
Appeal for Review." Said petition was denied in this Court's resolution on October 26,1983, to
wit:

L-32642 (Dominador Sta. Ana v. Hon. Delfin Vir, Sunga, etc., et al.). Considering
the petition of petitioner for review of trial court resolution dated May 16, 1983,
the Court Resolved to DENY the petition, said resolution of May 16, 1983, being
in accord with the decision of November 26, 1973 (Rec., p. 438) and the
resolution of May 16, 1975 (idem, p. 595) as well as the order of December
12,1974 (idem, p. 500) which ordered the petitioner to vacate the premises
(which is presumably final). As stated in the aforesaid resolution of May 16, 1975,
any review has to be sought by timely appeal to the appellate court and cannot
be sought in this case. (Rollo, p. 65).

A series of resolutions were subsequently issued by this Court denying the private respondent's
motion to reconsider the above-quoted resolution. Finally, on February 27, 1984, this Court
issued a resolution ordering "the Chief of the Judgment Division of this Court to RETURN the
records thereof to the respondent court for execution of judgment."

On August 9, 1984, the petitioners filed motion for execution of judgment, accompanied by a bill
of costs, as follows: 1) Attorney's fees — P 25,000.00; 2) Cost of litigation — P7,000.00; 3)
Expenses for transcript of record — P600.00; 4) Expenses for xeroxing of important papers and
documents-P 500.00; 5) Accrued rentals for the lot in question P11,800.00 and 6) Legal interest
of accrued rentals at 12% a year — P1,436.00 for a total of P46,336.00.

On October 5, 1984, the trial court issued an order granting the petitioners' motion for execution
and application for a writ of attachment and approving the bill of costs. In said order, the trial
court ordered the demolition of any part of the private respondent's building and all other
construction within Lot "B" and the private road. The demolition was effected.

The private respondent appealed to the then Intermediate Appellate Court, contending that the
order of the trial court departed from the intention of the Supreme Court's resolution ordering
execution of the judgment, for it thereby deprived him of the alternative choice of paying the
value of the disputed area which was allowed in the trial court's resolution of May 16, 1983,
which the Supreme Court found to be in accord with, among others, its decision in G.R. No. L-
32642 (Sta. Ana v. Sunga, 54 SCRA 36).

On September 20, 1985, the appellate court rendered the assailed decision, the dispositive
portion of which provided;

WHEREFORE, the writs of certiorari and prohibition applied for are granted. The
Order of October 5, 1984 approving the bill of courts and granting execution of
'previous orders', as well as the order/writ of demolition are hereby set aside,
Respondent Court is ordered to forthwith determine the value of the demolished
portion of petition of petitioner's residential building and other structures affected
by the demolition and also, to assess the value of the disputed area for purposes
of set off and whatever is the excess in value should be paid to the party entitled
thereto. (Rollo, pp. 40-41)

In its decision, the appellate court explained the rationale behind the dispositive portion. It said:

xxx xxx xxx

The unqualified affirmance of said resolution of May 16, 1983, to Our Mind,
carried with it the approval of the above recommendation. The fact that the
Supreme Court was silent on the recommended alternative choice of demolition
and payment of the disputed area and merely returned the records for execution
of judgment, did not indicate that the recommended demolition was preferred.
The sufficiency and efficacy of the resolution of May 16, 1983, as the judgment to
be enforced or executed, cannot be doubted considering its substance rather
than its form. The aforequoted recommendation, itself the dispositive portion, can
be ascertained as to its meaning and operation. Thereby, the petitioner is given
the option to pay the value of the western portion of the disputed area which is
enclosed in the wall constructed by said petitioner. It is petitioner who is given the
alternative choice since if he does not pay, then he can be ordered to remove
whatever structure he had introduced in the questioned premises. Notably,
petitioner indicated his willingness to pay the price of the disputed area or
otherwise exercised that option.

Respondent Court therefore acted with grave abuse of discretion tantamount to


lack or excess of jurisdiction in abandoning the alternative choice of payment of
the value of the area in dispute, which it authorized in its final resolution of May
16, 1983, when it ordered execution of its 'previous orders' for the petitioner to
vacate the land in question and for demolition, which was set aside when the
case was remanded for hearing pursuant to the Supreme Court decision of
November 26, 1973. The previous orders referred to have not been specified by
the respondent Court in its Order of October 6, 1984. If it is the Order of
December 12, 1974 which is being referred to by respondent Court, it should
have so specified; however, it did not presumably because it was reconsidered
as can be deduced from the fact that thereafter, respondent Court further heard
the parties and received their respective evidence in compliance with the
decision of November 26, 1973, or which proceedings, the respondent Court
issued its resolution of May 16, 1983. (Rollo, p. 38)

In the petition before us, the petitioners maintain that the appellate court committed grave abuse
of discretion when it granted the private respondent the option of exercising the alternative
choice of staying in the disputed land when it has been established that the private respondent
was in privy with the spouses Victor Dasal and Maria Pecunio and, therefore, he could not be
considered a builder in good faith as to entitle him to the alternative choice of retention; and that
the demolition of the private respondent's construction on Lot "B" and on the private road is a
logical consequence of the finding that he was privy to the losing parties who were also the
adversaries of the petitioners in the original case.

We agree.

When this Court ordered the remand of the case between the petitioners and the private
respondent in our decision of November 26, 1973 (see Sta. Ana v. Sunga, supra), it was
precisely to determine whether herein respondent was privy to the spouses Dasals as to make
the decision against the latter and in favor of the petitioners over Lot "B" binding upon him. And
this fact was clearly pointed out by Judge Palma in her resolution of May 16, 1983 stating that if
there is privity between the private respondent and the spouses Dasals, then the former is
bound by the final decision in CC No. R-396 (2040) which is the case between the Dasals and
the petitioners. However, an apparent confusion was brought about by the dispositive portion of
the aforementioned resolution when it recommended to this Court either to order the respondent
to remove all his constructions over Lot "B" or to require said respondent to pay the petitioners
the value of the disputed area which was already enclosed by a wall constructed by the
respondent. This, nevertheless, was rectified when we issued the series of resolutions denying
the respondent's petition and motions for reconsideration before this Court wherein we stated
that the resolution of May 16, 1983 was in accord, among others, with the order of December
12, 1974 "which ordered the petitioner (private respondent) to vacate the premises (which is
presumably final)."

Hence, it is clear that the private respondent has to remove all his constructions over Lot "B"
and vacate the premises. This is his only option. Being adjudged in privy with the spouses
Dasals, he cannot avail himself of the rights granted to a builder in good faith. He, therefore,
must remove all his useful improvements over Lot "B" at his own expense and if the same have
already been removed, he cannot be entitled to the right of retention or to any reimbursement.
Thus, in the case of Metropolitan Waterworks and Sewarage System v. Court of Appeals, (143
SCRA 623, 629), we ruled:

Article 449 of the Civil Code of the Philippines provides that "he who builds,
plants or sows in bad faith on the land of another, loses what is built, planted or
sown without right to indemnity." As a builder in bad faith, NAWASA lost
whatever useful improvements it had made without right to indemnity (Santos v.
Mojica, Jan. 31, 1969, 26 SCRA 703)

Moreover, under Article 546 of said code, only a possessor in good faith shall be
refunded for useful expenses with the right of retention until reimbursed; and
under Article 547 thereof, only a possessor in good faith may remove useful
improvements if this can be done without damage to the principal thing and if the
person who recovers the possession does not exercise the option of reimbursing
the useful expenses. The right given a possessor in bad faith to remove
improvements applies only to improvements for pure luxury or mere pleasure,
provided the thing suffers no injury thereby and the lawful possessor does not
prefer to retain them by paying the value they have at the time he enters into
possession (Article 549, Id.).

We, therefore, find that the appellate court committed reversible error in holding that the private
respondent is entitled to exercise the option to pay the value of the disputed area of Lot "B" and
to reimbursement for the value of the demolished portion of his building. We, however, affirm its
ruling that the petitioner's bill of costs must be set aside and that while the resolution of May 16,
1983 included attorney's fees and damages, the necessity of proof cannot be dispensed with.
Since no proof was presented before the trial regarding any of these claims, they cannot be
awarded.

WHEREFORE, the petition is GRANTED and the decision of the court of Appeals dated
September 20, 1985 is ANNULED and SET ASIDE. The writ of attachment issued by the trial
court for the purpose of satisfying the award for damages and the bill of costs is, however,
permanently SET ASIDE.

SO ORDERED.
G.R. No. 117642 April 24, 1998

EDITHA ALVIOLA and PORFERIO ALVIOLA, Petitioners, vs.HONORABLE COURT OF


APPEALS, FORENCIA BULING Vda de TINAGAN, DEMOSTHENES TINAGAN, JESUS
TINAGAN, ZENAIDA T., JOSEP and JOSEPHINE TINAGAN, Respondents.

MARTINEZ, J.:

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

Culled from the record are the following antecedent facts of this case to wit:

On April 1, 1950, Victoria Sonjaconda Tinagan purchased from Mauro Tinagan two (2) parcels
of land situated at Barangay Bongbong, Valencia, Negros Oriental. 2 One parcel of land contains
an area of 5,704 square meters, more or less; 3 while the other contains 10,860 square
meters. 4 Thereafter, Victoria and her son Agustin Tinagan, took possession of said parcels of
land.

Sometime in 1960, petitioners occupied portions thereof whereat they built a copra dryer and
put up a store wherein they engaged in the business of buying and selling copra.

On June 23, 1975, Victoria died. On October 26, 1975, Agustin died, survived by herein private
respondents, namely his wife, Florencia Buling Vda. de Tinagan and their children
Demosthenes, Jesus, Zenaida and Josephine, all surnamed Tinagan.

On December 24, 1976, petitioner Editha assisted by her husband filed a complaint for partition
and damages before the then Court of First Instance of Negros Oriental, Branch 1, Dumaguete
City, docketed as Civil Case No. 6634, claiming to be an acknowledged natural child of
deceased Agustin Tinagan and demanding the delivery of her shares in the properties left by
the deceased. 5

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

Petitioners assailed the order of dismissal by filing a petition for certiorari and mandamus before
this Court. 7 On August 9, 1982, this Court dismissed the petition for lack of merit. 8 Petitioners
filed a motion for reconsideration but the same was denied on October 19, 1982. 9

On March 29, 1988, private respondents filed a complaint for recovery of possession against
Editha and her husband Porferio Alviola before the Regional Trial Court of Negros Oriental,
Branch 35, Dumaguete City, docketed as Civil Case No. 9148, praying, among others, that they
be declared absolute owners of the said parcels of land, and that petitioners be ordered to
vacate the same, to remove their copra dryer and store, to pay actual damages (in the form of
rentals), moral and punitive damages, litigation expenses and attorney's fees. 10

In their answer, petitioners contend that they own the improvements in the disputed properties
which are still public land; that they are qualified to be beneficiaries of the comprehensive
agrarian reform program and that they are rightful possessors by occupation of the said
properties for more than twenty years. 11

After trial, the lower court rendered judgment in favor of the private respondents, the dispositive
portion of which reads:
WHEREFORE, premises considered, in Civil Case No. 9148, for Recovery of Property, the
court hereby renders judgment:

a) Declaring plaintiffs as the absolute owners of the land in question including the portion
claimed and occupied by defendants;

b) Ordering defendants Editha Alviola and her husband Porfirio Alviola to peacefully vacate and
to surrender the possession of the premises in question to plaintiffs; Defendants may remove
their store and dryer on the premises without injury and prejudice to the plaintiffs;

c) Ordering defendants to pay the following amounts to the plaintiffs:

1. P150.00 monthly rentals from April 1988 up to the time the improvements in the questioned
portions are removed;

2. P5,000.00 for attorney's fees;

3. P3,000.00 for litigation expenses and to pay the costs.

SO ORDERED. 12

Petitioners appealed to the Court of Appeals. On April 8, 1994, the respondent court rendered
its decision, 13 affirming the judgment of the lower court. Petitioners filed a motion for
reconsideration 14but the same was denied by the respondent court in an order dated October 6,
1994. 15

Hence, this petition.

Petitioners aver that respondent court erred in declaring private respondents the owners of the
disputed properties. They contend that ownership of a public land cannot be declared by the
courts but by the Executive Department of the Government, citing the case of Busante
vs. Hon. Court of Appeals, Oct. 20, 1992, 214 SCRA 774; and that the respondent court erred in
not considering that private respondents' predecessor-in-interest, Victoria Sonjaco Tinagan,
during her lifetime, ceded her right to the disputed properties in favor of petitioners.

Moreover, petitioners maintain that the respondent court erred in holding that they were in bad
faith in possessing the disputed properties and in ruling that the improvements thereon are
transferable. They claim that the copra dryer and the store are permanent structures, the walls
thereof being made of hollow-blocks and the floors made of cement.

Private respondents counter that the question of whether or not the disputed properties are
public land has been resolved by overwhelming evidence showing ownership and possession
by the Tinagans and their predecessors-in-interest prior to 1949. They further aver that they
merely tolerated petitioners' possession of the disputed properties for a period which was less
than that required for extraordinary prescription.

The petition must fail.

Petitioners claim that the disputed properties are public lands. This is a factual issue. The
private respondents adduced overwhelming evidence to prove their ownership and possession
of the two (2) parcels of land on portions of which petitioners built the copra dryer and a store.
Private respondents' tax declarations and receipts of payment of real estate taxes, as well as
other related documents, prove their ownership of the disputed properties. As stated previously
in the narration of facts, these two (2) parcels of land were originally owned by Mauro Tinagan,
who sold the same to Victoria S. Tinagan on April 1, 1950, as evidenced by a Deed of
Sale, 16 wherein the two (2) lots, Parcels 1 and 2, are described. 17 Anent Parcel 1, tax
declarations indicate that the property has always been declared in the name of the Tinagans.
The first, Tax Declaration No. 3335 18 is in the name of Mauro Tinagan. It was thereafter
cancelled by Tax Declaration No. 19534 effective 1968, 19 still in the name of Mauro. This
declaration was cancelled by Tax Declaration No. 016740 now in the name of Agustin
Tinagan, 20 effective 1974, followed by Tax Declaration No. 08-421 in the name of Jesus
Tinagan, effective 1980; 21 and finally by Tax Declaration No. 08-816 in the name of Jesus
Tinagan, effective 1985. 22

With regard to Parcel 2, private respondents presented Tax Declaration No. 20973 in the name
of Mauro Tinagan, effective 1959, 23 Tax Declaration No. 016757, effective 1974; 24 Tax
Declaration No. 08-405-C in the name of Agustin Tinagan, effective 1980 25 and Tax Declaration
No. 08-794 in the name of Agustin Tinagan, effective 1985. 26 Moreover, the realty taxes on the
two lots have always been paid by the private respondents. 27There can be no doubt, therefore,
that the two parcels of land are owned by the private respondents.

The record further discloses that Victoria S. Tinagan and her son, Agustin Tinagan, took
possession of the said properties in 1950, introduced improvements thereon, and for more than
40 years, have been in open, continuous, exclusive and notorious occupation thereof in the
concept of owners.

Petitioners' own evidence recognized the ownership of the land in favor of Victoria Tinagan. In
their tax declarations, 28 petitioners stated that the house and copra dryer are located on the
land of Victoria S. Tinagan/Agustin Tinagan. By acknowledging that the disputed portions
belong to Victoria/Agustin Tinagan in their tax declarations, petitioners' claim as owners thereof
must fail.

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

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

This claim of the petitioners was brushed aside by the respondent court as merely an
afterthought, thus -

Appellants' claim that they have acquired ownership over the floor areas of the store and dryer
"in consideration of the account of Agustin Tinagan in the sum of P7,602.04" is not plausible. It
is more of an "after-thought" defense which was not alleged in their answer. Although the
evidence presented by them in support of this particular claim was not duly objected to by
counsel for appellees at the proper time and therefore deemed admissible in evidence, an
examination of the oral and documentary evidence submitted in support thereof, reveals the
weakness of their claim.

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

Concededly, petitioners have been on the disputed portions since 1961. However, their stay
thereon was merely by tolerance on the part of the private respondents and their predecessor-
in-interest. The evidence shows that the petitioners were permitted by Victoria Sanjoco Tinagan
to build a copra dryer on the land when they got married. Subsequently, petitioner Editha
Alviola, claiming to be the illegitimate daughter of Agustin Tinagan, filed a petition for partition
demanding her share in the estate of the deceased Agustin Tinagan on December 6, 1976.
However, the petition was dismissed since it was brought only after the death of Agustin
Tinagan. This Court dismissed the petition for certiorari and mandamus filed by petitioner Editha
Alviola on August 9, 1982. It was on March 29, 1988, when private respondents filed this
complaint for recovery of possession against petitioners. Considering that the petitioners'
occupation of the properties in dispute was merely tolerated by private respondents, their
posture that they have acquired the property by "occupation" for 20 years does not have any
factual or legal foundation.

As correctly ruled by the respondent court, there was bad faith on the part of the petitioners
when they constructed the copra dryer and store on the disputed portions since they were fully
aware that the parcels of land belonged to Victoria Tinagan. And, there was likewise bad faith
on the part of the private respondents, having knowledge of the arrangement between
petitioners and Victoria Tinagan relative to the construction of the copra dryer and store. Thus,
for purposes of indemnity, Article 448 of the New Civil Code should be applied. 32 However, the
copra dryer and the store, as determined by the trial court and respondent court, are
transferable in nature. Thus, it would not fall within the coverage of Article 448. As the noted civil
law authority, Senator Arturo Tolentino, aptly explains: "To fall within the provision of this Article,
the construction must be of permanent character, attached to the soil with an idea of perpetuity;
but if it is of a transitory character or is transferable, there is no accession, and the builder must
remove the construction. The proper remedy of the landowner is an action to eject the builder
from the land." 33

The private respondents' action for recovery of possession was the suitable solution to eject
petitioners from the premises.

WHEREFORE, this petition should be, as it is hereby, DISMISSED.

The assailed decision is hereby AFFIRMED.

SO ORDERED.
G.R. No. L-33422 May 30, 1983

ROSENDO BALUCANAG, petitioner,


vs.
HON. JUDGE ALBERTO J. FRANCISCO and RICHARD STOHNER, respondents.

Alfredo C. Estrella for petitioner.

Pascual C. Garcia for respondents.

ESCOLIN, J.:

This petition for review of the decision of the Court of First Instance of Manila in Civil Case No.
67503 calls for a determination of the respective rights of the lessor and the lessee over the
improvements introduced by the latter in the leased premises.

Cecilia dela Cruz Charvet was the owner of a 177.50 square meter lot located in Zamora Street,
Pandacan, Manila, covered by Transfer Certificate of Title No. 25664. On August 31, 1952, Mrs.
Charvet leased said lot to respondent Richard Stohner for a period of five [5] years at the
monthly rental of 2140.00, payable in advance within the first ten [10] days of each month. The
lease contract 1 provided, among others, that:

IV. The lessee may erect such buildings upon and make such improvements to
the leased land as he shag see fit. All such buildings and improvements shall
remain the property of the lessee and he may remove them at any nine, it being
agreed, however, that should he not remove the said buildings and
improvements within a period of two months after the expiration of this
Agreement, the Lessor may remove the said buildings and improvements or
cause them to be removed at the expense of the Lessee.

During the existence of the lease, Stohner made fillings on the land and constructed a house
thereon, said improvements being allegedly valued at P35,000.00.

On March 8, 1966, Mrs. Charvet sold the said lot to petitioner Rosendo Balucanag.2

For Stohner's failure to pay the rents, Balucanag, thru counsel, wrote Stohner a letter
demanding that he vacate the premises. 3 In reply thereto, Stohner, also thru counsel, claimed
that he was a builder in good faith of the residential house erected in the land. He offered the
following proposals for a possible compromise, to wit:

[a] Mr. Stohner will purchase the said lot from your client with the interest of 12%
per annum on the value, or

[b] Your client Mr. Rosendo Balucanag will reimburse our client in the total
amount of P35,000.00 for the improvements and construction he has made on
the lot in question.

As no agreement was reached, Balucanag instituted in the City Court of Manila an ejectment
suit against Stohner and, after due trial, the court rendered a decision, the decretal portion of
which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby


rendered, ordering the defendant to pay the plaintiff the sum of P360.00 as back
rentals from December, 1965 to August 1966 at the rate of P40.00 a month and
to vacate the premises. The defendant is further ordered to pay the sum of
P100.00 as Attomey's fees which is considered reasonable within the premises.
On appeal, the Court of First Instance of Manila, Branch IX, presided by respondent Judge
Alberto J. Francisco, after conducting a trial de novo, rendered a decision, setting aside the
judgment of the city court and dismissing the petitioner's complaint. Respondent judge held that
Stohner was a builder in good faith because he had constructed the residential house with the
consent of the original lessor, Mrs. Charvet, and also because the latter, after the expiration of
the lease contract on August 31, 1957, had neither sought Stohner's ejectment from the
premises, nor the removal of his house therefrom. Invoking Articles 448 and 546 of the Civil
Code. 4 respondent judge concluded that Stohner, being a builder in good faith, cannot be
ejected until he is reimbursed of the value of the improvements.

Frustrated in his effort to have the decision reconsidered, Balucanag filed the instant petition for
review.

We find the petition impressed with merit. Paragraph IV of the lease contract entered into by
Stohner with Mrs. Charvet specifically provides that "... such buildings and improvements shan
remain the property of the lessee and he may remove them at any time, it being agreed,
however, that should he not remove the said buildings and improvements within a period of two
months after the expiration of this Agreement, the Lessor may remove the said buildings and
improvements or cause them to be removed at the expense of the Lessee." Respondent
Stohner does not assail the validity of this stipulation, Neither has he advanced any reason why
he should not be bound by it.

But even in the absence of said stipulation, respondent Stohner cannot be considered a builder
in good faith. Article 448 of the Civil Code, relied upon by respondent judge, applies only to a
case where one builds on land in the belief that he is the owner thereof and it does not apply
where one's only interest in the land is that of a lessee under a rental contract. In the case at
bar, there is no dispute that the relation between Balucanag and Stohner is that of lessor and
lessee, the former being the successor in interest of the original owner of the lot. As we ruled
in Lopez, Inc. vs. Phil. and Eastern Trading Co., Inc., 5 "... the principle of possessor in good
faith refers only to a party who occupies or possess property in the belief that he is the owner
thereof and said good faith ends only when he discovers a flaw in his title so as to reasonably
advise or inform him that after all he may not be the legal owner of said property. It cannot apply
to a lessee because as such lessee he knows that he is not the owner of he leased premises.
Neither can he deny the ownership or title of his lessor. ... A lessee who introduces
improvements in the leased premises, does so at his own risk in the sense that he cannot
recover their value from the lessor, much less retain the premises until such reimbursement. ..."

The law applicable to the case at bar is Article 1678 of the Civil Code, which We quote:

Art. 1678. If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form or
substance of the property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the value of the improvements at the time.
Should the lessor refuse to reimburse said amount, the lessee may remove the
improvements, even though the principal thing may suffer damage thereby. He
shall not, however, cause any more impairment upon the property leased than is
necessary. ...

This article gives the lessor the option to appropriate the useful improvements by paying one-
half of their value, 6And the lessee cannot compel the lessor to appropriate the improvements
and make reimbursement, for the lessee's right under the law is to remove the improvements
even if the leased premises may suffer damage thereby. But he shall not cause any more
damage upon the property than is necessary.

One last point. It appears that while the lease contract entered into by Stohner and Mrs. Charvet
had expired on August 31, 1957, he nevertheless continued in possession of the premises with
the acquiescence of Mrs. Charvet and later, of Balucanag. An implied new lease or tacita
reconduccion was thus created between the parties, the period of which is established by Article
1687 of the Civil Code thus:
Art. 1687. If the period for the lease has not been fixed, it is understood to be
from year to year, if the rent agreed upon is annual; from month to month, if it is
monthly: from week to week, if the rent is weekly: and from day to day, if the rent
is to be paid daily. ...

Under the above article, the duration of the new lease must be deemed from month to month,
the agreed rental in the instant case being payable on a monthly basis. The lessor may thus
terminate the lease after each month with due notice upon the lessee. After such notice, the
lessee's right to continue in possession ceases and his possession becomes one of detainer.
Furthermore, Stohner's failure to pay the stipulated rentals entities petitioner to recover
possession of the premises.

WHEREFORE, the decision in Civil Case No. 67503 is hereby set aside, with costs against
respondent Stohner. The latter is ordered to vacate the premises in question and to pay Rogelio
Balucanag the rentals due from March 1969 up to the time he surrenders the premises, at the
rate of P40.00 a month.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion, Jr., and Guerrero, JJ., concur.

De Castro, J., took no part.

Separate Opinions

ABAD SANTOS, J., concurring and dissenting:

I concur in setting aside the decision in Civil Case No. 67503 of the defunct Court of First
Instance of Manila; and in ordering the respondent Stohner to pay the costs, to vacate the
premises in question, and to pav the petitioner the rentals due from March 1969 to the time he
surrenders the premises at the rate of P40.00 monthly. However, I cannot give my assent to that
portion of the judgment with respect to the house constructed by Stohner.

Stohner as a lessee is not a builder in good faith. This is elementary in property law.

Article 1678 of the Civil Code concerning improvements made by the lessee on the leased
premises applies only in the absence of stipulation on the matter between the lessor and the
lessee. In the instant case theres such a stipulation. A copy of the Lease Agreement which is
found on page 13 of the Rollo reads:

IV. The lessee may erect such buildings upor and make such improvements to
the leased land as he shall see fit. AR such buildings and improvements shall
remain the property of the lessee and he may remove them at any nine, it being
agreed, however, that should he not remove the 96d buildings and improvements
within a period of two months after the expiration of this Agreement, the Lessor
may remove the said buildings and improvements or cause them to be removed
at the expense of the Lessee.

The above-quoted stipulation has the force of law between the parties (Art. 1159, Civil Code)
and supersedes Art. 1678 of the Civil Code. Accordingly, the judgment with respect to the house
which was constructed by Stohner should be in line with the contract of lease.
Separate Opinions

ABAD SANTOS, J., concurring and dissenting:

I concur in setting aside the decision in Civil Case No. 67503 of the defunct Court of First
Instance of Manila; and in ordering the respondent Stohner to pay the costs, to vacate the
premises in question, and to pav the petitioner the rentals due from March 1969 to the time he
surrenders the premises at the rate of P40.00 monthly. However, I cannot give my assent to that
portion of the judgment with respect to the house constructed by Stohner.

Stohner as a lessee is not a builder in good faith. This is elementary in property law.

Article 1678 of the Civil Code concerning improvements made by the lessee on the leased
premises applies only in the absence of stipulation on the matter between the lessor and the
lessee. In the instant case theres such a stipulation. A copy of the Lease Agreement which is
found on page 13 of the Rollo reads:

IV. The lessee may erect such buildings upor and make such improvements to
the leased land as he shall see fit. AR such buildings and improvements shall
remain the property of the lessee and he may remove them at any nine, it being
agreed, however, that should he not remove the 96d buildings and improvements
within a period of two months after the expiration of this Agreement, the Lessor
may remove the said buildings and improvements or cause them to be removed
at the expense of the Lessee.

The above-quoted stipulation has the force of law between the parties (Art. 1159, Civil Code)
and supersedes Art. 1678 of the Civil Code. Accordingly, the judgment with respect to the house
which was constructed by Stohner should be in line with the contract of lease.
G.R. No. 134329 January 19, 2000

VERONA PADA-KILARIO and RICARDO KILARIO, petitioners,


vs.
COURT OF APPEALS and SILVERIO PADA, respondents.

DE LEON, JR., J.:

The victory1 of petitioner spouses Ricardo and Verona Kilario in the Municipal Circuit Trial
Court2 in an ejectment suit3 filed against them by private respondent Silverio Pada, was foiled by
its reversal4 by the Regional Trial Court5on appeal. They elevated their cause6 to respondent
Court of Appeals7 which, however, promulgated a Decision8 on May 20, 1998, affirming the
Decision of the Regional Trial Court.

The following facts are undisputed:

One Jacinto Pada had six (6) children, namely, Marciano, Ananias, Amador, Higino, Valentina
and Ruperta. He died intestate. His estate included a parcel of land of residential and coconut
land located at Poblacion, Matalom, Leyte, denominated as Cadastral Lot No. 5581 with an area
of 1,301.92 square meters. It is the northern portion of Cadastral Lot No. 5581 which is the
subject of the instant controversy.

During the lifetime of Jacinto Pada, his half-brother, Feliciano Pada, obtained permission from
him to build a house on the northern portion of Cadastral Lot No. 5581. When Feliciano died, his
son, Pastor, continued living in the house together with his eight children. Petitioner Verona
Pada-Kilario, one of Pastor's children, has been living in that house since 1960.

Sometime in May, 1951, the heirs of Jacinto Pada entered into an extra-judicial partition of his
estate. For this purpose, they executed a private document which they, however, never
registered in the Office of the Registrar of Deeds of Leyte.

At the execution of the extra-judicial partition, Ananias was himself present while his other
brothers were represented by their children. Their sisters, Valentina and Ruperta, both died
without any issue. Marciano was represented by his daughter, Maria; Amador was represented
by his daughter, Concordia; and Higina was represented by his son, Silverio who is the private
respondent in this case. It was to both Ananias and Marciano, represented by his daughter,
Maria, that Cadastral Lot No. 5581 was allocated during the said partition. When Ananias died,
his daughter, Juanita, succeeded to his right as co-owner of said property.

On June 14, 1978, Juanita Pada sold to Engr. Ernesto Paderes, the right of his father, Ananias,
as co-owner of Cadastral Lot No. 5881.

On November 17, 1993, it was the turn of Maria Pada to sell the co-ownership right of his father,
Marciano. Private respondent, who is the first cousin of Maria, was the buyer.

Thereafter, private respondent demanded that petitioner spouses vacate the northern portion of
Cadastral Lot No. 5581 so his family can utilize the said area. They went through a series of
meetings with the barangay officials concerned for the purpose of amicable settlement, but all
earnest efforts toward that end, failed.

On June 26, 1995, private respondent filed in the Municipal Circuit Trial Court of Matalom,
Leyte, a complaint for ejectment with prayer for damages against petitioner spouses.

On July 24, 1995, the heirs of Amador Pada, namely, Esperanza Pada-Pavo, Concordia Pada-
Bartolome, and Angelito Pada, executed a Deed of Donation9 transferring to petitioner Verona
Pada-Kilario, their respective shares as co-owners of Cadastral Lot No. 5581.

On February 12, 1996, petitioner spouses filed their Answer averring that the northern portion of
Cadastral Lot No. 5581 had already been donated to them by the heirs of Amador Pada. They
contended that the extra-judicial partition of the estate of Jacinto Pada executed in 1951 was
invalid and ineffectual since no special power of attorney was executed by either Marciano,
Amador or Higino in favor of their respective children who represented them in the extra-judicial
partition. Moreover, it was effectuated only through a private document that was never
registered in the office of the Registrar of Deeds of Leyte.

The Municipal Circuit Trial Court rendered judgment in favor of petitioner spouses. It made the
following findings:

After a careful study of the evidence submitted by both parties, the court finds that the
evidence adduced by plaintiff failed to establish his ownership over . . . Cadastral Lot No.
5581 . . . while defendants has [sic] successfully proved by preponderance of evidence
that said property is still under a community of ownership among the heirs of the late
Jacinto Pada who died intestate. If there was some truth that Marciano Pada and
Ananias Pada has [sic] been adjudicated jointly of [sic] the above-described residential
property . . . as their share of the inheritance on the basis of the alleged extra judicial
settlement, how come that since 1951, the date of partition, the share of the late
Marciano Pada was not transferred in the name of his heirs, one of them Maria Pada-
Pavo and still remain [sic] in the name of Jacinto Pada up to the present while the part
pertaining to the share of Ananias Pada was easily transferred in the name of his heirs .
. ..

The alleged extra judicial settlement was made in private writing and the genuineness
and due execution of said document was assailed as doubtful and it appears that most
of the heirs were not participants and signatories of said settlement, and there was lack
of special power of attorney to [sic] those who claimed to have represented their co-heirs
in the participation [sic] and signing of the said extra judicial statement.

Defendants were already occupying the northern portion of the above-described


property long before the sale of said property on November 17, 1993 was executed
between Maria Pada-Pavo, as vendor and the plaintiff, as vendee. They are in
possession of said portion of the above-described property since the year 1960 with the
consent of some of the heirs of Jacinto Pada and up to the [sic] present some of the
heirs of Jacinto Pada has [sic] donated . . . their share of [sic] the above-described
property to them, virtually converting defendants' standing as co-owners of the land
under controversy. Thus, defendants as co-owners became the undivided owners of the
whole estate . . . . As co-owners of . . . Cadastral Lot No. 5581 . . . their possession in
the northern portion is being [sic] lawful.10

From the foregoing decision, private respondent appealed to the Regional Trial Court. On
November 6, 1997, it rendered a judgment of reversal. It held:

. . . [T]he said conveyances executed by Juanita Pada and Maria Pada Pavo were never
questioned or assailed by their co-heirs for more than 40 years, thereby lending
credence on [sic] the fact that the two vendors were indeed legal and lawful owners of
properties ceded or sold. . . . At any rate, granting that the co-heirs of Juanita Pada and
Maria Pada Pavo have some interests on the very lot assigned to Marciano and
Ananias, nevertheless, said interests had long been sadly lost by prescription, if not
laches or estoppel.

It is true that an action for partition does not prescribe, as a general rule, but this doctrine
of imprescriptibility cannot be invoked when one of the heirs possessed the property as
an owner and for a period sufficient to acquire it by prescription because from the
moment one of the co-heirs claim [sic] that he is the absolute owner and denies the rest
their share of the community property, the question then involved is no longer one for
partition but of ownership. . . . Since [sic] 1951 up to 1993 covers a period of 42 long
years. Clearly, whatever right some of the co-heirs may have, was long extinguished by
laches, estoppel or prescription.

xxx xxx xxx

. . . [T]he deed of donation executed by the Heirs of Amador Pada, a brother of Marciano
Pada, took place only during the inception of the case or after the lapse of more than 40
years reckoned from the time the extrajudicial partition was made in 1951. Therefore,
said donation is illegal and invalid [sic] the donors, among others, were absolutely bereft
of any right in donating the very property in question.11

The dispositive portion of the decision of the Regional Trial Court reads as follows:

WHEREFORE, a judgment is hereby rendered, reversing the judgment earlier


promulgated by the Municipal Circuit Trial Court of Matalom, Leyte, [sic] consequently,
defendants-appellees are hereby ordered:

1. To vacate the premises in issue and return peaceful possession to the appellant,
being the lawful possessor in concept of owner;

2. To remove their house at their expense unless appellant exercises the option of
acquiring the same, in which case the pertinent provisions of the New Civil Code has to
be applied;

3. Ordering the defendants-appellees to pay monthly rental for their occupancy and use
of the portion of the land in question in the sum of P100.00 commencing on June 26,
1995 when the case was filed and until the termination of the present case;

4. Ordering the defendants to pay to the appellant the sum of P5,000.00 as moral
damages and the further sum of P5,000.00 as attorney's fees;

5. Taxing defendants to pay the costs of suit.12

Petitioners filed in the Court of Appeals a petition for review of the foregoing decision of the
Regional Trial Court.

On May 20, 1998, respondent Court of Appeals rendered judgment dismissing said petition. It
explained:

Well-settled is the rule that in an ejectment suit, the only issue is possession de facto or
physical or material possession and not de jure. Hence, even if the question of
ownership is raised in the pleadings, the court may pass upon such issue but only to
determine the question of possession, specially if the former is inseparably linked with
the latter. It cannot dispose with finality the issue of ownership, such issue being inutile
in an ejectment suit except to throw light on the question of possession . . . .

Private respondent Silverio Pada anchors his claim to the portion of the land possessed
by petitioners on the Deed of Sale executed in his favor by vendor Maria Pada-Pavo, a
daughter of Marciano, son of Jacinto Pada who was the registered owner of the subject
lot. The right of vendee Maria Pada to sell the property was derived from the extra-
judicial partition executed in May 1951 among the heirs of Jacinto Pada, which was
written in a Bisayan dialect signed by the heirs, wherein the subject land was
adjudicated to Marciano, Maria Pavo's father, and Ananias Pada. Although the
authenticity and genuineness of the extra-judicial partition is now being questioned by
the heirs of Amador Pada, no action was ever previously filed in court to question the
validity of such partition.1âwphi1.nêt

Notably, petitioners in their petition admitted among the antecedent facts that Maria
Pavo is one of the co-owners of the property originally owned by Jacinto Pada . . . and
that the disputed lot was adjudicated to Marciano (father of Maria Pavo) and Ananias,
and upon the death of Marciano and Ananias, their heirs took possession of said lot, i.e.
Maria Pavo the vendor for Marciano's share and Juanita for Ananias' share . . . .
Moreover, petitioners do not dispute the findings of the respondent court that during the
cadastral survey of Matalom, Leyte, the share of Maria Pada Pavo was denominated as
Lot No. 5581, while the share of Juanita Pada was denominated as Lot No. 6047, and
that both Maria Pada Pavo and Juanita were in possession of their respective hereditary
shares. Further, petitioners in their Answer admitted that they have been occupying a
portion of Lot No. 5581, now in dispute without paying any rental owing to the liberality of
the plaintiff . . . . Petitioners cannot now impugn the aforestated extrajudicial partition
executed by the heirs in 1951. As owner and possessor of the disputed property, Maria
Pada, and her vendee, private respondent, is entitled to possession. A voluntary division
of the estate of the deceased by the heirs among themselves is conclusive and confers
upon said heirs exclusive ownership of the respective portions assigned to them . . ..

The equally belated donation of a portion of the property in dispute made by the heirs of
Amador Pada, namely, Concordia, Esperanza and Angelito, in favor of petitioner Verona
Pada is a futile attempt to confer upon the latter the status of co-owner, since the donors
had no interest nor right to transfer. . . . This gesture appears to be a mere afterthought
to help petitioners to prolong their stay in the premises. Furthermore, the respondent
court correctly pointed out that the equitable principle of laches and estoppel come into
play due to the donors' failure to assert their claims and alleged ownership for more than
forty (40) years . . . . Accordingly, private respondent was subrogated to the rights of the
vendor over Lot No. 5581 which include [sic] the portion occupied by petitioners.13

Petitioner spouses filed a Motion for Reconsideration of the foregoing decision.

On June 16, 1998, respondent Court of Appeals issued a Resolution denying said motion.

Hence this petition raising the following issues:

I.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT


PETITIONERS, AS CO-OWNERS, CANNOT BE EJECTED FROM THE PREMISES
CONSIDERING THAT THE HEIRS OF JACINTO PADA DONATED TO THEM THEIR
UNDIVIDED INTEREST IN THE PROPERTY IN DISPUTE.

II.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT MARIA
PADA SOLD WAS HER UNDIVIDED SHARE IN THE PROPERTY IN DISPUTE.

III.

WHETHER OR NOT THE PETITIONERS ARE BUILDERS IN GOOD FAITH.14

There is no merit to the instant petition.

First. We hold that the extrajudicial partition of the estate of Jacinto Pada among his heirs made
in 1951 is valid, albeit executed in an unregistered private document. No law requires partition
among heirs to be in writing and be registered in order to be valid.15 The requirement in Sec. 1,
Rule 74 of the Revised Rules of Court that a partition be put in a public document and
registered, has for its purpose the protection of creditors and the heirs themselves against tardy
claims.16 The object of registration is to serve as constructive notice to others. It follows then that
the intrinsic validity of partition not executed with the prescribed formalities is not undermined
when no creditors are involved.17 Without creditors to take into consideration, it is competent for
the heirs of an estate to enter into an agreement for distribution thereof in a manner and upon a
plan different from those provided by the rules from which, in the first place, nothing can be
inferred that a writing or other formality is essential for the partition to be valid.18 The partition of
inherited property need not be embodied in a public document so as to be effective as regards
the heirs that participated therein.19 The requirement of Article 1358 of the Civil Code that acts
which have for their object the creation, transmission, modification or extinguishment of real
rights over immovable property, must appear in a public instrument, is only for convenience,
non-compliance with which does not affect the validity or enforceability of the acts of the parties
as among themselves.20 And neither does the Statute of Frauds under Article 1403 of the New
Civil Code apply because partition among heirs is not legally deemed a conveyance of real
property, considering that it involves not a transfer of property from one to the other but rather, a
confirmation or ratification of title or right of property that an heir is renouncing in favor of
another heir who accepts and receives the inheritance.21 The 1951 extrajudicial partition of
Jacinto Pada's estate being legal and effective as among his heirs, Juanita and Maria Pada
validly transferred their ownership rights over Cadastral Lot No. 5581 to Engr. Paderes and
private respondent, respectively.22

Second. The extrajudicial partition which the heirs of Jacinto Pada executed voluntarily and
spontaneously in 1951 has produced a legal status.23 When they discussed and agreed on the
division of the estate Jacinto Pada, it is presumed that they did so in furtherance of their mutual
interests. As such, their division is conclusive, unless and until it is shown that there were debts
existing against the estate which had not been paid.24 No showing, however, has been made of
any unpaid charges against the estate of Jacinto Pada. Thus, there is no reason why the heirs
should not be bound by their voluntary acts.

The belated act of Concordia, Esperanza and Angelito, who are the heirs of Amador Pada, of
donating the subject property to petitioners after forty four (44) years of never having disputed
the validity of the 1951 extrajudicial partition that allocated the subject property to Marciano and
Ananias, produced no legal effect. In the said partition, what was allocated to Amador Pada was
not the subject property which was a parcel of residential land in Sto. Nino, Matalom, Leyte, but
rather, one-half of a parcel of coconut land in the interior of Sto. Nino St., Sabang, Matalom,
Leyte and one-half of a parcel of rice land in Itum, Sta. Fe, Matalom, Leyte. The donation made
by his heirs to petitioners of the subject property, thus, is void for they were not the owners
thereof. At any rate it is too late in the day for the heirs of Amador Pada to repudiate the legal
effects of the 1951 extrajudicial partition as prescription and laches have equally set in.

Third. Petitioners are estopped from impugning the extrajudicial partition executed by the heirs
of Jacinto Pada after explicitly admitting in their Answer that they had been occupying the
subject property since 1960 without ever paying any rental as they only relied on the liberality
and tolerance of the Pada family.25 Their admissions are evidence of a high order and bind them
insofar as the character of their possession of the subject property is concerned.

Considering that petitioners were in possession of the subject property by sheer tolerance of its
owners, they knew that their occupation of the premises may be terminated any time. Persons
who occupy the land of another at the latter's tolerance or permission, without any contract
between them, is necessarily bound by an implied promise that they will vacate the same upon
demand, failing in which a summary action for ejectment is the proper remedy against
them.26 Thus, they cannot be considered possessors nor builders in good faith. It is well-settled
that both Article 44827 and Article 54628 of the New Civil Code which allow full reimbursement of
useful improvements and retention of the premises until reimbursement is made, apply only to a
possessor in good faith, i.e., one who builds on land with the belief that he is the owner
thereof.29 Verily, persons whose occupation of a realty is by sheer tolerance of its owners are
not possessors in good faith. Neither did the promise of Concordia, Esperanza and Angelito
Pada that they were going to donate the premises to petitioners convert them into builders in
good faith for at the time the improvements were built on the premises, such promise was not
yet fulfilled, i.e., it was a mere expectancy of ownership that may or may not be realized.30 More
importantly, even as that promise was fulfilled, the donation is void for Concordia, Esperanza
and Angelito Pada were not the owners of Cadastral Lot No. 5581. As such, petitioners cannot
be said to be entitled to the value of the improvements that they built on the said lot.

WHEREFORE, the petition for review is HEREBY DENIED.

Costs against petitioners.

SO ORDERED.
G.R. No. L-25359 September 28, 1968

ARADA LUMUNGO, JUHURI DAWA, ET AL., petitioners,


vs.
ASAAD USMAN, JOSE ANGELES and DOMINGA USMAN, ET AL., respondents.

Dominador Sobreviñas for petitioners.


Marciano Almario for respondents.

CONCEPCION, C.J.:

Review on certiorari of a decision of the Court of Appeals, on appeal from a decision of the
Court of First Instance of Sulu in Civil Cases Nos. 155 and 156 of said court, both instituted by
plaintiffs herein, Arada Lumungo (deceased), substituted by her heirs, Juhuri Dawa, Kayajuja,
Sadatul, Sarapatul, Jaramatul, Alma, Kalukasa and Vicente, all surnamed Juhuri to recover the
possession of lot No. 871 of the Siasi Cadastre, in the first case, and in the second, of lots Nos.
892, 893, 894 and 1121 of the same cadastre. The defendants in case No. 155 are Asaad
Usman, Akmadul and Hada, whereas those in case No. 156 are Asaad Usman, Fatima
Angeles, Hadjaratul Julkanain, Inkiran and Sitti Haridja, who were subsequently joined by
Dominga Usman and Jose Angeles, as defendants-intervenors.

After a joint trial of the two (2) cases, the Court of First Instance of Sulu rendered a decision, the
dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered declaring plaintiffs to have a better right to


the possession of Lots Nos. 892, 893, 894, 1121 and 871, Siasi and Lapak Cadastral
Survey, located at Lapak, Siasi, Sulu and described in Transfer Certificates of Title Nos.
T-419, T-422, T-420 and T-421 and Original Certificate of Title No. 8023. The
defendants are ordered to vacate said lots in favor of the plaintiffs if they have not
already done so.

On the other hand, the plaintiffs are ordered to reimburse to the defendant-intervenor,
JOSE ANGELES, the sum of P4,500.00 representing the value of the 3,000 coconut
trees introduced by him and his predecessors in interest on Lots 892, 893 and 894.
Should plaintiffs fail to do so within ninety (90) days from the date this decision becomes
final, the three lots shall be ordered sold at public auction, the proceeds of which shall be
applied to the P4,500.00 herein adjudged to Jose Angeles, and the balance to be
delivered to the plaintiffs.

Both parties appealed from this decision to the Court of Appeals, but, later, the defendants
withdrew their appeal, which, accordingly, was dismissed. Thus the only question left for
determination by the Court of Appeals was plaintiffs' appeal from the trial court's decision,
insofar as it sentenced them to pay P4,500.00 to intervenor Jose Angeles. After appropriate
proceedings, the Court of Appeals reduced this amount to P2,500.00 and affirmed the decision
of the Court of First Instance in all other respects, with costs against defendants-intervenors.
The case is now before us upon petition for review on certiorari filed by the plaintiffs.

The pertinent facts are set forth in the decision of the trial court, which were adopted in that of
the Court of Appeals, from which we quote:

It ... appears that, having allegedly collaborated with the enemy during the Japanese
Occupation of Sulu, Datu Idiris Amilhussin was arrested and detained when the
American Liberation Forces came to Sulu in the year 1945. On March 1, 1946, Datu
Idiris was prosecuted for Treason before the People's Court, docketed as Criminal Case
No. 1334 in said Court. Justice of the Peace Asaad Usman of Siasi and his wife
Dominga Usman, became interested in Lots Nos. 892, 893, 894, 1121 and 871.
Jamasali Usman, brother of Atty. Asaad Usman, also became interested in Lot No.
1226(?). Datu Idiris was desperately in need of money to pay his attorney's fees and the
premium on his bailbond. He sent his wife to Jamasali for money. Jamasali proposed to
buy Lot No. 1227(?). Upon the execution of a Pacto de Retro sale (Exhibit "DDD"),
Jamasali gave Datu Idiris partial payments of the P3,000.00 mentioned in the document.
Sometime in the year 1946, Atty. Usman visited Datu Idiris in the Provincial jail and
promised to help him in his case and to secure his bailbond for his temporary liberty. But
Atty. Usman asked Datu Idiris to sell to his wife, Dominga Miranda Usman, the five lots
in question. Datu Idiris agreed.

Through the help of Atty. Usman, the bailbond of Datu Idiris was perfected.
Consequently, on January 11, 1947, he was released from the Provincial Jail. True to his
word, on March 14, 1947, Datu Idiris executed an agreement with Dominga Usman
(Exhibit "33"). He also caused Datu Amirul Amilhussin, brother of Datu Idiris, to sign a
similar document, being one of the co-owners of said lots (Exh. "34"). Upon execution of
the agreement, Dominga Usman paid Datu Idiris P300.00; subsequently, Atty. Usman
paid him P500.00 and P10.00. Thus, Datu Idiris received all in all from the spouses,
P810.00 in consideration of the tenor stated in the document, Exhibit "33". In the
meantime, Atty. Usman took possession of the five lots in question and cultivated the
same.

As the whole amount of P3,000.00 mentioned in the sale of Pacto de Retro executed by
Datu Idiris in favor of Jamasali Usman was not fully paid, Datu Idiris upon his being
released from confinement, demanded from Jamasali to complete payment. He also
demanded from Atty. Usman the payment of the balance of the purchase price of the
lots described in Exhibit "33". After Datu Idiris had been repeatedly refused said
payments by both Jamasali and Atty. Usman, he became exasperated. He wrote two
complaints, one to the Secretary of Justice, dated June 15, 1946, and the other, to the
President of the Philippines, dated March 8, 1948, complaining against Justice of the
Peace Asaad Usman and Jamasali Usman. After filing these complaints, Justice of the
Peace Usman immediately caused the revocation of the bailbond of Datu Idiris before
the People's Court. On March 31, 1948, he was rearrested and committed to the
Provincial Jail again. A serious misunderstanding developed between Datu Idiris on one
hand and Atty. Usman and Jamasali Usman on the other. Several complaints for murder
were caused to be filed before the Court of Justice of the Peace Usman against Datu
Idiris. In the meantime, Atty. Usman wrote letters of demand upon Datu Idiris asking him
to produce the titles to the above five lots to enable him to have a sufficient deed of sale
conveying the said five lots in favor of his wife. Datu Idiris on the other hand, had been
demanding from Atty. Usman to pay the balance of the purchase price of the land.
Despite those mutual demands, no one complied therewith. On December 10, 1951,
Datu Idiris proposed, thru Atty. Flor, to call off the deal, stated in documents, Exhibits
"33" and "34", promising to return the P810.00 which he received from the spouses.
Dominga Usman and Atty. Usman agreed to call off the deal. Datu Idiris however, never
paid the P810.00. Despite this. Dominga Usman and Atty. Usman never went to Court to
file an action to compel Datu Idiris either to comply with his obligation to execute and
deliver a good and sufficient deed conveying titles to the five lots in question, or to pay
back the P810.00. What Dominga Usman did when Datu Idiris failed to pay her the
P810.00 was to sell lots 892, 893 and 894 to Jose Angeles for P1,000.00. Jose Angeles,
upon taking possession of the land, planted same with coconuts, which, together with
those already planted by Dominga Usman, numbered about 3,000, most of which are
now fruit-bearing.

On Feb. 2, 1962, Datu Idiris filed a civil complaint against Atty. Asaad Usman for recovery of
possession of the five lots in question which was docketed as Civil Case No. 87 of this Court.
Atty. Usman, instead of informing the Court that he and his wife had the legal right to possess
those lots by virtue of the agreement had between Datu Idiris and his wife embodied in Exhibit
"33", manifested in open Court on September 26, 1952, that he was not interested in the
posession or ownership of the land, and that he did not buy the land from Datu Idiris. So, on
said date, this Court dictated an order as follows:

"In Open Court, when this case was called for hearing, the defendant Attorney Asaad
Usman manifested that he does not claim ownership nor possession to the two parcels
of land described in paragraph 2 of the complaint of the plaintiff. Thereupon, the plaintiff
(moved) the Court to enter judgment, to which motion the defendant interposed no
objection. Such being the case, the Court has no alternative but to enter judgment as it
is hereby entered in favor of the plaintiff Datu Idiris Amilhussin, and against the
defendant — declaring the plaintiff the owner and possessor of the two parcels of land
above mentioned, and inasmuch as the defendant is not in possession of the land, the
Court finds it unnecessary to enter an order ejecting the said defendant from the two
parcels of land, without prejudice to any claim of any other third party, without
pronouncement as to costs.

On the other hand, the defendant moved for the dismissal of his counterclaim. The Court
orders the dismissal of the same, also without pronouncement as to cost."1awphîl.nèt

Upon the promulgation of the above-quoted judgment, Datu Idiris, who was badly in need of
money, went around, offering to sell the land to another. Spouses Juhuri Dawa and Arada
Lumungo being interested in acquiring those lots, asked Atty. Dominador Sobreviñas to verify if
they could buy the same. Atty. Sobreviñas went to the Office of the Register of Deeds and found
no annotation of encumbrances on the Original Certificates of Title of the five lots.
Besides, since the Court had already adjudged in the above-quoted order that Atty. Usman did
not have any claim of possession or ownership over the land, and that he did not buy the land
from Datu Idiris, Atty. Sobreviñas advised his clients that they may buy the lots. Accordingly, a
deed of sale, Exhibits "L" to "L-2", was executed. Upon presentation of this deed of sale to the
Register of Deeds, Original Certificates of Title Nos. 8986, 8123, 8087 and 8122 were cancelled
and in lieu thereof, Transfer Certificates of Title Nos. T-419, T-420, T-422, and T-421 were
issued in the names of the plaintiffs. Plaintiffs took possession of the property, but they were
allegedly driven from the land. About three years ago, the defendants left Lots Nos. 892, 893,
894 and 1121. Plaintiffs took possession thereof. The defendants are still in possession of Lot
No. 871.1

Defendants maintained in the Court of Appeals that the sale made by Datu Idiris Amilhussin to
plaintiffs Arada Lumungo and Juhuri Dawa, on September 30, 1952, is null and void because
the lots thus sold had previously been conveyed by Datu Idiris and Datu Amirul Amilhussin to
intervenor Dominga Usman, wife of defendant Asaad Usman, and because the sale to said
plaintiffs was not approved by the provincial governor of Sulu, as required by the Administrative
Code of Mindanao and Sulu. The Court of Appeals overruled these objections upon the ground
that the sale to Dominga Usman "did not materialize" and was "called off" by mutual agreement
of the vendors and the vendee, and that said lack of approval by the provincial governor is a
defense available to the contracting parties only, not to the defendants herein who are not
parties to said transaction. Then the Court of Appeals went on to say:

Upon the other hand, it is to be noted that when intervenor Dominga Usman who
claimed to have purchased the lots in question from one of the original owners, sold and
transferred her alleged ownership over the same to her co-intervenor Jose Angeles, the
latter made the purchase with the knowledge that the property subject matter of the sale
was already in dispute by and between herein defendants, one of whom is the husband
of intervener Dominga Usman, on the one hand, and herein plaintiffs on the other.
Nevertheless, as well stated by the court a quo, equity should come in to protect the
rights of intervenor Jose Angeles who introduced some improvements on three of the
lots subject-matter of the litigation, namely, lots Nos. 892, 893 and 894.

The Court found for a fact that around 3,000 coconut trees were planted on those lots
aforementioned, some of them already fruit-bearing. It appears from the records that not
all, but a portion, of the 3,000 were planted by intervenor Jose Angeles. The value
placed by the lower court of P1.50 per fruit-bearing coconut tree is reasonable enough,
inasmuch as the lower court was in a better position to make the assessment, it being
more closely in contact with the conditions and circumstances of the locality. We are not
prepared to disturb such finding for lack of evidence to warrant such an action on our
part.

IN VIEW OF THE FOREGOING CONSIDERATIONS, with the only modification that the
amount of indemnity should be reduced from P4,500.00 to P2,500.00, the rest of the
judgment appealed from is hereby affirmed with costs against defendants-intervenors.2
The only issue posed by plaintiffs' petition for review is whether or not Jose Angeles is entitled
to reimbursement for the coconut trees planted by him on the property in litigation. In this
connection, it should be noted that said trees are improvements, not "necessary expenses of
preservation," which a builder, planter or sower in bad faith may recover under Arts. 452 and
546, first paragraph, of the Civil Code.

Upon the other hand, the Court of Appeals found as a fact that when Dominga Usman sold and
transferred her rights in and to the property in question to Jose Angeles "the latter made the
purchase with the knowledge that the property subject matter of the sale was already in dispute
by and between herein defendants, one of whom is the husband of intervenor Dominga Usman,
on the one hand, and herein plaintiffs on the other." Angeles was, therefore, aware of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title to the property in
question, which was an easy matter for him to ascertain, said property being registered under
the Torrens System. 3

Indeed, Jose Angeles is a nephew of defendant Asaad Usman, and the controversy between
the latter and Datu Idiris was a matter of public knowledge, for Usman was a justice of the
peace, and Datu Idiris had filed charges against him, as such, with the Department of Justice
and the Office of the President, to which Usman countered by causing the bail bond of Datu
Idiris to be cancelled and his corresponding reincarceration, as well as the filing of complaints
for murder against him. Besides, on February 2, 1952, or several months prior to the sale to
Angeles on September 30, 1952, Datu Idiris had filed Civil Case No. 87 of the Court of First
Instance of Sulu against Asaad Usman to recover the lots in question, and the latter stated in
that case, on September 26, 1952, or four (4) days before the aforementioned sale, that he was
not interested in either the possession or the ownership of said lots and that he had not bought
the same from the former. It may not be amiss to note, also, that at the time of the alleged sale
in his favor, Jose Angeles was a law student; that, in fact, on August 9, 1957, he entered his
appearance as counsel for the defendants, in collaboration with Asaad Usman; and that the
consideration for said sale, involving a land of 46 hectares, was only P1,000.

In short, the foregoing facts, and the above-quoted findings of both the trial court and the Court
of Appeals, leave no room for doubt that Jose Angeles was a purchaser and a builder in bad
faith. 4 The provision applicable to this case is, accordingly, Article 449 of the Civil Code, which
provides that, "(h)e who builds, plants or sows in bad faith on the land of another, loses what is
built, planted or sown without right to indemnity."

Obviously, the alleged equity in favor of Jose Angeles, on which the lower courts have relied,
cannot prevail over the aforementioned express statutory provision to the contrary, 5 apart from
the fact that he who seeks equity must come with clean hands. 6

WHEREFORE, the decision of the Court of Appeals should be as it is hereby modified by


eliminating therefrom the contested award of P2,500.00 in favor of Jose Angeles, and, thus
modified, said decision is hereby affirmed in all other respects, with the costs. It is so ordered.
G.R. No. L-2017 November 24, 1906

THE MUNICIPALITY OF OAS, plaintiff-appellee,


vs.
BARTOLOME ROA, defendant-appellant.

Del-Pan, Ortigas and Fisher, for appellant.


Enrique Llopiz for appellee.

WILLARD, J.:

The plaintiff brought this action for the recovery of a tract of land in the pueblo of Oas, claiming
that it was a part of the public square of said town. The defendant in his answer alleged that he
was the owner of the property. Judgment was rendered in favor of the plaintiff and the
defendant has brought the case here by bill of exceptions.

As we look at the case, the only question involved is one of fact. Was the property in question a
part of the public square of the town of Oas? The testimony upon this point in favor of the
plaintiff consisted of statements made by witnesses to the effect that this land had always been
a part of the public square, and of certain resolutions adopted by the principalia of the pueblo
reciting the same fact, the most important of these being the minutes of the meeting of the 27th
of February, 1892. In that document it is expressly stated that this land was bought in 1832 by
the then parish priest for the benefit of the pueblo. It recites various proceedings taken
thereafter in connection with this ownership, including among them an order of the corregidor of
Nueva Caceres prohibiting the erection of houses upon the land by reason of the fact above
recited — namely, that the land belonged to the pueblo. This resolution terminated with an order
to the occupant of the building then standing upon the property that he should not repair it. The
defendant signed this resolution.

It further appears that the same building was almost entirely destroyed by a baguio on the 13th
and 14th of May, 1893, and that the authorities of the puebo ordered the complete demolition
thereof. The resolution of the 31st of May, 1893, declared that the then owner of the building,
Jose Castillo, had no right to reconstruct it because it was situated upon land which did not
belong to him. This resolution was also signed by the defendant.

The evidence on the part of the defendant tends to show that in 1876 Juana Ricarte and Juana
Riquiza sold the land in question to Juan Roco, and that on the 17th day of December, 1894,
Jose Castillo sold it to the defendant. No deed of conveyance from Juan Roco to Jose Castillo
was presented in evidence, but Castillo, testifying as a witness, said that he had bought the
property by verbal contract from Roco, his father-in-law. The defendant, after his purchase in
1894, procured a possessory of information which was allowed by an order of the justice of the
peace of Oas on the 19th day of January, 1895, and recorded in the Registry of Property on the
28th of March of the same year.

In this state of the evidence, we can not say that the proof is plainly and manifestly against the
decision of the court below. Unless it is so, the finding of fact made by that court can not be
reversed. (De la Rama vs. De la Rama, 201 U. S., 303.)

The two statements signed by Roa, one in 1892 and the other in 1893, are competent evidence
against him. They are admissions by him to the effect that at that time the pueblo was the owner
of the property in question. They are, of course, not conclusive against him. He was entitled to,
and did present evidence to overcome the effect of these admissions. The evidence does not
make out a case of estoppel against him. (sec. 333, par. 1, Code of Civil Procedure.)

The admissibility of these statements made by Roa do not rest upon section 278 of the Code of
Civil Procedure, which relates to declarations or admissions made by persons not a party to the
suit, but it rests upon the principle that when the defendant in a suit has himself made an
admission of any fact pertinent to issue involved, it can be received against him.
This action was commenced on the 17th of December, 1902. There is no evidence of any
adverse occupation of this land for thirty years, consequently the extraordinary period of
prescription does not apply. The defendant can not rely upon the ordinary period of prescription
of ten years because he was not a holder in good faith. He knew at that time of his purchase in
1894, and had so stated in writing, that the pueblo was the owner of the property. So that, even
if the statute of limitations ran against a municipality in reference to a public square, it could not
avail the defendant in this case.

It appears that Roa has constructed upon the property, and that there now stands thereon, a
substantial building. As early as 1852 this land had been used by the municipality constructed
thereon buildings for the storage of property of the State, quarters for the cuadrilleros, and
others of a like character. It therefore had ceased to be property used by the public and had
become a part of the bienes patrimoniales of the pueblo. (Civil Code, arts. 341, 344.) To the
case are applicable those provisions of the Civil Code which relate to the construction by one
person of a building upon land belonging to another. Article 364 of the Civil Code is as follows:

Where there has been bad faith, not only on the part of the person who built, sowed, or
planted on another's land, but also on the part of the owner of the latter, the rights of
both shall be the same as if they had acted in good faith.

Bad faith on the part of the owner is understood whenever the act has been executed in
his presence with his knowledge and tolerance and without objection.

The defendant constructed the building in bad faith for, as we have said, he had knowledge of
the fact that his grantor was not the owner thereof. There was a bad faith also on the part of the
plaintiff in accordance with the express provisions of article 364 since it allowed Roa to
construct the building without any opposition on its part and to so occupy it for eight years. The
rights of the parties must, therefore, be determined as if they both had acted in good faith. Their
rights in such cases are governed by article 361 of the Civil Code, which is as follows:

The owner of the land on which the building, sowing, or planting is done in good faith
shall have a right to appropriate as his own the work, sowing, or planting after the
indemnity mentioned in articles 453 and 454, or, to oblige the person who has built or
planted, to pay him the value of the land and to force the person who sowed to pay the
proper rent.

The judgment of the court below is so modified as to declare that the plaintiff is the owner of the
land and that it has the option of buying the building thereon, which is the property of the
defendant, or of selling to him the land on which it stands. The plaintiff is entitled to recover the
costs of both instances.1âwphil.net

After the expiration of twenty days let judgment be entered in accordance herewith and at the
proper time thereafter let the record be remanded to the court below for proper action. So
ordered.
G.R. No. L-54526 August 25, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,


vs.
THE COURT OF APPEALS and THE CITY OF DAGUPAN, respondents.

Miguel T. Caguioa, Ireneo B. Orlino and Manuel D. Victorio for respondent City of Dagupan.

FERIA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed
the decision of the then Court of First Instance of Pangasinan. The lower court had declared
respondent City of Dagupan the lawful owner of the Dagupan Waterworks System and held that
the National Waterworks and Sewerage Authority, now petitioner Metropolitan Waterworks and
Sewerage System, was a possessor in bad faith and hence not entitled to indemnity for the
useful improvements it had introduced.

Before proceeding further, it may be necessary to invite attention to the common error of joining
the court (be it a Regional Trial Court, the Intermediate Appellate Court, or the Sandiganbayan)
as a party respondent in an appeal by certiorari to this Court under Rule 45 of the Rules of
Court. The only parties in an appeal by certiorari are the appellant as petitioner and the appellee
as respondent. (Cf. Elks Club vs. Rovira, 80 Phil. 272) The court which rendered the judgment
appealed from is not a party in said appeal. It is in the special civil action of certiorari under
Section 5 of Rule 65 of the Rules of Court where the court or judge is required to be joined as
party defendant or respondent. The joinder of the Intermediate Appellate Court or the
Sandiganbayan as party respondent in an appeal by certiorari is necessary in cases where the
petitioner-appellant claims that said court acted without or in excess of its jurisdiction or with
grave abuse of discretion. An example of this is a case where the petitioner-appellant claims
that the Intermediate Appellate Court or the Sandiganbayan acted with grave abuse of
discretion in making its findings of fact, thus justifying the review by this court of said findings of
fact. (See the exceptions to the rule of conclusiveness of the findings of fact of the Intermediate
Appellate Court or the Sandiganbayan in the case of Sacay vs. Sandiganbayan, G.R. Nos.
66497-98, July 10, 1986.) In such a case, the petition for review on certiorari under Rule 45 of
the Rules of Court is at the same time a petition for certiorari under Rule 65, and the joinder of
the Intermediate Appellate Court or the Sandiganbayan becomes necessary. (Cf. Lianga
Lumber Company vs. Lianga Timber Co., Inc., March 31, 1977, 76 SCRA 197).

The City of Dagupan (hereinafter referred to as the CITY) filed a complaint against the former
National Waterworks and Sewerage Authority (hereinafter referred to as the NAWASA), now the
Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS), for
recovery of the ownership and possession of the Dagupan Waterworks System. NAWASA
interposed as one of its special defenses R.A. 1383 which vested upon it the ownership,
possession and control of all waterworks systems throughout the Philippines and as one of its
counterclaims the reimbursement of the expenses it had incurred for necessary and useful
improvements amounting to P255,000.00. Judgment was rendered by the trial court in favor of
the CITY on the basis of a stipulation of facts. The trial court found NAWASA to be a possessor
in bad faith and hence not entitled to the reimbursement claimed by it. NAWASA appealed to
the then Court of Appeals and argued in its lone assignment of error that the CITY should have
been held liable for the amortization of the balance of the loan secured by NAWASA for the
improvement of the Dagupan Waterworks System. The appellate court affirmed the judgment of
the trial court and ruled as follows:

However, as already found above, these useful expenses were made in utter bad
faith for they were instituted after the complaint was filed and after numerous
Supreme Court decisions were promulgated declaring unconstitutional the taking
by NAWASA of the patrimonial waterworks systems of cities, municipalities and
provinces without just compensation.
Under Article 546 of the New Civil Code cited by the appellant, it is clear that a
builder or a possessor in bad faith is not entitled to indemnity for any useful
improvement on the premises. (Santos vs. Mojica, L-25450, Jan. 31, 1969). In
fact, he is not entitled to any right regarding the useful expenses (II Paras (1971)
387). He shall not have any right whatsoever. Consequently, the owner shall be
entitled to all of the useful improvements without any obligation on his part
(Jurado, Civil Law Reviewer (1974) 223).

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


raising the sole issue of whether or not it has the right to remove all the useful improvements
introduced by NAWASA to the Dagupan Waterworks System, notwithstanding the fact that
NAWASA was found to be a possessor in bad faith. In support of its claim for removal of said
useful improvements, MWSS argues that the pertinent laws on the subject, particularly Articles
546, 547 and 549 of the Civil Code of the Philippines, do not definitely settle the question of
whether a possessor in bad faith has the right to remove useful improvements. To bolster its
claim MWSS further cites the decisions in the cases of Mindanao Academy, Inc. vs. Yap (13
SCRA 190) and Carbonell vs. Court of Appeals (69 SCRA 99).

The CITY in its brief questions the raising of the issue of the removal of useful improvements for
the first time in this Court, inasmuch as it was not raised in the trial court, much less assigned as
an error before the then Court of Appeals. The CITY further argues that petitioner, as a
possessor in bad faith, has absolutely no right to the useful improvements; that the rulings in the
cases cited by petitioner are not applicable to the case at bar; that even assuming that petitioner
has the right to remove the useful improvements, such improvements were not actually
identified, and hence a rehearing would be required which is improper at this stage of the
proceedings; and finally, that such improvements, even if they could be identified, could not be
separated without causing substantial injury or damage to the Dagupan Waterworks System.

The procedural objection of the CITY is technically correct. NAWASA should have alleged its
additional counterclaim in the alternative-for the reimbursement of the expenses it had incurred
for necessary and useful improvements or for the removal of all the useful improvements it had
introduced.

Petitioner, however, argues that although such issue of removal was never pleaded as a
counterclaim nevertheless it was joined with the implied consent of the CITY, because the latter
never filed a counter-manifestation or objection to petitioner's manifestation wherein it stated
that the improvements were separable from the system, and quotes the first part of Sec. 5 of
Rule 10 of the Rules of Court to support its contention. Said provision reads as follows:

SEC. 5. Amendment to conform to or authorize presentation of evidence.-When


issues not raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause
them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure so to amend
does not affect the result of the trial of these issues. ...

This argument is untenable because the above-quoted provision is premised on the fact that
evidence had been introduced on an issue not raised by the pleadings without any objection
thereto being raised by the adverse party. In the case at bar, no evidence whatsoever had been
introduced by petitioner on the issue of removability of the improvements and the case was
decided on a stipulation of facts. Consequently, the pleadings could not be deemed amended to
conform to the evidence.

However, We shall overlook this procedural defect and rule on the main issue raised in this
appeal, to wit: Does a possessor in bad faith have the right to remove useful improvements?
The answer is clearly in the negative. Recognized authorities on the subject are agreed on this
point. *

Article 449 of the Civil Code of the Philippines provides that "he who builds, plants or sows in
bad faith on the land of another, loses what is built, planted or sown without right to indemnity."
As a builder in bad faith, NAWASA lost whatever useful improvements it had made without right
to indemnity (Santos vs. Mojica, Jan. 31, 1969, 26 SCRA 703).

Moreover, under Article 546 of said code, only a possessor in good faith shall be refunded for
useful expenses with the right of retention until reimbursed; and under Article 547 thereof, only a
possessor in good faith may remove useful improvements if this can be done without damage to
the principal thing and if the person who recovers the possession does not exercise the option
of reimbursing the useful expenses. The right given a possessor in bad faith is to remove
improvements applies only to improvements for pure luxury or mere pleasure, provided the thing
suffers no injury thereby and the lawful possessor does not prefer to retain them by paying the
value they have at the time he enters into possession (Article 549, Id.).

The decision in the case of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) cited by petitioner
does not support its stand. On the contrary, this Court ruled in said case that "if the defendant
constructed a new building, as he alleges, he cannot recover its value because the construction
was done after the filing of the action for annulment, thus rendering him a builder in bad faith
who is denied by law any right of reimbursement." What this Court allowed appellant Yap to
remove were the equipment, books, furniture and fixtures brought in by him, because they were
outside of the scope of the judgment and may be retained by him.

Neither may the decision in the case of Carbonell vs. Court of Appeals (69 SCRA 99), also cited
by petitioner, be invoked to modify the clear provisions of the Civil Code of the Philippines that a
possessor in bad faith is not entitled to reimbursement of useful expenses or to removal of
useful improvements.

In said case, both the trial court and the Court of Appeals found that respondents Infantes were
possessors in good faith. On appeal, the First Division of this Court reversed the decision of the
Court of Appeals and declared petitioner Carbonell to have the superior right to the land in
question. On the question of whether or not respondents Infantes were possessors in good faith
four Members ruled that they were not, but as a matter of equity allowed them to remove the
useful improvements they had introduced on the land. Justice Teehankee (now Chief Justice)
concurred on the same premise as the dissenting opinion of Justice Munoz Palma that both the
conflicting buyers of the real property in question, namely petitioner Carbonell as the first buyer
and respondents Infantes as the second buyer, may be deemed purchasers in good faith at the
respective dates of their purchase. Justice Munoz Palma dissented on the ground that since
both purchasers were undoubtedly in good faith, respondents Infantes' prior registration of the
sale in good faith entitled them to the ownership of the land. Inasmuch as only four Members
concurred in ruling that respondents Infantes were possessors in bad faith and two Members
ruled that they were possessors in good faith said decision does not establish a precedent.
Moreover, the equitable consideration present in said case are not present in the case at bar.

WHEREFORE, the decision of the appellate court is affirmed with costs against petitioner.

SO ORDERED.
G.R. No. L-12812 September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee,


vs.
MARIA GARCIA TIMBANG, ET AL., defendants.

------------------------------

G.R. No. L-12813 September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs.


MARIA GARICA TIMBANG, plaintiff-appellant,
vs.
MARIA GERVACIO BLAS, defendant-appellee.

De Guzman and Fernandez for appellee Filipinas Colleges, Inc.


San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.
Nicanor S. Sison for appellee Maria Gervacio Blas.

BARRERA, J.:

This is an appeal taken from an order of the Court of First Instance of Manila dated May 10,
1957 (a) declaring the Sheriff's certificate of sale covering a school building sold at public
auction null and void unless within 15 days from notice of said order the successful bidders,
defendants-appellants spouses Maria Garcia Timbang and Marcelino Timbang, shall pay to,
appellee Maria Gervacio Blas directly or through the Sheriff of Manila the sum of P5,750.00 that
the spouses Timbang had bid for the building at the Sheriff's sale; (b) declaring the other
appellee Filipinas Colleges, Inc. owner of 24,500/3,285,934 undivided interest in Lot No. 2-a
covered by certificate of tile No 45970, on which the building sold in the auction sale is situated;
and (c) ordering the sale in public auction of the said undivided interest of the Filipinas Colleges,
Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the judgment in favor of
appellee Blas and against Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum of
P5,750.00 mentioned in (a) above.

The order appealed from is the result of three motions filed in the court a quo in the course of
the execution of a final judgment of the Court of Appeals rendered in 2 cases appealed to it in
which the spouses Timbang, the Filipinas Colleges, Inc., and Maria Gervacio Blas were the
parties. IN that judgment of the Court of Appeals, the respective rights of the litigants have been
adjudicated as follows:1âwphïl.nêt

(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses
Timbang in and to lot No. 2-a mentioned above and in consideration thereof, Filipinas
Colleges, Inc., was ordered to pay the spouses Timbang the amount of P15,807.90 plus
such other amounts which said spouses might have paid or had to pay after February,
1953, to Hoskins and Co. Inc., agent of the Urban Estates, Inc., original vendor of the lot.
Filipinas Colleges, Inc. original vendor of the total amount with the court within 90 days
after the decision shall have become final.

(2) Maria Gervacio Blas was declared to be a builder in good faith of the school building
constructed on the lot in question and entitled to be paid the amount of P19,000.00 for
the same. Filipinas Colleges, Inc., purchaser of the said building was ordered to deliver
to Blas stock certificate (Exh. C) for 108 shares of Filipinas Colleges, Inc. with a par
value of P10,800.00 and to pay Blas the sum of P8,200.00 of the house.

(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after
liquidation was fixed at P32,859.34, within the 90-day period set by the court, Filipinas
Colleges would lose all its rights to the land and the spouses Timbang would then
become the owners thereof. In that eventuality, the Timbangs would make known to the
court their option under Art. 448 of the Civil Code whether they would appropriate the
building in question, in which even they would have to pay Filipinas Colleges, Inc. the
sum of P19,000.00, or would compel the latter to acquire the land and pay the price
thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time
prescribed, the spouses Timbang, in compliance with the judgment of the Court of Appeals, on
September 28, 1956, made known to the court their decision that they had chosen not of
appropriate the building but to compel Filipinas Colleges, Inc., for the payment of the sum of
P32,859,34. The motion having been granted, a writ of execution was issued on January 8,
1957.

On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of
P8,200.00 representing the unpaid portion of the price of the house sold to Filipinas Colleges,
Inc. Over the object of the Timbangs, the court grated the motion and the corresponding writ of
execution was issued on January 30, 1957, date of the granting of the motion for execution,
Blas through counsel, sent a letter to the Sheriff of Manila advising him of her preferential claim
or lien on the house to satisfy the unpaid balance of the purchase price thereof under Article
2242 of the Civil Code, and to withhold from the proceed of the auction sale the sum of
P8,200.00. Levy having been made on the house in virtue of the writs of execution, the Sheriff
of Manila on March 5, 1957, sold the building in public auction in favor of the spouses Timbang,
as the highest bidders, in the amount of P5,750.00. Personal properties of Filipinas Colleges,
Inc. were also auctioned for P245.00 in favor of the spouses Timbang.

As a result of these actuation, three motion were subsequently filed before the lower court:

(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be
ordered to pay and deliver to her the sum of P5,750.00 representing the proceeds of the
auction sale of the building of Filipinas Colleges, Inc. over which she has a lien of
P8,200.00 for the unpaid balance of the purchase price thereof;.

(2) Also by the appellee Bals, praying that there being still two unsatisfied executions,
one for the sum of P32,859.34 in favor the land involved, Lot No. 2-a, be sold at public
auction; and (3) By Filipinas Colleges, Inc. praying that because its properties, the house
and some personal properties, have been auctioned for P5,750.00 and P245.00
respectively in favor of the Timbang spouses who applied the proceeds to the partial
payment of the sum of P32,859.34 value of the land, Lot No. 2-a, it (Filipinas Colleges,
Inc.) be declared part owner of said lot to the extent of the total amount realized from the
execution sale of its properties.1âwphïl.nêt

The Timbang spouses presented their opposition to each and all of these motion. After due
hearing the lower court rendered its resolution in the manner indicated at the beginning of this
decision, from which the Timbangs alone have appealed.

In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount
of their bid (P5,750.00) made at the public auction, appellants' counsel has presented a novel,
albeit ingenious, argument. It is contended that because the builder in good faith has failed to
pay the price of the land after the owners thereof exercised their option under Article 448 of the
Civil Code, the builder lost his right of retention provided in Article 546 and by operation of
Article 445, the appellants as owners of the land automatically became the owners ipso facto,
the execution sale of the house in their favor was superfluous. Consequently, they are not
bound to make good their bid of P5,750.00 as that would be to make goods to pay for their own
property. By the same token, Blas claim for preference on account of the unpaid balance of the
purchase price of the house does not apply because preference applies only with respect to the
property of the debtor, and the Timbangs, owners of the house, are not the debtors of Blas.

This Court cannot accept this oversimplification of appellants' position. Article 448 and 546 of
the Civil Code defining the right of the parties in case a person in good faith builds, sows or
plants on the land of another, respectively provides:

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

ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has reimbursed therefor.

Useful expenses shall be refunded only to th